Right on schedule, United Parcel Service became the largest IPO today. It priced at $50 last night before opening in the secondary market at $65. The offering netted $5.47 billion dollars which allows the 92-year old parcel delivery company to take its place at the top of the record books. But this isn't because UPS needs the cash. In fact, they will be using the proceeds for future acquisitions and repurchasing some of their class A shares held by employees. UPS traded as high as $70.31 before closing at $67.25.
Did you wake up late? If so, you missed the big PPI sell-off. The Producer Price Index which was released before the market open today came in down 0.1% in October. This is compared to a 1.1% gain for the month of September. The core rate which excludes the volatile food and energy came in up 0.3%. So is that good? Well, economists had expected a 0.1% rise in both the PPI and the core rate. So it depends on how you looked at it. The PPI was under estimates but the core was above. Maybe because of the stellar market gains we have seen recently but traders initially frowned on the report. The 30-year bond opened lower with yield as high as 6.12% and the markets followed suit. Despite the Dow dropping by as much as 80 points early and the Nasdaq trading fractionally lower, it just didn't last. Within 30 minutes the Dow was back near even and the Nasdaq was powering higher. This optimism would abound for most of today's trading session. All the worrying I did in the first few minutes with my finger dangerously close to the sell button was for nothing. I could have slept in and never seen the dip.
If anything, it left traders scratching their heads over next week's FOMC meeting. The Fed meets on Tuesday, the 16th, which is now less than a week away. (No, we don't have a countdown clock similar to one CNBC used for the Microsoft verdict but it is something to keep in mind as you plan your trades). After today's mixed bag of numbers from the PPI, it makes you wonder if Alan and friends won't try to take back the last rate hike from a year ago. The expectations of an increase have diminished over the past two weeks but it is unclear numbers like these that leave the door open, even if only by crack. The suspense is building but we will have to wait and see.
Let's get back to the market. Why won't the Dow break above 10,750? This level has plagued us for 2 weeks while the tech- heavy Nasdaq is breaking more records than Microsoft breaks anti-trust laws. Today was evidence of another defeat on that resistance as we slide back down after yesterday's attempt to move through. The Dow closed today at 10597.74, down 19.58. That is right about in between today's high and low. All in all, it was another rather boring day for this index. It was the Nasdaq that caught fire once again. It traded as high as 3186 before settling back to finish at 3155.96 (a new closing high) up 30.92. This market knows only one thing right now...momentum. It's got it and isn't showing many signs of letting it go. If you can shrug off a higher core PPI rate, a falling treasury bond and rally late in the day after an afternoon of drifting lower then it must be momentum in your corner. It also doesn't hurt to have CSCO report good numbers last evening and run up $5.25 today since it is one of the Nasdaq heavyweights.
So any guess as to why the strong sentiment and momentum? Here is one thought. Take a look at the chart below. Notice what the Nasdaq did from mid-October last year to late February of this year. Do you remember last year buying your favorite stocks in the $30s and selling them two weeks later in the $50s only to watch them go to $100? So when taking into consideration that we may be embarking on a two or three month trend, some investors would question selling stocks now. There is never a sure thing, just something to ponder.
Here is my favorite indicator to watch lately. Volume! What is going on here? You can't tell me that there aren't big players buying here with the kind of gains and volume that we've seen lately. The Dow Industrials traded 989 billion shares today and the Nasdaq traded 1.430 billion. That is remarkable! It is also likely that even more buyers will step to the plate if the Fed will remove itself from the picture. Unfortunately, that never really happens but I think it is safe to say a neutral bias towards rates going forward would be enough. Advancers beat Decliners 21 to 19 on the Nasdaq but lost 16 to 14 on the NYSE. The new highs on the big board came in at 64 versus 85 new lows.
Let's check the action for Wednesday. We mentioned CSCO had a good day, gaining over 7%. This helped the networking sector to a positive day. We also got strength in the Box makers ahead of Dell's earnings Thursday after the close. DELL +0.88, AAPL +1.81, IBM +3.38, GTW +3.88 and even CPQ managed to end +1.50. The Oils and Airlines were both up today too (that's rare).
Liberate Technologies was the high point gainer for the day by adding $40.13. They announced the deployment of the world's first digital, two-way interactive cable TV service with Cable and Wireless Communications. Dain Rauscher Wessels jumped on the bandwagon by initiating LBRT with a Buy rating and a $94 price target. Investors liked the Buy rating but ignored the price target as LBRT closed today at $118.63.
Shares of NextCard rocketed by 29% after announcing a deal with Amazon.com. Under the $150 million dollar deal, NextCard will be the exclusive credit card provider for 5 years. The deal will be worth $30 million a year for Amazon.com. Shares of AMZN finished at $72.13, up $1.31 while NXCD ended up $9.38 to $41.
On the earnings front, Kmart reported third quarter earnings of $0.09 cents a share compared to the a First Call estimate of $0.10 cents. KM posted sales of $8.06 billion, up from $7.64 billion but margins and same store sales were weak. The stock did close up $0.25 to $9.81. Intimate Brands also reported earnings today. They earned $0.15 which was in line with estimates. IBI shot out of the gates but drifted lower for the remainder of the day, finishing up $0.38. FD also reported and netted $0.56 against a First Call expectation of $0.53. Federated moved up $1.44, to $43.06.
Tomorrow may be a relatively slow day. The bond market is closed in observance of Veteran's Day. The stock market will be open but you can bet volume will cool down. There is no economic news scheduled for Thursday because of the holiday. In general, the stock market remains fairly range-bound without the bond market. The 30-year closed at 100 13/32, down 13/32 at a 6.09% yield. The stock to watch for sentiment will DELL since they are reporting after the close. This may be it as far as market moving news and even then it won't affect the market until Friday. Thursday may be a good day to reflect on your current game plan. Step back and look at the bigger picture. Are you in the positions you want ahead of an FOMC meeting? If not, what needs to be changed? Although it is still a few days away, it will be a biggie. The sidelines are boring but safe. If the Fed decides they can't justify another rate hike, then we should really see volume come in!
So we will keep our fingers crossed but our stops close.