Hack Attacks And Bond Yields Spook The Markets
How about that final hour today? Just when you thought the Dow Industrials were going to hold above 10,800, a rash of sellers showed up to crash the markets. The Dow dropped faster than an online web site under a "Hack Attack". Today's close is less than encouraging too as it is underneath the closing lows of late January. This close at 10699, down 258, is also a major breakdown in the descending pattern outlined in Jim's Market Wrap from yesterday. Could it be that there are no investors interested in bidding up stocks that are breaking to new 52-week lows on a daily basis? What a shocker! How the tables have turned from days when the NASDAQ was the unwanted index.
Speaking of the shining NASDAQ star, it lost some luster today, but not much compared to the nearly 700 point gain in just over a week. The tech-heavy index closed down 64.71 to 4362.79 and right at the low for the session. This index is far from any major technical damage though, unlike the Dow. The NASDAQ composite should find support at 4300 and even stronger support at 4200. If we are in for a period of consolidation after the big run-up, these will be key support levels.
Blame it on the bond. The 30-year treasury was the main reason for the big rally last week and the late sell-off today. You may recall the move to the upside in the 30-year last week came after comments that the government would be limiting supply. Well today Treasury Secretary Larry Summers said the reduction in supply would be broad across all issuance, such as the 5 and 10 year notes, and will not be disproportionately bestowed upon the 30-year bond. Enough said. The 30-year plummeted late in the day in response, to close with a yield of 6.30%. A weak showing in today's 10-year note auction already had the bonds on the ropes. Tomorrow may not be much better with $10 billion in 30-years (typically the weakest of all) coming to market. The Dow may not have what it takes to rule the markets anymore, but the bonds still have a major impact. Look for rising rates to keep a lid on market optimism.
Decreasing optimism is what we saw today with the VIX dropping from a very bullish stance just over 22 on Tuesday to a close of 24.44, near the day high. Decliners trounced the gainers today on the NYSE and NASDAQ. The NYSE saw 19 stocks head lower versus every 10 that went up. The NASDAQ lost by a 23-18 margin. NASDAQ volume was steady at over 1.7 billion while the NYSE turned in just over a billion. The S&P 500 lost 30.04 to close at 1411.71, holding above 1400 support. The Russell 2000 gave back only a small amount, giving back 1.49 to 536.00.
"We will stun the company with our strike and we will stop the company with our strike," Charles Bofferding, Boeing's union executive director commented on Tuesday. In one of today's headlining individual stock stories, thousands of Boeing engineers and technicians decided to "take off" and initiate a strike against Boeing. The strike comes after failed attempts at negotiations between a federal mediator and the Society of Professional Engineering Employees in Aerospace. Union members seek to obtain a contract which guarantees pay raises and bonuses. Peter Conte, a spokesman for Boeing stated that Boeing would continue operations and would do so "to the highest degree possible." There are no further talks scheduled at this time. News of the strike sent shares of Boeing flying lower to close at $38.81, down $2.
This morning, Broadvision (BVSN) announced that its Board of Directors had approved a 3:1 stock split, which will be payable to shareholders of record as of February 21st. It is expected that the shares will be distributed around the 13th of March. Shares of BVSN gapped up to open at $165 this morning and traded as high as $177.50.
Alright, try and feign surprise and stifle the yawns. It was announced this morning that the European Commission has started an investigation with a focus on Microsoft's Windows 2000 operating system. It is believed that the new system may be in violation of European antitrust laws. The European Commission claims that Microsoft has "bundled" its personal computer operating systems in a way that is only fully interoperable with it's own server software. To make a long story short (too late), EU Competition Commissioner Mario Monti, commented that "Microsoft's competitors, which do not have access to the interfaces, would therefore... be put at a significant competitive disadvantage," John Frank, Microsoft's European director of law and corporate affairs, responded to the allegations by stating "We are confident the Windows 2000 desktop is fully interoperable with other server operating systems." This has an all too familiar air about it, does it not? Hopefully Steve Ballmer knew just what he was getting himself into. Oh well, I bet the pay is good!
Plenty of news for the Biotech's today. This morning, Imclone (IMCL) and SmithKline Beecham (SBH) announced a licensing agreement regarding a meningitis vaccine. Details were scarce though the headline alone was enough to send IMCL to a close at $72.50, up $4.25. The Biotech sector has been hot lately. Sector winners today included Gold and Transportation.
Other movers in the Biotechs included Incyte Pharmaceuticals and Corixa (CRXA). The two companies announced an agreement to work together to further diagnostics, therapeutic monoclonal antibody, and vaccine development.
An article in the Wall Street Journal reported that Merck (MRK) will have five of its biggest patents expire within the next two years. Apparently, this news concerned investors and worked to bring MRK down over four points for the day. The Drug group is continuing to be weak. Other sector losers included Semis, Health-care, Internet, Retail and Telecom.
Boston Biomedica (BBII) announced today that the Food and Drug Administration has approved its Accuron 106 HIV Antigen Positive Control to be used in the detection of the HIV virus which causes AIDS. Shares of BBII, which had closed Tuesday's session at $5.50 a share, traded as high as $16.97 on Wednesday.
All in all, we would expect a weakening bond to weigh on the NASDAQ and Dow in the morning tomorrow. How far it will dip will be up to the general sense of fear in the market. The reasons for fear are part old and part new. The old story of interest rates are back in the forefront. We will get Retail Sales on Friday, but that is the only biggie left this week. The new story is cyber attacks on popular web sites. It is making investors wonder how this new element might hurt their investments. Just keep in mind that this is a traffic jam, not a 12-car pile-up during rush hour. We are likely to see more of this in the future, but new measures will be taken to combat these hackers. If you haven't noticed, security stocks have been going haywire lately on a possible increase in demand for their products. Today, VRSN +5.38, CHKP +7.94, ISSX +7.88 and ENTU +6.81 all gained. Possibly sit out during the dip, but it's hard to say the market is due for a lasting breather. That sentiment has kept you out of a lot of entry points. Not that the market can't go down, just that we've seen no real evidence that it wants too.
Trade smart and by the rules.