We want to pump (clap). . .you up!
Like a scene from "Hans and Franz" on Saturday Night Live years ago, Investors are pumping the NASDAQ to another new record high. You can almost hear investors yelling in their best Arnold Schwarzenegger accent, "Come on Girly-man with your muscles so puny. . .let's see you do it again!" Of course, following six days of record closes, day seven should have exhausted NASDAQ into some profit taking, especially in light of Judge Jackson's finding of fact that Microsoft is a (mean-spirited, evil, ruthless, competition-smothering, predatory killer) monopolist. Traders were staring at MSFT's incoming comet prior to today's open that could have cratered the tech sector if not the market. Alas, the comet disintegrated in the atmosphere and the market got off one more repetition of an ever-increasing weight, as analysts and traders came to MSFT's and the market's defense. How long can it go on? We don't know for sure. However we can say the odds of this trend continuing diminish geometrically with each new record trading day. On only two occasions this year have we actually seen seven straight days of new records. Those periods were June 28 through July 6, and October 10 through October 18. In fact, according to discount broker, Charles Schwab and Company, the market hasn't given us eight consecutive highs in 1998 or 1999. The likelihood of a eighth day is really slim. That's not to say the market can't advance any further, but that it needs a day off.
As it turned out, Microsoft news was no big deal in today's trading of tech issues. While MSFT traded as low as $80 in Europe last night, $84.38 was the low at the open in the U.S market and remained the buzz all day in the pits and chat rooms. By noon, MSFT had found support at $87.50 and moved up to $90.75 in the afternoon, before falling back into the close at $89.94. Total loss on the day - $1.63. While this may seem insignificant in the big picture, this recovery came on 122 mln shares of volume - about 9% of the NASDAQ volume. That's 4.6 times its ADV with 3.8 bln shares in float and 5.16 bln outstanding. To frame this up, investors bid up MSFT's value by $30 BILLION from its low of the day! That's a huge market positive in our book.
Also benefiting from the supposed bad news were Microsoft rivals. Take a look at their score cards today: Red Hat software, +$18.06 at $104; Sun Micro, +$2.31 (+$6 at one point) at $112; Apple, +$8.06 at $96.38. For SUNW, and AAPL, theses are new records. You expect bad news from MSFT to rub off positively on the rivals in a zero sum gain where MSFT loses and the others steal its value. Not so. Looks like everybody benefits from the ruling as MSFT's loss is the others gain, leading to MSFT's recovery.
How was the NASDAQ overall? How 'bout another new record? It closed at 3143, up over 41 points. Total volume for the tenth day in a row was over 1 bln shares, with over 1.3 bln shares changing hands today. Considering MSFT, INTC, CSCO, DELL, and WCOM make up 40% of the NASDAQ 100, and each of these suffered a loss (except CSCO - +$1.88, probably in anticipation of earnings tomorrow), today's gain of 41 point happened in the other 60% of the index. Can you say "Internet"? Sure, we knew you could. Take a look at AMZN (an unfortunate entrant as a put play over the weekend - hopefully, you confirmed that the trade was not in your direction and avoided the play). On news that they would announce a new alliance in a press conference to be held tomorrow, it shot up $13.06. YHOO was up $13.75; AOL +$4.25; INKT +$5.31; CNET +$4.31; NSOL +$6.12; EBAY +$3.75; PCLN +$9.12. Look at customer relationship management companies too: KANA +$62.44 to $150.50 (!!); EPNY +$39.56 to $120; ALLR +$17 to $119.25; BBSW +$8.06 to $66; EGAN +$14 to $32. These are not misprints. B2B software also performed to similar levels. All told advancers squeaked past decliners 2101 to 1953. New highs remained strong against new lows by 211 to 85.
Need more? Even the Russell 2000 index closed up today indicating today's move was market wide.
Conversely, comprised of a greater percentage of financials than other indexes, the DJIA exhibited weakness from the start, moving down about 54 points this morning at 10,650. Then within the first hour and a half staged a rally to its high of the day 10,776, a 126-point recovery, but fell back into the close. Other than that, action was lackluster, as the DJIA closed up just 14 points at 10,718. 1697 decliners beat 1350 advancers, while 91 new lows bested 68 new highs. Volume? A measly (comparatively speaking) 806 mln shares. Careful, we're nearing that 10,800 resistance level again. With the PPI out Wednesday morning, it's unlikely we'll see any volume helping the market to break down that door tomorrow. Not helping matters here is that pesky bond rate that has fallen quite a ways in a hurry. As it nears 6% again, investors are starting to notice the previous big move down and wonder if there shouldn't be some backing and filling, or at least caution, in front of the PPI. We don't expect any big moves until the PPI has been fed to bond traders like a sardine to a seal. Then it will be time to jump through the market hoop for the next feeding on November 16, the occurrence of the FOMC meeting.
There are other events taking place this week that will affect our trading. First Wal-Mart will report earnings tomorrow. If figures are low, that may lead investors to believe the economy is slowing on the consumer end, which would be good for the inflation outlook. On the other hand, great earnings would likely benefit just WMT and perhaps the retail sector. No matter what, WMT earnings aren't likely to rock the market. However, CSCO (est = $0.23) reports tomorrow after the bell, then DELL (est = $0.18) on Thursday. These two have the potential to rock the tech world, and thus the rest of the market. Also, the American Electronics Assn. Began its conference in San Diego today, which will last through Thursday, and is typically good for tech stocks. Of course, don't forget about the PPI on Wednesday.
Just a brief note here to let you know of two new IPOs this week. Normally, we wouldn't mention them, but because of their size, they could have an enormous effect on liquidity. We refer here to UPS which will likely price 109 mln shares between $47-$49, sucking up $5.2 bln of investor cash if all goes well, and Charter Communications (about 150 mln at $17-$19 shares totaling $3.2 bln), a nationwide cable bandwidth service provider brought to you by Paul Allen of Microsoft fame. That's a total of $8.4 bln in liquidity these 2 issues could soak up. It could put a real damper on rising stock prices, at least temporarily.
So here's the lineup: for the NASDAQ, more records are statistically unlikely. However, given the strength shown by huge volume, an intraday selloff (or multi-day correction) is buyable AFTER you see the bounce, so long as sentiment remains positive. While the DJIA hasn't set any records lately, it too has some resistance at 10,800, which if it's going to happen, won't likely be broken until after the PPI figures are known and the bond traders get some backing and filling. The wild card for both markets is the PPI, which will affect interest rates, which affect profits, which affect stock prices. Remember Jim's entry strategies as the week unfolds. Target shooting is the key to a good entry and a profitable trade. Buying everything in site after 7 straight new highs (so you won't miss out) is NOT a good approach and assures loss of capital. Plan your trades, trade your plan, wait for the market to come to you, then sell too soon.