Why did the market soar +200 points the day before a jobs report?
If you can tell us and do it routinely we have a job opening you can fill. There is no rational reason for the big jump in the market today. Analysts are scratching their heads in amazement. The market was widely expected to simply mark time until after the jobs report because of the expected jump in new jobs could be very hazardous to interest rates.
The February Jobs Report has a history of beating estimates strongly. The bond market is holding its breath since 7 of the last 8 years the report has created havoc. The average intraday bond change on the report day has been over 1.5 points. The worst was a full 3 point drop. You can imagine the consternation in the bond pits today as the stock market was running wild. What did stock investors know that they did not? The official estimate for new jobs is 218,000. The unofficial estimates say jobs could go as high as 350,000. The real indicator is the unemployment number forecast to be 4.3%. Any real drop in the unemployment number could bring a swift hike in interest rates. The concept here is not enough prospective employees promotes a bidding war for the few available. Higher employee costs fuel inflation. You know, the dreaded "I" word. Alan Greenspan would be forced to hike rates immediately to put more people out of work. I know this sounds backwards to what common sense would dictate but we have said many times, "if you want common sense, don't look on Wall Street".
Some analysts pointed to the big Dell/IBM deal as the catalyst for the rally but there was really no big benefit to either. The deal will span seven years. IBM will sell components to DELL at what we would assume was a bargain rate. DELL, which has always bought components on the bleeding edge of the low price window, could not have done much better at IBM than they were already doing. So where's the beef? IBM traded as high as $177 but fell back to close at $170 as others asked the same question. DELL traded as high as 84.75 but dropped back to only 81.88 at the close.
After the close today there were two major developments. Intel announced a $2 billion deal to acquire Level One Communications and increase it's networking business. This would be Intel's biggest deal so far, and reflects the growing importance of products that help connect computer networks. Level One makes chips with built-in communications features that are used in networking gear. Level One had dropped -$5.25 in the days business after an analyst from Adam Harkness said some negative things about LEVL earlier in the day. Oops! LEVL was up over +$20 in after hours trading.
The second development was an earnings warning by CompUSA. Same song, second verse from the previous warnings this week. Unexpectedly slow PC sales would cause a breakeven quarter where analysts had expected a +.21 gain. Ouch! Don't bother thinking about a put, it is only an $8 stock. Investors are evidently overlooking this continuing tech nightmare and focusing on the Intel/LEVL deal. Futures are up +$4.00 at 7:30.
Grab the NoDoz, online after-hours trading is on the way! While not like the real thing and certainly not available everywhere, Morgan Stanley Dean Whitter has announced they will offer an evening trading session for their customers. They will be using a new electronic exchange called IndivEx. You can bet there will be some trials and pitfalls but this is the forerunner of things to come. The other majors, Etrade, Schwab, Ameritrade, etc will not let Morgan get ahead in the race for your commission dollars. Etrade is already gearing up their own electronic exchange as well.
February retail sales beat expectations again as further proof that the economy is running strong. There was also great demand for full-priced spring goods which would indicate that this quarter will also be good.
The markets fate tomorrow will of course ride on the Jobs Report. At this point I am not sure the report could be bearish enough to impact the stock market in a big way. We have taken all the bad new in stride and continued to hold just under our recent highs so really good news should not be too hot to handle. Yes, if big Al raises rates, we could see a dip but our 60 day outlook is still bullish. I believe 10,000 is not out of reach yet.
Of note to the trend traders, we again have tripped the upper limit of our recent trading range. The close today at 9467 has broken the 9400 barrier and it looks like we may test the 9600 ceiling from last week again tomorrow. If we do then be very cautious of a failed rally possibility at the 9600 level. Remember, a big move in either direction is normally followed by a big move in the opposite direction. Hopefully we will break out of this range to the upside an start a new rally. If not then be ready to trigger those sells and wait for another cycle. If we do rally and close above 9600 I think that could be the start of the next big move. We are at a key moment in the market. Only time will tell.
Sell too soon!
Several weeks ago when we were having load problems on our Windows NT4.0 servers I told you we were in contact every day with Microsoft trying to get answers to their problems. Surprise! Microsoft published a whitepaper on their findings and resolutions today on the web. Nice to know that as guinea pigs we at least helped others to solve these same problems. For all those developers who emailed us with tips, tricks and possible solutions, here is the address of their findings.