Losing Steam or Heating up??
Don't look now but the exuberant and resilient Nasdaq market of November has lost some of its luster. To the tune of 25% of the November gains, in fact. This stellar performer that had 15 record closes during November, is now stair-stepping its way lower. Today's close put the Nasdaq under the 10-dma for the second straight day, showing that perhaps Monday wasn't a fluke after all. But this sell-off is well deserved after year-to-date gains of 52% for this index. 16% of which came during the month of November.
What we need here is to take a closer look to pin-point what exactly we need to be watching. First up is the 3320 level on the Nasdaq. This level has held up as support five times in the past week. It first tested that level on Tuesday the 23rd on the initial dip. Then retested that level the next morning before rattling off some gains. Now we have ventured back down to this level, bouncing late yesterday, once midday today and finally in the abrupt sell-off late today. But in each instance we have recovered from this support line. The flip side of the coin is that since last Friday each rally has become progressively lower. Take a look at what the trend has been since Monday afternoon. We see intraday rallies that are coming up shorter each time. That is a negative trend which points to stocks headed lower.
So what are we to take away from this? Well, we are likely to answer that question early tomorrow morning as these two trends are on course for a collision. One of these two will have to give way to the other. There seems to be a lot of hesitancy in the markets which can be attributed to any of the eight items listed in the Jim's Market Wrap for Tuesday. You have your choice of multiple worries right now. In reality though, the Nasdaq has earned the right to pull back after November's gains. A 500 point gain has created some profits to take off the table. The Nasdaq closed up 17.55, thanks to a late surge, to 3353.71. Volume was heavy at over 1.43 bln shares.
The "other" market had a little more sunshine today. The Dow Jones Industrials closed at 10998.39, up 120.58 or 1.1%. Decliners lead advancers by 17 to 14 and volume was good at 886 million shares. The S&P 500 was up by 0.6% or 8.65 at 1397.72. The Russell 2000 closed fractionally lower. You can see from the chart that the Dow tried to push above the 11,000 level unsuccessfully but did close right near the day high. Notice the steady climb for most of the day too.
The critical NAPM report was released this morning at 10:00am ET but did little to really move the markets. The estimate was for a reading of 56.6, which is the same as the number from October. It came out slightly better at 56.2. This helped to bring the bond higher. The closely watched prices- paid component, an inflation measure, slipped to 65.4 from an October level of 69.4. The yield was at 6.33% at the time of the announcement, but recovered to 6.28% shortly after, before closing at 6.30% Remember, a reading over 50 in the NAPM suggests an expanding economy.
This positive report for the markets were countered by the always pessimistic Fed Governor Laurence Meyer. He made some comments after the market closed Tuesday that were leaning towards a tightening basis. This has become a common stance for Mr. Meyer who sent the markets reeling last summer when he and Mr. Greenspan teamed up to weigh down the averages. Today's gain in the indices shows that his now standard speech has lost some punch.
Moving on to the individual movers, WCOM was the big drag on the Nasdaq today. MCI Worldcom fell more than 5% after rumors began swirling of lower than expected growth. The rumor is that WCOM will lower there top line growth from 16% to 14%. A spokesperson for Worldcom declined to comment on the rumors. WCOM ended at $78.13, down $4.56. WCOM was the number one volume leader on the Nasdaq today.
You mean Yahoo wasn't already in the S&P 500? How about that. Something's you just take for granted, but to all long YHOO players, it was a pleasant surprise to say the least. In case you didn't hear the big news from last night, YHOO has been added to the S&P 500. They will replace Canadian Laidlaw Inc (symbol:LDM.TO). They are being removed for a lack of representation. Many analysts are predicting that this will lead to other changes which will incorporate more Internet names into the indices. The change will be effective after the close on Tuesday, Dec 7th. YHOO closed +16.13.
Sun Micro and Lucent are in a pact to create infrastructure needed to support Internet business applications. The deal requires Lucent to use up to $500 million of Sun's servers over 7 years as the platform for Lucent's wireless network architecture. This charged both stocks higher initially but SUNW ended lower by $2.06. LU managed to hold its gains to close up $3.25.
Shares of Exxon Mobil (new symbol: XOM) rose $3.19 to $82.50 on their first day of trading after the two oil giants combined to become the world's largest publicly traded oil company. The New York Times reported Wednesday that FTC staff has concluded the proposed merger with the U.K.'s BP Amoco violates antitrust law and is recommending the full commission block the deal. ARC went down on that news, closing at $92.06, down $3.88. Oil prices also closed above $25 a barrel. Oil surged near the end of the day after Venezuela said they would remain in compliance on their production quotas. This helped the Dow close near its highs for the day.
The largest of companies reporting earnings today was Analog Devices, who checked in with a $0.40 profit for their fourth quarter. This was compared to a First Call estimate of $0.35. They also predicted a strong first quarter. This powered ADI higher to $60.50, up $3.00.
The VIX dipped back down today after a small spike during the last few sessions. It closed at 22.90 after reaching as high as 25 on Tuesday. It is right in the middle of the road relative to where it has been lately. You just get the sense that most traders are content to wait for Friday's November Employment report to signal which way to go. That is not a bad stance either. It is better than wasting money on commissions and suffering through time decay only to watch your portfolio bleed down for no reason. With that said, traders are known to try and jump the gun on these economic reports and rally the market higher. If the momentum returns, there should be some decent plays available for the brave of heart. The one scenario that would keep us gun shy is a market that continues to sink into the sunset. Especially if it takes the Nasdaq under the 3320 support level. If that is the case, sidelines are your friend. We would wait and see if Alan, Larry and the other fed members will have a new weapon (negative employment numbers) to fight the markets with before opening new positions.