The jobs are coming, the jobs are coming!
This market wrap could be summed up in two words, "jobs report." The monthly non-farm payrolls report is due out tomorrow before the market open and you would think the fate of the entire world rested on the outcome. Traders are worried that the jobs report tomorrow morning will be a blowout and the Fed will pull the trigger on a rate increase. Some even feel they won't wait for the next FOMC meeting on Jun-29th. The estimate for new jobs is 225,000. Any number close to that should bring on a relief rally and because of the severe anguish going into the report it may take a huge number to cause a sell off. I have seen blowouts in the past generate no reaction but with the Fed changing their bias to increase rates it could be the spark needed.
In the things can't get worse dept, Alice Rivlin, the vice chair of the Fed committee, announced she was resigning after the close today and would not take part in the Jun FOMC rate meeting. Alice is seen as a dove on the committee and favored pro-growth policies instead of tighter rates. With Alice out of the picture it leaves 10 of the 12 governors to vote on the rates. The 12th position is currently unfilled. While the stated reason for the resignation was "to spend more time with her family", there are some who said they saw it coming. Other Fed heads had been seen as distancing themselves from her recently and feel there could have been some disagreements among the group as to direction. In reality the decision comes down to Mr. Greenspan and whether or not he wants to fight the market at this time. The Fed group has been dishing out Fed speak in volumes the last two weeks and some feel that any rate increase at the June meeting would be the most advertised increase in history. The market has easily already factored in a +.25% increase but the way it is delivered and the tone of the bias will determine market direction after an announcement.
Another signpost on the Fed highway is the recently scheduled testimony by Greenspan to the joint economic committee in Congress. He basically has an open invitation to speak whenever he deems it necessary. Rumor has it that Mr. G. just called up and requested June-17th as a meeting date. This date is relative since it is the day after the next CPI report. If the Fed policy was going to change it would be an ideal opportunity for the Fed chief to explain his reasons to Congress and the world. For the ever present conspiracy theorists this now represents "I" day. Even if he did not announce the actual increase, his speech would provide the justifications. If you disagree with the conspiracy theory, I have only one warning. Alan Greenspan NEVER does anything unplanned. Trust me.
The good news today was the market. In the face of what market economists are calling a sure jobs blowout, the DOW held 10,600 and even bounced strongly off this magic number at the close to post a great +86 point gain. Three days this week we broke under 10,500 yet today we held over 10,600 with a potential disaster only hours away. This is a victory in my book. The advance/decline line was technically positive today with 268 more advancers then decliners. As you can see from the chart the technical halt of the A/D slide of the last two weeks is a small victory but one sorely needed.
The Nasdaq also won a victory of sorts today by holding off a late day flurry of sellers and holding the critical 2400 level. The average was in trouble from the start this morning and only traded in positive territory twice before going negative on the backs of the sinking Internet stocks. The Nasdaq held to single digit losses until the last hour of trading when sellers fled from Internets in droves.
The Internet sector is regarded as the most likely to suffer if the interest rates are raised. Personally I think this is crazy at these levels but of course I don't have a corner on irrational thought in these matters. What I think we are seeing here is pull back to the support levels from the drops on each of the last two Wednesdays. If you look at the Ebay chart here you can see what I mean. Most of the charts on Internet stocks look exactly like this. It is not a stock fundamental thing but a sector pull back. If we do get a mild jobs report I feel the Internet sector will be the first and the strongest to react from it's heavily oversold position.
Another sector I think is primed and ready to rock is the broker sector. After the Merrill Lynch announcement last Tuesday the carnage has been severe and some of these stocks are way oversold. Even Merrill finished flat today at -.75.
I was more convinced earlier in the day but EGRP gave back some of it's gains at the close. Still EGRP at -.88, NDB +.38, MWD -.25 and SCH -0- would lead me to believe the selling is over. EGRP would be my preference because of their size, market position, stock price and new Telebank relationship. Their new E*Offering site for IPO's is now up and running and is sure to help their exposure. They have a dual purpose investor draw as a broker and an Internet play. The way to play it is through Telebank (TBFC). With Etrade paying 2.1 shares of EGRP for every TBFC share that means a $1 rise in EGRP will cause a $2.10 rise in TBFC. Leverage is what it is all about.
You can return the NoDoz to the store because the NYSE decided to day to delay the extended hours until the second quarter of 2000. They are going to wait until after Y2K and make the transition at the same time they go to decimals for prices.
A side note on a past play. Dell computer has traded as low as $31.38 this week. A far cry from their recent high of $55. Since their fall from grace Dell has lost $55 billion in market cap. $55 BILLION !! Their PE is still a 57 and they are still regarded as the best player in their field. When they were positive earlier today I thought they might have found a bottom but the sellers are still lurking in force. Wait for the next earnings cycle and I would bet on $45 again. On the down side some analysts are projecting a $28-29 price soon. I do not see it. If you are a long term stock holder this may be the best shot you get for a long time.
Today was a tough one for emotional trading. Several traders here in the office, including me, wanted desperately to be in the market today. Of course, we also view that as suicidal in light of the pending jobs report but we still fought the battle. It does not matter what the number is, IF you are out of the market. If you are in the market it matters a lot. As professional traders we need to only trade when we the majority of factors line up in our favor. Holding over an important economic event is like holding over earnings, sudden death. Why gamble with your capital when you do not have to? Patience is very hard but also very rewarding.
The S&P futures are down -2.00 from the close on the Rivlin resignation but the die has already been cast for tomorrow. The numbers are etched in stone. We just have to wait for the jobs report to be made public to see our fate.
Have a great weekend!