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Market Wrap

Today, the color of money was blue. Big Blue!

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        4-21-99          High     Low     Volume   Advances Decline
DOW    10581.42 +132.87 10581.42 10420.77  919,157k  1,938   1,092
Nasdaq  2489.08 + 79.44  2489.84  2404.71 1125,400k  2,441   1,587 
S&P-100  676.68 + 14.60   676.68   659.09   Totals   4,379   2,679
S&P-500 1336.12 + 29.95  1336.12  1301.83            62.0%   38.0%
$RUT     426.57 + 11.23   426.57   415.34
$TRAN   3556.46 + 62.54  3572.55  3493.14
VIX       24.55 -  2.38    27.21    24.45
Put/Call Ratio      .44

Today, the color of money was blue. Big Blue!

...and on the 7th day, investors rejoiced! Intel kicked off the first quarter earnings season of 1999 on April 13th. Investors felt that all may not be kosher in techland when revenues were less than analysts had expected. The following day there was panic in the streets as the Nasdaq began its 5 day slide from 2600 to the mid 2300s.

And a painful slide it was! Traders began unloading tech stocks in favor of a revival in the cyclicals. Suddenly, P/E became important. Everything was value this and value that. Sector rotation was the cry of the day! Confusion reigned as traders, investors, and analysts all tried to grasp for a new leadership group since many did not put their faith in this cyclical rebound. Tech truebloods were painfully watching as old favorites were pounded and the darling internets were slaughtered.

Big name companies were warning! CPQ had warned of earnings weakness. KO had warned of earnings weakness. Yet the market remained divided. The Dow continued to climb as the cyclicals carried the slack for anything tech related. Even worse, technicians were baffled as the Russel 2000 began its own recovery while the advance/decline line was brought back from the dead.

The blood bath for the techs culminated in a 138 point drop a day before super Tuesday. The future looked bleak indeed on Monday afternoon.

Buy the dip? Yes we did! Like a well rehearsed play, traders stepped in as the hero in our moment of need and bought the dip. Most of us remained skeptical that Tuesday was merely a bounce from such a steep drop. However, better than expected earnings bolstered investor confidence overnight.

Earnings are the life force of the market and with about 50% of the S&P500 companies already reporting, the 2:1 margin of winners (who beat/matched estimates) versus the losers (those who did not) is fuel for what some say is a tired bull market. Tired or not, the market charged forward today as traders returned to the leadership groups they knew best. However, today, the rally truly was broad based. Sectors up today were: Drugs, on news of an upgrade from DLJ, Networking, Semiconductors, Telecom, Retail, Brokerages, even the several large Airlines did well in the face of rising oil prices and an upgrade from Jeffries & Co. for the oil drilling sector; and of course those darling Internets.

The leaders in the Dow 30 were: AXP +7.38, T +2.00, GE +4.25, HWP +3.75, and KO +2.31. The Big Five in the Nasdaq performed well as INTC jumped +1.88, CSCO added +6.38, WCOM rose +4.88, DELL gained +.25, but MSFT lagged behind -1.13 in post earnings depression.

Again, it was the earnings news that moved the markets. Recent reports from yesterday or today that were on the lips of many traders were: KO, who turned in $0.34 beating their lowered estimates of $0.33. XON turned in $0.47 beating estimates of $0.46 even though revenues were down. The recent rise in oil prices were too late to help Q1 numbers. High flyer, RNWK, also beat estimates of a loss of $0.03 with a loss of only $0.02. Plus they announced a 2:1 split (as we expected). Also notable was QCOM, who beat estimates of $.56 and last year's $.36 with $.82 this quarter.

So why should we rejoice? Because in seven trading days, from April 13th to April 21st, many of the big cap stocks traders love to play have gone from feast to famine and probably back to feast. For months we have been warning that if the advance/decline line did not improve it may become the critical flaw in our bull market armor. Technicians had been alarmed at how the long sustained rally continued to get narrower and narrower. Anyone doing market analysis could see that we needed the support to widen or we were in for a major crash. Now the Russel 2000 has been up for 9 out of the last 10 trading days (which presents a problem in and of itself). But don't get ahead of me here...

The tech sector was still vulnerable and after somewhat disappointing earnings reports from INTC, MSFT, SUNW, and CPQ we were still in a fragile state. Everyone was going to be looking to IBM (Big Blue) to give us new direction for the weary tech stocks. Even though IBM had beat estimates for the last 11 quarters, it seemed that each time they just squeaked by with share buybacks and the like. IBM's earnings report tonight was crucial for setting the tone for the remainder of this earnings season.

Thus, we waited, and Big Blue came through with shining colors! The estimates were for $1.41 over last year's $1.06. IBM turned in $1.55 crushing estimates by $0.14. That is a 42% jump! Big blue said revenues were up 15% to $20.38 billion (with a "b"), but more importantly their PC sales, a very intensely watched sector, were up about 50%.

Needless to say, this is great news for the tech stocks and traders couldn't get enough of IBM as the stock vaulted over 18 points in after hours trading (to around $189). Combine IBM's blowout earnings with positive market breadth on both exchanges (of 4379 advancers beating 2679 decliners) then add some very strong volume with both indexes closing at their highs for the day and sprinkle on some positive S&P futures (up as high as +4.90) and we have a pretty good recipe for a good day tomorrow.

Please accept my excitement for what it is...a short-term outlook for tomorrow and probably the rest of the week. We are still in the middle of earnings season. There are dozens of companies that report tomorrow (like: LU, NOKA, NSOL, UNPH, GTW, MCHP, SAPE, XLNX, MYG, SBUX, AVP, and AXP). While it is unlikely, if one of the major tech companies drops a bomb on us tomorrow, it very well could spoil our recipe. In essence, we still urge you to play with caution. Yes, the Dow is likely to set yet another record close, but we need to play intelligently.

Sell too soon!

asst. editor

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