Strong Economy, High Productivity, Inflation Low. What's Wrong With This Picture?
Nothing if you live in the real world. Alan Greenspan however lives in constant fear of the monster under his bed. While the Inflation Monster is about as hard to find as the Loch Ness Monster, Alan is sure it exists. If this was a movie it would be an X-File and he would be a very old Fox Mulder, always searching for the truth that is "out there." The truth started to raise its head this morning with a PPI that was lower than expected. Actually unchanged from last month. Falling tobacco prices offset higher energy prices to shock the markets into a brief rally with the Dow gaining over +100 points. The excitement was short lived with the equivalent of an earthquake rattling the markets almost immediately. The Greenspasm registered about a 5 on the Richer scale. The higher on the Richer scale the poorer investors will be from market drops. Greenspan said the Fed would have to be ever vigilant and continue raising rates to slow the runaway economy. Greenspan said the current economic factors were unprecedented in his 50 plus years of observing the markets. After he voiced repeatedly that the Fed would continue to raise rates aggressively until the economy cried uncle the Dow dropped from a +110 point gain to a -106 point loss. The Nasdaq however gave up most of its +50 point gain but recovered quickly to mount the charge to record territory again.
The Dow still cannot mount a successful rally and the down trend that started on Jan 14th is still intact. In the last three weeks we have seen two oversold relief rallies of +300 points or more that turned into bear traps as the sellers over powered the buyers with strong volume. The materials stocks and the financial sector are still being singled out for selling as the threat of higher interest rates and the lure of tech stocks becomes a powerful double whammy. The banking index, BKX, closed at a new 52 week low with the insurance index, IUX, not far behind.
The Greenspeak had no impact on the NASDAQ, which managed to soar to a new all time high on the strongest volume ever, over 2.1 bln shares. The tech stocks were joined by biotech's as important breakthroughs in medical technology pushed the major medical research stocks to strong double digit gains. The major biotech winners included MLNM +54 (a current play), and HGSI +29, AFFX +18. The more recognized names did well but finished off their highs. BGEN +8, JMED +9, CEPH +2.50. Are these stocks ever going to cool off? It has been a decade since the biotech's were this hot and it does show that the dot.com craze can be topped. The Nasdaq breakout today against the Dow trend needs to be confirmed on Friday with another good strong day in order to put to rest all the remaining bears. With the short interest so high on the Nasdaq you can bet there is some real concern at many trading desks tonight. With the money still pouring into the tech funds there appears to be no end in sight. Now don't you wish you had bought that last dip under 4300! That was only three days and 250 points ago! Ironically this same Thursday last year was the low point of the year for the Nasdaq ar 2260. We are up +100% since then and Nasdaq 5000 looks like a sure bet for this year.
The bond managed to shake off the certainty of more rate hikes ahead and finished higher today with the yield at 6.22% Not only the Nasdaq and the bond but the S&P 500 also closed positive and broke with the Dow trend. The Nasdaq was not the only new record high today. The Russell-2000 soared another +10 points to another record and finished strong showing no signs of weakness. The small cap rally is a very bullish sign and as long as the Russell is on a roll the Nasdaq is likely to follow suit.
Stock splits anyone? I can't remember a previous period where there were more stock splits than we have had recently. Hardly a day goes by without two or three. Today's high profile announcements included IMNX 3:1, BRCD 2:1, ADVS 2:1, AGIL 2:1, MEDI 3:1, ADIC 2:1, ELNT 2:1, NXLK 2:1, ADI 2:1. Four of these stocks saw their prices skyrocket on the announcement with IMNX +23, BRCD +28 after hours, AGIL +10, MEDI +12. No news? These companies made their own.
It is official. Windows 2000 is now available for sale. With much fanfare and celebrity promos Microsoft pounded the table for their new operating system. They claim more than $250 million was spent in testing under different conditions to make this the most bug free software release ever. While Microsoft expects W2000 to be a strong contributor to their bottom line, they do not expect it to be all at once. This is a totally new program that will require a longer entry cycle. Still, you can expect a couple hundred million new users over the next few years. I wonder if they fixed the "blue screen of death" so prevalent in Win98? Michael Dell must be breathing easier. The conflicting comments on Win2000 are now history and they are firing out press releases almost hourly about computers immediately available with the new operating system. The selling on Dell stock also appears over with Dell advancing to $40.69 from $35 last week. This was enough to add almost $1 bln to Michael Dells net worth today. My Dell leaps are looking better every day.
The market internals going forward are mixed. The advance/decline line on the NYSE is almost even despite the negative Dow. We are in correction mode on the Dow again. Many analysts feel there will be a retest of 10,000 next week. I am not that pessimistic. If the CPI is as benign as the PPI was this morning then we have no reason to stay on the sidelines. Next weeks economic reports are not going to move the market. Existing home sales and Durable Goods just don't measure up to the PPI/CPI impact. The Nasdaq has had 2.5 corrections in the last six weeks and each has had a higher low. As long as Greenspan does not pull a rate increase out of his hat just to show us he can back up his tough stance then there should be no potholes in our immediate future. Earnings are over and there is not going to be a lot of market moving news but we appear to be acting out a self fulfilling prophecy of double digit tech gains again this year. Money is flowing, techs are hot and the rally is spreading into other sectors. What more could you ask for? I know, I know. When everything is too good to be true, it probably is. There may be a stealth bomb out there somewhere but I don't see it today. Oil prices are falling and transports are starting to recover. If the financials could only shake off the coming rate hike on March 21st the Dow could at least break even. If the CPI tomorrow is benign we should be in good shape but Fridays still hold the possibility for profit taking as traders get flat for the weekend. Keep your fingers crossed and if you find that inflation monster under your bed, call Greenspan, he is out there somewhere!
If you are totally board and want to read the text of Greenspan's speech, click here:
Trade smart, sell too soon.
We have had several requests for disclosure of current positions whenever I write articles mentioning specific stocks. I will list the stocks in which I have open positions from this point forward. Nothing should be construed as an endorsement either positive or negative for the stocks in my position list as I could be long short or spread at any time.
My current positions include:
AFFX, ANAD, ARX, BEAS, BVSN, CMDX, DITC, EMLX, ENZ, HGSI, INSP, ITWO, JMED, MSTR, PUMA, SILK, TIBX, TERN, LU, DELL, AMTD.