February's Decision is in, Time to worry about March??
The verdict is in and it is....not too bad! The FOMC raised short-term interest rates by 25 basis points in both the Fed funds rate and Discount rate, the two key overnight lending rates. This was a widely anticipated move and the markets reacted more calmly then they did after other recent Fed decisions. Mainly because the decision was mostly a foregone conclusion and we saw no surprises. Most traders also were not phased by the new method of delivering the future directive. The Fed's main statement said "The committee remains concerned that over time increases in demand will continue to exceed the growth in potential supply, even after taking account of the pronounced rise in productivity growth". Or in other words, inflation may prompt us to raise rates in the future. The market's answer was apparently "OK, we're fine with that" because it traded higher for most of the session before sliding near the close.
Also the bond had a strong rally today. The 30-year yield dropped over 10-basis points from yesterday's close and most of that drop came in a hurry at 10am EST when it fell from 6.43% to 6.34% in about 20 minutes. This move was based on the news that the government would be cutting back on supply. After the Fed announcement, the bond yield creeped back to 6.35%, temporarily stalling the markets, before heading right back to rally mode. It closed at 6.32%, right at the low for the day and is showing a quote of 6.29% at the time of this writing. All of these are good signs for the markets.
The Nasdaq was the more stable market today and it closed up 21.98 points to 4073.96, remaining positive all day despite a couple bounces off the unchanged mark. Volume was light until the announcement and ended at 1.5 billion shares. The NYSE was yo-yoing around for most of the session, bouncing off support at 11,000 and running into resistance at 11,100. It closed near the lower end of the range at 11003.20, -37.85, but still held above that key 11,000 mark. The volume was average at 1.03 billion. The S&P 500 dropped fractionally to close at 1409.12, down 0.16. The Russell 2000 was up 6.14 to 509.89 (the best performer in percentage terms of the four mentioned indices). The chart below will give you a better feel for what is happening in the markets.
In the news today, it was announced that a lawsuit has been filed on behalf of approximately 8 million AOL customers against the ISP giant. The customer's claim that AOL software is responsible for disabling many of their existing Internet accounts with AOL's competitors. An AOL spokesman claimed that there was no fact backing the claims. AOL had commented previously on the issue, stating that many of their customers did not know that when they installed AOL onto their computers, that AOL would begin taking over and providing a good deal of their online services for them.
Software maker INSO was slaughtered in today's session after announcing that fourth-quarter revenue would fall short of analyst expectations, and that total sales could come in up to $11-$12 million below estimates. The reasons behind the projected shortfall? According to CFO Stephen Jaeger, INSO has "determined that these preliminary revenues reflect primarily sales execution and sales force staffing issues." That seems like a wordy way of saying that we don't have the staff to sell our product, and therefore, we aren't. INSO also announced that they have turned to Morgan Stanley Dean Witter to explore alternatives for the future of the company, including a possible sale. To add insult to injury, Banc of America Securities downgraded INSO from a Buy to a Market Performer. INSO is expected to announce Q4 earnings on March 7th. Shares of INSO finished down $20.50 at $14.75 (and no those number are not reversed).
Copper Mountain Networks (CMTN) posted better than expected earnings after the close yesterday, coming in 2 cents better than analysts estimates. CMTN cited continuing strong demand for their products that provide high-speed online services via copper phone lines. WR Hambrecht initiated coverage of CMTN today as a Market Outperformer. Shares of CMTN closed up $9.19 at $66.
IDEC Pharmaceuticals (IDPH) received a downgrade from Prudential Securities that apparently investors found hard to swallow. Prudential cut IDPH from a Strong Buy to an Accumulate. The reason offered backing the downgrade was concern regarding a patent granted to a competitor that could pose a problem for IDPH in obtaining approval from the Food and Drug Administration for their drug, Zevalin.
Today, Datron Systems, a satellite communications company announced that it has developed a high speed Internet connection for use in a MOVING vehicle. This is done by using a satellite television antenna. This news had Datron shares moving toward the stars, closing up over $8 for the session. Does this mean that people will now be able to drink coffee, talk on the phone, and surf the net all while driving in rush hour traffic? Bus pass anyone?
Amazon.com announced earnings after the bell today. The street had predicted a loss of 48 cents a share versus a reported actual loss of 55 cents per share. However, the reported actual loss was on target with the street's whisper numbers. Scott Reamer, analyst for SG Cowen, appeared on CNBC following the announcement and seemed to be fairly bullish on the stock. He stated specifically that AMZN was breaking new ground by offering multiple products through multiple "stores" and therefore, he was willing to grant a bit of leeway in regards to the loss. He predicted that AMZN would have to tap into the market to obtain a financial "cushion" and offered the possibility of a convertible debenture or an equity issue, though he did not speculate as to which he thought was more likely. He also noted that at this point, AMZN needed to prove to the street that their business model works. The question that everyone seems to be asking now is, is continually reporting increasingly larger losses worth it merely to obtain a larger market share? There seems to be a good deal of bullish analyst support out there backing AMZN. Merrill Lynch analyst Henry Blodget believes that the current weakness in AMZN in merely an overreaction, while analyst Mitch Bartlett of Dain Rauscher Wessels thinks that the company will be profitable in the long-term. Bartlett believes the next few quarters "will be a period when the strongest get stronger." The one common thought threading its way throughout all of the opinions on AMZN, is the belief that AMZN needs to develop a plan to become profitable and then make it happen. Shares of AMZN were up big in after-hours trading to $78.
Late news coming across the wire reports that Pfizer and Warner Lambert have reached a deal in the neighborhood of 85 billion dollars. It works out to 2.75 PFE shares for each WLA share. We are sure to hear a lot more about this tomorrow as American Home Products throws in their two cents.
All and all, the markets had a good day except for the final 30 minute retreat. They made it through the first Fed move since November with relatively low volatility and the bond went for a nice rally. We still have an unemployment report on Friday to overcome, but the economic front is fairly quiet after that. If the markets can stabilize in the morning, it could be the ground work for a move higher. The 4050 level for the Nasdaq will be the support to watch. A close for the Nasdaq over the 10-dma would be encouraging. The minutes from the Fed meeting will be released tomorrow and that will play a part as well.
As for the individual plays, most stocks on my watch list are looking pretty good technically. The $VIX is stable too, treading water just over 24. After confirming direction in the morning, there may be entry points to be had. Some of the hot sectors from today like Semis, Banking, Telecom and Biotech have held their momentum in recent days. You know what they say... if it ain't broke, don't fix it. That is one theme I will be trading on tommorow. The other? Sell too soon.