Another Merger Monday, yet we Managed to Miss the Major Milestone.
The market enjoyed another merger Monday, yet we still missed Dow 10,000 on our 3rd swing at that milestone. We just hope it is not 3 strikes and you are out! Even though the Dow 10K party will have to wait, we did set a new record close above 9900. The S&P 500, not to be outdone, also set a new record close at 1307. The Nasdaq, after suffering last Friday, turned the tables on the bears and rallied almost 50 points to close above 2400 again at 2431. Still the focus was on the Dow as traders seemed to hold their breath when the index came within 30 points of this market's Holy Grail near the end of the day.
Fueling the market's morning rally was three new merger announcements. On the fore front, was news that Fleet Financial (FLT) was merging with BankBoston (BKB), the country's oldest commercial bank, in a deal worth $16 bln. A new merger in the energy sector has El Paso Energy Corp. (EPG), a natural gas company, buying Sonat Inc (SNT) for a total of $6 bln. Plus, Dupont (DD) announced that they would merge with Pioneer Hi-Bred Intl. Inc. (PHB) in an agreement valued near $7.7 bln. And all of this on the heels of Justice Dept. approval of AOL's buyout of Netscape for $4.2 bln just last Friday. We all know how the market loves a good merger to get everyone's morale going and we still missed 10,000 today.
So if mergers aren't enough, why not try some positive pre- announcements. This was certainly a factor in today's trading as both UAL and SCH both announced that they would beat the Street's estimates for next quarter. Actually, UAL (United Airlines), after raising their fares over the weekend, pre- warned that they would beat analysts estimates by 20% for the quarter and 20% for the year. They also said that traffic in Asia was picking up. Industry analysts felt that this may be a sign of a bottom in the depressed Pacific economies.
The airlines were quick to rally behind UAL as several other carriers also raised their fares. The sector was higher as a whole. But not so for the oil companies. Even though crude prices inched up another $.08 and word that Norway had agreed to cut 100,000 bbls of oil a day starting April 1st could not stop worries that OPEC might not deliver on their promises next week. The sector was down including CHV and XON, two of only nine Dow components that were lower today.
Schwab was the other strong pre-announcement today. The brokerage said they expected a record first quarter with earnings per share between $.31 to $.34 topping current estimates of $.26 by a nickel or more. SCH said that trading volume last month was 69% higher than February of last year. So while we have UAL, who closed +6.69, and SCH, who closed +3.94, both of which ignited their sectors to run even further and we still failed to hit Dow 10,000.
What else could we have done to spur the market higher? How about a rally in tech stocks. The Nasdaq quickly ran almost straight up this morning (to around 2413) as many of the big name tech stocks rebounded after Friday's 30 point loss. The four of the big five, WCOM, DELL, CSCO, MSFT, and INTC did well with MSFT leading +5.69 for the day and INTC the notable exception, down -.38. The Nasdaq traded sideways until the last hour of trading turned in a late day rally with the tech heavy index closing at the high for the day.
Once again it appeared to be the Internets leading the way. CMGI, an OIN favorite, surged 28.63 points on the news that it would be added to the Nasdaq 100 this Wednesday. The rest of the Internet sector soared on word that billionaire Paul Allen, of MSFT fame, said he plans to invest another $750 mln into GO2NET for a 54% controlling stake. He has plans to co-develop his cable operations with an Internet content site much like Athome is doing with Excite. Other standouts in the group were RNWK (+26.13) and NSOL (+43.00). So the market turns in a strong tech rally and we still fail to achieve Dow 10,000.
Does anyone sense a warning here? We have no doubt that the Dow index will pierce the elusive 10,000 mark. We want to ask "what happens afterwards?". It is entirely possible that we could run right through it. The market is alive and has a mind of its own. However, we are traders. We want to put the odds in our favor. Jim likes to say, "Only trade when it is profitable" [to do so].
We are very concerned about what is holding this market up. Sure we have to publish our obligatory comment on how terrible the advance/decline has been. But there is more. Since January 1st, 1999, eight Dow stocks have accounted for about 80% of the rise. Only 8 stocks! Today the Dow was lead higher by IBM +4.19, JPM +3.38, GE +2.63, JNJ +2.38, and MRK +.38 (the last three set new highs today). Currently, the Dow is up about 750 points in the last 7 trading days. Remember the fundamental rules about trading. The market moves in cycles. Three steps forward, two steps back. At this point it might be seven steps forward and 5 steps back. Why would you want to buy at the top? We talk about market breadth for a reason. Did you know that 3 out of the last 7 trading days, the positive market breadth has only been positive by about 1100 issues. Today's gain was made on negative breadth (combined total of NYSE and NASDAQ).
This might sound like I am coming on a bit strong. There are arguments for both a continued rally and a strong pullback. If you are a Dow theorist, then today was a good day. Traditional Dow theory claims that we can't have a sustained market rally without a rally in the Dow transports. Today's gain of 137 points was the largest point gain in the Dow transports since last October. Plus, the 30 year bond continues to slip and investors feel they can find a better return in equities than a 5.5% yield in bonds. Another factor is liquidity. Money has been flowing into the market from mutual funds and institutions. March alone has seen an influx of $16 bln which is greater than the entire month of January. All of these are positives.
However, from what we know of market cycles, we are primed for a consolidation. Our good friend mister Greenspan is scheduled to appear both tomorrow and Friday. What are the odds that if we hit 10,000 he might be pressured to cool the market some. It only takes one wrong word from his lips and all the euphoria will become a stampede.
Sorry for the doom and gloom. At the moment, all eyes are fixated on Dow 10,000. Despite the fact that the futures are down slightly, hitting the 5 digit milestone is a strong possibility tomorrow morning. What the markets do after that remains the question.
Good luck. I expect to see Dow 10,000 tomorrow.