Yawn. . .another new record for the NASDAQ
It remains tough finding new ways to say the same thing for the 58th time this year. Nonetheless, today's visibly weak final numbers hide the true strength of this market - RESILIENCY. The markets simply refuse to roll over and die even though volume remains relatively low. Why's that? The simple answer appears to be that tax selling is virtually over (for now), money managers are content to hold their positions through the New Year, and day traders are making the most out of the inherent volatility. In short, there is money coming into this market in large amounts, and there are not many wanting to take it out. Y2K jitters have become a non-issue, though that could change for the emotional fence-sitters on Thursday or Friday, as some may see fit to raise a little cash "just in case". However, in our mind, it's no cause for alarm since money managers and investors alike are content to sit aside this week. The markets are highly unlikely to initiate a new trend with out them. Any negative activity is most likely to be met next week with buying activity (read that, volume). There is little motivation to begin selling on January 3. The extra volatility gives us yet another opportunity to make money.
Let's get right to the numbers. The DJIA gapped open this morning and was up 70 points by noon. The afternoon siesta set in, wherein the index began a slow descent, then stabilized in the 11,425 to 11,450 range. It didn't hold and the index fell off the cliff (a small one) in the last 30 minutes of trading faster than you can say "S&P reclassification". By now, you're probably asking yourself why we would say that anyway. The short answer is that S&P about twice a year decides if they are going to classify a particular stock in their index as a "growth" or "value" stock. Funds then adjust their own portfolios somewhat to reflect the classification. The idea here is that if you operate a "growth" fund, you don't want to own a "value"-labeled stock. By way of example, AT&T (T) traded almost 3 mln shares in the final minute of trading because it was reclassified from a "growth" stock to "value" stock. The price dropped about $1. In contrast, Nortel (NT, current pick) was reclassified from "value" stock to "growth" stock. In the final minute of trade, it moved up almost $2 on over 1.2 mln shares. While NYSE volume was looking pretty anemic one minute before the close at about 675 mln shares, the S&P reshuffle kicked it to 723 mln. In the end, the index closed down a mere 14 points at 11,391. Financial stocks, which had started the morning well, were the big drag into the close, as MDW fell $4, C gave up $1, and JPM lost another $1, while AXP axed $3 in the final hour. Support is around 11,350, then again at 11,325, followed by 11,275. Decliners beat advancers 17:13. 340 new lows blasted just 86 new highs, while down volume beat up volume by a 26% margin. The internals here are not inspiring, but your thoughts on them should be tempered by the mechanical S&P related event at the close. . .no worries on our end.
As for the NASDAQ?. . .another new record. For those that ever saw "L.A. Story" with Steve Martin, who in the movie played a Los Angeles TV weatherman that pre-recorded his forecasts of "72 degrees and sunny" a week in advance (the weather in Southern California is fairly predictable), we hope you'll forgive us if we pre-write "another new NASDAQ record" to carry us through the end of the year. (just kidding - we know better than to assume that NASDAQ will set 4 more new records in the next 4 days, but you get the point). Anyway, the NASDAQ gapped up to 4001 during amateur hour only to be greeted by immediate profit taking all the way to 3920 where it bounced, then bounced again before noon. While 3920 didn't hold, a third bounce at 3900 (3902 to be exact) did. A 73-point recovery ensued through the close to send the index to a new closing high of 3975, up 5 points from last Friday - not a big move, but a great recovery thanks to some stellar performers. CommerceOne (CMRC) and Ariba (ARBA) brought home the bacon for the B2B sector, tacking on a whopping $57.06 and $20.75, respectively, while QCOM gained $47, JDSU added $37, and YHOO hollered up $12.38 to close at $415 after sinking as low as $378. Not only were these gains great, they represented a recovery from some pretty ugly lows.
Volume was comparatively low at just under 1.16 bln shares today. Advancers lost out to decliners 25:18. Declining volume also outpaced advancing volume by a 12% margin. New highs, however, beat out new lows 214 to 156. Based on these numbers, you'd be right if you are thinking that the narrow leadership is responsible for the new highs. But all is not as it seems since the Russell 2000 also set a new high today, indicating the advancing issues are more widespread. 3900 to 3920 is proving to be a good range of support for the NASDAQ. Keep your eyes on that level while attempting to "buy the dip".
Here are some other tidbits of news that can't be nicely woven into the above, but are nonetheless worthy of mention.
First, Priceline.com (PCLN) introduced a new service called perfect yardsale.com, which attempts to give users a chance to haggle online by having buyers bid lower than sellers' asking prices - yet another variation of "guess right and you win". Second, holiday sales are expected to be up 8% over last year (+7% on a same store basis) in what is suppose to be the highest volume year of the decade. If YHOO's online sales increase of 385% over the same period last year is any indication, the experts could be right, and retail stocks would benefit. Finally, Warren Buffet, probably the world's best passive investor, and his wife, Susan are donating 2500 shares of Berkshire Hathaway stock to four un-named charities. It sounds like no big deal until you realize that the shares are valued at $53,400 each, with a total value of about $135 mln. Knowing Warren's eye for value and efficiency, you can bet this charitable donation is going for the maximum benefit of the recipients. Nice Job Mr. and Mrs. Buffet. Keep up the good work.
What about tomorrow and the rest of the week? The same. Expect choppy action marked by a lack of volume, giving us plenty of opportunities for target shooting. Home sales and consumer confidence reports are due out tomorrow, but will probably only scare the bond market tomorrow if there is any scaring to be done. We frankly think it will be a non-event, and certainly not enough to get money managers to change their plans over the next four days. That said, guard your flank - surprises move markets. You don't want to be asleep at the switch if something that you least expect comes out of left field. In fact, if you look at what we hope is your short list of losing trades this year, most of them are probably a result of a surprise you least expected. Complacency gets us every time. Also, keep an eye on the splitters. JDSU splits after the close Wednesday. QCOM, HD, WCOM, and INKT all split on Thursday after the close. Most of these are ripe and juicy for a profit taking. If you are going to hold over the split (something we don't recommend on principle), don't be afraid to harvest a profit before it gets harvested from you. You will have to be fast or right to remain profitable. Until then, target shoot and sell too soon.