The great rate debate continues.
Good job guys! I left for Seattle after doing the newsletter last Tuesday night and the Dow had just bounced off 10550. I left the market in your hands for five trading days and you added +567 points. Great job! Where would you like me to go next? Sorry, no four letter words ending in "L".
Seriously, I am amazed at the market jump. The PPI last week was weak and I could see a nice bump from that. The CPI this morning was exactly as expected and I could see another relief rally today but +567 points from last Tuesday's low? The advance decline line also reversed although not strongly.
Actually there are several factors that helped the markets recover. The first of course was the PPI last week. The PPI measures inflation at the wholesale or producer level. Inflation should show up here first but the unexpected drop in the PPI knocked the wind out of the Fed's inflation case. The markets, which had already priced in TWO rate increases, rejoiced and went on a spending spree.
Secondly, as you can see by the first chart, the Dow held support at 10,550 on Aug-10th. This level had not been seen since June-24th and we did see a double bottom retest on Aug-5th and Aug-10th. This holding of support put a bottom under the market which had been severely beaten up in recent weeks.
Thirdly, we were due for a technical correction. The drop from the July-16th high of 11,250 was pretty steep with only one pause on July-27/28. The Dow had been range bound for about two weeks between 10825 and 10600. The PPI along with the hold at successful support gave us a springboard for the relief rally.
There is still trouble on the horizon in the form of the Aug-24th Fed meeting and rate hike but I think the worst is over. With the rate hike already priced into the market we may get through the meeting without any major disaster.
The tech sector got some major help today after the close when Dell Computer beat the street by +$.02. The press from Dell was very positive and there was some claims that Y2K was not having as big an impact as previously expected. Unit sales were up a whopping +55% with revenue up to $6.14 bln from $4.33 bln last year. Web sales have soared to $30 mln per day. I can remember just two years ago when they were bragging about passing $1 mln per day. The street should be happy with Dell's numbers and techs should enjoy a boost. Dell was up +$1.88 in after hours trading.
Hewlett-Packard however was the goat for the day. Investors hammered HWP for only beating the street by +$.05 when it was discovered that .03 was "unusual interest income" and not normal operations. HWP dropped -5.75 and joined the list of "glad we did not hold over earnings" stocks.
Brokers got a boost today from Etrade which announced a deal with Instinet to offer after hours trading to their customers beginning in September. Etrade customers will be able to trade from 4:PM to 6:30 PM eastern time every day on both Nasdaq and NYSE stocks. The CEO was on CNBC after the close today and said this was only the first step and he expects 24 hr trading very soon.
Stocks got help from bonds again today with the yields closing at 6.01%. This is significantly better than the 6.26% from last Tuesday. The feeling in the bond market is that the Fed can't justify another increase in October based on the PPI/CPI numbers and bonds have seen their lows. We hope this is true but when it comes to building that wall of worry the bond traders are experts. I fear that the closer we get to next Tuesday's FOMC meeting the more worried they will get. We have had several reports recently that confirmed employment was still rising. However there is no sign of nationwide wage pressures. The Fed will be in a quandary but will probably err on the side of another rate increase after August just to be careful.
We have a double witching options expiration on Friday and that will also help hold the markets up. They will need help after gaining +567 points in only five trading days. Remember that nothing goes up or down in a straight line. The markets need to rest after any multi-day move. We did close right at the high for the day and that normally means another jump at the open.
I really enjoyed meeting the hundreds of subscribers at the Seattle Money Show and many of you had some good suggestions about how we could improve the newsletter. We have some great plans in the works and we know you will be excited. One of the announcements we will make in the next three weeks will be so incredible it will catapult you into the next level of trading. I spoke with some readers about it at the show and the level of interest was outstanding. You WILL NOT be disappointed!
Please, pick your entry points carefully.
Good Luck, Sell too soon.