Incoming! Media coverage of Kosovo has been launched.
While the world watched NATO begin its air strike on Yugoslavia today, the markets drifted aimlessly for most of the trading session. That is until the attack began. Once the air strike was announced, the Dow quickly fell to its lows of the day (9625) before immediately rebounding to its high of the day (9703). The Nasdaq, on the hand, began a late day rally that ended near the high of the day.
After yesterday's earnings warnings and the subsequent fall in the market, the Dow appeared to be looking for leadership once again. The sentiment today appeared to be cautious as investors waited to see any reaction from the Kosovo entanglement.
Foreign markets were little help as most of Europe was lower in anticipation of the attack. However, Japan's NIKKEI index was sharply lower dropping over 500 points or 3.1% to 15515 as the profit taking continued. This drop is on top of yesterday's 360 point drop. Today's weakness in Japan prompted a 3% correction in Hong Kong as well.
The afternoon rally in the Nasdaq appeared to be fueled by bargain shoppers picking up big name tech stocks. The core four were all up sharply with MSFT +4.69, INTC +4.69, CSCO +4.13, DELL +2.81, also up was WCOM +2.38, SUNW +3.44, TLAB +4.56, and several of the Internets were up as well. The Nasdaq's 42 point gain is equivalent to a 210 point move in the Dow. Unfortunately, several analysts downplayed the recovery as a technical bounce from yesterday's sell off of 73 points (equivalent to 365 Dow points).
Unfazed from NATO's actions in Europe, American markets really seemed to be searching for a news story that might move them one way or the other. This morning Bill Gates was on the today show saying that he would love to settle MSFT's case with the DOJ. However, in other news, the court system was unsatisfied with MSFT's current settlement proposal. Whether MSFT was up on speculation of a settlement or enthusiasm for their split this Friday remains to be seen (my vote is on the split).
We did receive at least one tech earnings warnings today. Disk drive maker, Read-Rite (RDRT), said they would report with a Q1 loss. Their shares promptly fell 19% and one brokerage was quick to issue a downgrade. This pulled the whole disk drive sector down with EMC as the exception. EMC shot up $5 on word that they signed a multiyear deal with IBM to supply disk drives and share technology.
Also up today were the PC makers. In the news today, was word that there appeared to be a large chunk of insider selling in CPQ, GTW, and AAPL before there was any concern that PC sales might be slowing. While everything was done legally, investors and reporters thought this peculiar and voiced their opinions that maybe insiders knew something they weren't sharing. Yet despite this news, PC makers (Dell, GTW, CPQ, IBM, HWP, AAPL, and SUNW) were all higher at the close today. There remains a black cloud over the industry as many expect IBM and/or CPQ to issue an earnings warning.
Aside from Kosovo, market watchers were looking at the Durable goods report today. The street had been expecting some kind of drop off in February after such a strong January and December. However, they were surprised to see a 5% decline. This is the largest drop in the Durable goods report in seven years. For those that don't know, the Durable goods report shows the factory orders for big ticket items. The largest industry loss was in civilian aircraft. But, as one analysts noted, the decline was not only bigger than expected but the losses were broad based across many industries.
This is the last economic report to come out before the FED meets again next Tuesday (3/30). Interest rate bulls are happy to see the decline. Their hope is it might change the FED's bias from raising interest rates.
Another cheerleader for the bulls came out today, as Abbey Joseph Cohen, head of investment strategy at Goldman Sachs, revised her view of the markets future. Abbey said she felt that in spite of rising oil prices, the recent tech sector sell-off, and air strikes in Kosovo, that the domestic economy would charge ahead and inflation would remain tamed. Cohen also raised her year-end price targets for the Dow to 10,300 (from 9,850) and on the S&P 500 to 1,325 (from 1,275 to 1,300). She also added that many of the global economic conditions may have bottomed and overseas economies appear to be improving.
While we appreciate Abbey's optimism, most of us are trying to trade a shorter time frame than end of the year. With the Durable goods report out, investors will keep their eyes on Kosovo as we wait for the Fed meeting next week.
At the moment, no one expects them to raise interest rates now, but that is their current bias. For the rest of this week, traders will be looking at MWD. They announce earnings tomorrow after the close and remain a strong split candidate. They are substantially over their last split price and have plenty of shares to announce a 2:1 split. Even better, they have their shareholder meeting on April 9th. If they don't announce with earnings tomorrow, there is strong suspicion that they might announce a split at their April meeting. However, we still do not recommend holding over an earnings report since the risks out weigh the rewards.
Be patient. Don't let today's rally in the Nasdaq sucker you in tomorrow. We really need to see a bottom form before we can make any substantial moves upward. Whether we form a new bottom here in the 9600s (Dow) or do we continue further to 9400 (or even 9200) we don't know.
As Jim said earlier, there is a lot of money on the sidelines and the farther we slip the more tempting it is to jump in. For this week the focus will be on Yugoslavia while next week it will be the FED meeting.
Don't forget that we are still in earnings warning season and everyday could hide another bomb.
Play safe, sell too soon.