Are we supposed to be happy or sad? This Fed governor for the ages has kept us in a bull market for years, but we all still curse his name when we think of the impending Fed meeting on February 1st and 2nd. Let's face it, the title of Federal Reserve Chief is a lose-lose situation. If you mess up the economy, you are cursed. If you try to stop a raging bull market in a healthy economy, you are double-cursed. No one doubts the super job that Alan has done over time, but in the short-term, we love to hate him. And we have four more years to enjoy it.
Today, was one of those tough days if you held long positions. Alan Greenspan met on Capitol Hill in front of the Senate Banking Committee for his confirmation hearing. His prepared remarks where light on monetary policy direction, but it spooked the market nevertheless. It is widely anticipated that we will see a 25 basis point move at the next meeting. Alan Greenspan did say that the Fed's challenge is to foster financial conditions that will allow the economic expansion in the U.S. to continue as long as possible. He also said that maintaining price stability would be a key going forward. The result was probably nil, but traders used it as an excuse to sell stock.
The Dow closed barely in plus territory, up 3.10 at 11,032.99, but it continues to hold above the key 11,000 level. The Nasdaq wasn't as lucky plunging into the closing bell to finish at 4069.94, down 97.47. The S&P 500 was down less than one percent at 1404.09, down 5.94 on the day. Volume continues to be heavy with the NYSE trading over 1.1 bln and the Nasdaq over 1.7 bln. The one bright spot was the Russell 2000 which reluctantly gave back 0.10% today. This index continues to outperform the rest of the markets and it's about time. Advancers held off decliners 17-13 on the NYSE, but lost on the Nasdaq 21-20.
One concern that reared its ugly head today was margin debt. It is at unusually high levels and the thought of a declining market could trigger some margin calls and compound the issue. You don't hear as much about this topic except in times of a failing market. All of a sudden it can be a big issue and show that there is a certain level of fear in the markets. That helped the $VIX to a nice bump up near 28 this morning before settling out at 25.08, up 0.74 for the session.
Here is the technical picture for the Nasdaq. You can see from the chart below that we closed below the 10-dma (4091) today for the first time since January 10th. Not good. You would also be able to see from an intraday chart that the 4150 level, which used to be strong support, acted like resistance all day. That is another uh-oh for the Nasdaq. Maybe the biggest of all concerns though is what happened last year. The Nasdaq has mirrored the pattern of October 1998 to January 1999. A stellar rise followed by a slump through the end of January to mid-March. The resemblance between the two is incredible. So where might we go? Right now the Nasdaq looks to have decent support at around 3750. That is where the Nasdaq bottomed in early January and is where the 50-dma currently resides. Even before that will be the magic number of 4000 which we almost hit on Tuesday, but that may be minor support after the DELL earnings warning after the close (see below).
This morning, beverage giant Coca-Cola (KO) reported Q4 earnings of 31 cents a share before a write-down, which was one cent above the First Call estimate. KO also announced plans to begin laying off approximately 6,000 employees within the next year to help the company trim expenses. Citing a necessary "realignment" as the reason for the massive layoffs, Doug Daft, KO President and CEO, went on to say that "This management team is committed to doing what is necessary to ensure a strong future for the Coca-Cola company." KO also announced a reduction in their earnings projections for the first half of the year to between 11 and 13 cents per share. Shares of KO finished down $2.81 at $63.06.
Another notable earnings related move came from QUALCOMM (QCOM). Shares of QCOM plummeted $24.38 to close at $124.63 with over 68 million shares traded. QCOM announced Q4 earnings this morning, coming in at 25 cents a shares, one penny ahead of estimates, yet 2 or 3 cents shy of the "unofficial" whisper numbers. QCOM warned of a slow down in wireless chip sales for the first quarter. The reasons given for the slow down were "seasonal factors, inventory balancing by customers due to continued shortages of other phone components, and transition from older chips to the latest chips." Because of this warning, Solomon Smith Barney downgraded the stock from Buy to Outperform. Merrill Lynch also downgraded QCOM, dropping it from an Accumulate to a Neutral. QCOM also announced plans today to purchase SnapTrack for an approximate $1 billion stock swap.
Shares of Nortel Networks (NT) and BCE Inc. (BCE) were halted late in the trading session pending news regarding BCE's plans to spin off its stake in NT. After the close, BCE did announce that it planned to spin off 37% of its stake in NT while retaining 2%. Shares of both companies remained halted to the close.
Today, Sprint Corporation announced that it will be selling its interests in Global One to Deutsche Telekom and France Telecom. The deal will be worth an approximate 1.3 million in cash. Sprint plans to focus its attention on its pending acquisition by MCI Worldcom.
Staffing agency Robert Half International, beat analysts estimates by three cents, coming in at 41 cents per share. Following the earnings report, RHI received several upgrades, one from Solomon Smith Barney from a Neutral to a Buy, another from CS First Boston form a hold to a Buy and the last from Dain Rauscher Wessels from a Neutral to a Buy.
Shares of McDonalds (MCD) traded to a new 52-week low today as MCD fell a penny short of analysts earnings estimates, coming in at 35 cents a share.
Other earning surprises included BMC Software (BMC) who fell one penny short of estimates at 41 cents a share, Commerce One, who also missed estimates by one cent losing 16 cents a share and CPQ who beat estimates by 3 cents at 19 cents a share.
After the close, Dell Computer (DELL) warned that it would miss analysts earnings estimates by up to 7 cents and could come in as low as 15 cents per share. DELL cited inconsistent semiconductor flow and Y2K issues as the reasons behind the expected earnings shortfall. This was a widely anticipated announcement and the stock was halted near $37 after-hours. That is already down from a regular session close of $40.38. This may be enough to do in the Nasdaq tomorrow so trade carefully. There is no telling what the fallout may be in the sector or the broader technology markets.
I'm sorry to say, but my gut still says sideways to lower in the near-term. With earnings behind us and interest rates on the rise, the market has some digesting to do. Granted the 30-year bond has been gaining strength due to the stock market weakness, but that may be more out of panic buying than the emergence of a new trend. The 30-year yield ended at 6.58% today. At least we can take comfort in the fact that the Labor Department delayed the key Employment Cost Index (ECI) report until Friday due to the east coast blizzard clean up. This report is a favorite of Greenspan's and will be closely watched.
In glancing at the charts, I see more stocks in trouble than at entry points. With the Russell rising almost daily, there is an argument being waged that investors have left momentum for value. It is easy to believe when you look at the carnage in QCOM today. But who knows? We have seen lighting quick corrections lately that last 2 or 3 days before buyers return. No one is scared to buy the dips anymore. That may be enough to continue to hold up the markets. Nasdaq 4000 and Dow 11000 are the levels to watch tomorrow for support. Otherwise, pick your trades carefully ahead of the Fed and sell too soon.