What's up with those markets? The divergence of the DOW and the NASDAQ markets today had a few investors scratching their heads as each went in a different direction. There was no big catalyst that caused today's movements, just a bunch of little things making small contributions, much like threads intertwining to make a rope.
In the saga of good, bad, and ugly, "ugly" drew first as McKesson announced a management shakeup by firing their Chairman, Charles McCall, and allowing their CEO and CFO to resign over accounting irregularities. MCK must now restate earnings, thus delaying issuance of their annual report. MCK lost $2.38 to close at $33.69. "Bad" manifested itself in the DOW as cyclicals, including gold, chemicals, aluminum, energy, healthcare, beverages, and aerospace took it on the chin, while investors piled into technology issues (more on that in a second).
Let's look at the good. The first announcement came from Lycos, who's stock price had been lagging since late May, that they are the new "hot-link" default to the Internet on IBM's Lotus Notes. LCOS tacked on $8.88 to close at $96.63. IBM, looking like no burned weenie either, smoked up $4 to a new all-time high of $124.75. Not to be outdone in the cookin' department, in a London Sunday Times article, Reuters Group was reported to be in negotiations with Yahoo! to provide Instinet quotes to Yahoo! viewers, a speculation that Yahoo! dismisses as rumor. While this helped draw interest to Yahoo!, the real Internet action was spread sector-wide, as technology in general took off like a rocket.
The technology heavy NASDAQ index surged today as the 5 generals led the charge. Check out these numbers: MSFT +$3.94, $88.94; INTC +$1.88, $55.81; CSCO +$3.75, $123.13; WCOM +$1.50, $96.75; and DELL +$2.25, $38.94. Testimony in Microsoft's DOJ case will wrap up this week, clearing some of the uncertainty surrounding the trial. MIT's Professor Smalacy, considered a star witness on behalf of MSFT, took the stand today to drive home the point that MSFT has greatly benefited the consumer. INTC gains came in a generally favorable semiconductor industry outlook - guess it's not as bad as analysts thought last week. CSCO undergoes a 2:1 split tonight and begins trading at its new price tomorrow. WCOM continues to enjoy the leadership position in a hot sector. Finally, DELL's Michael Dell received great press in Baron's over the weekend. DELL hasn't been at this level since it fell off a cliff in late May.
Internets, at least the top issues, are back to their old tricks of stellar daily gains, making daytraders rich (and poor) in the process. Volatility is still in place and not about to let up. The granddaddy of them all, AOL beamed up $3.38 today to $115.69, as they announced a $1.5 bln. investment in DIRECTV, a division of Hughes Aerospace (GMH). Anybody immediately recognize this as a way for AOL to solve the AT&T/cable TV access problem? Yep, other investors did too - just another example of the reason to bet on management and not just the technology when looking for strong performers. Other big gainers were Yahoo! (mentioned earlier), up $14.44; AMZN up $12.19; BCST up $11.25; DCLK up $7.62; EBAY up $5.88. The list goes on.
Here are today's final numbers. The DOW started down from the open, and by mid-day, had shaved 125 points to 10,755, a level that was tested 3 times in 2 hours. In typical triple bottom fashion, the cyclical-heavy index sprang back 75 points to end the day at 10,815 for a loss of only 39 points. Volume on the NYSE was again slow with about 680 mln. shares trading hands. Advancers beat decliners by an 8:7 ratio. . .not bad, but again remember the DOW is filled with cyclicals, which investors shunned today.
NASDAQ went the other direction. . .up! Here's the simple answer why: sector rotation in favor of technology, institutional buying of technology, sidelined money going back to work in technology, and short covering (in technology). Everyone heard of the saying, "go where the money is"? In short, the money is in technology. Anyway, NASDAQ, led by the generals noted above, marched up a very respectable 66 points, most of it in the latter half of the day. Advancers outshone decliners 22:17. Closing at 2630 with respectable volume of 908 mln. shares, don't look now, but we're 22 points away from a new index high!
Let us take this opportunity to offer some words of caution. With NASDAQ just 22 points away from it's all-time high, and big gains over the last 4 days, profit taking is likely to occur soon, perhaps as early as tomorrow if tech issues drive the assault on the record of 2652, then run out of steam. While it could easily break through and remain up for a couple more days, make sure to protect your profits. Some of you have a lot of it and you shouldn't give it back to Mr. Market. Within the Internet sector, some issues have risen 30%-50% off their lows since last week. Adding insult to injury, there are 19 new Internet issues going public this week that could divert traders' attention elsewhere and suck up some liquidity in the process. One more thing. . . this went overlooked last month, but if it ends up on CNBC for lack of any better headline, Internets will be hit hard. Here it is: Media Metrix will report Internet traffic and growth statistics tomorrow. March number of users was actually down when last reported. If new figures don't show a rise, or worse, go down, we may get a nasty (if only temporary) sell off in the sector. It may amount to nothing, but don't be greedy. As the Steve Miller Band says, "Go on. Take the money and run."
That said, the overall outlook is still good. Fund and retirement money is coming off the bench and getting put back to work. The Fed fears of an interest rate hike have waned, and there have been fewer earnings warnings going into this earnings season, where earnings, especially in technology are estimated to be stronger than last quarter. Also, there are no key reports due out this week. When everything seems great, it's time to check left field for the incoming ball about to bean the market runner stealing home (Japan, China, Brazil, 2 rate hikes, etc.). It's likely we'll be OK, just keep your eyes open.
As always, use stops to exit a losing play, ride the winners and sell too soon.