Almost and Exactly
The Dow, seemingly hell bent for a retest of the October low of 9976, paused this afternoon on its downward plunge. Contrary to Friday's selling action, the buyers were lined up on the sidelines at the open. After a brief rally the few remaining sellers overpowered the buyers for a brief drop of -115 points to 10,103. The closer we got to 10000 the more buyers cut in line to beat other investors to the bargains. Those waiting to see if 10000 would hold were left waiting at the altar after the bargain hunting kept the Dow from getting within 100 points of the goal. The Dow then rebounded +225 points to trade over +100 points and 10300 in late afternoon. After almost touching 10K again the Dow looked like it was gaining strength all afternoon as buyers gave up on the idea that 10K would be just around the corner.
The Nasdaq, always the contrarian, diverged with the Dow yet again but in the opposite direction. With the Dow in rally mode you would have expected the Nasdaq to be setting records again. The only record set by the Nasdaq was the bounce off -120 at 4291. This was the exact same number that served as support before charging off +260 points last week. The 150 point trading range today was highlighted by strong rebounds by many of the previous winners but also by some big losers as well. The Biotech index has now corrected -10% from the highs set last week but it is still up +44% YTD.
When the VIX spiked into buy territory over 30 this morning the bargain hunters went shopping. Some of the most beat down stocks received the most attention. GE, down from 144 to 125 in February gained +4.50 today. Dow Chemical, down from 121 to 104 in February jumped +9.38 as bottom fishers ran from stock to stock looking for huge retracements. Texas Instruments soared +15 to $149 on news that they were expanding their DSP offerings.
Volume was moderate on both major exchanges with the Nasdaq only trading 1.78 bln shares. Even though the Dow was positive the advance/decline on the NYSE was strongly negative at 1658 decliners to 1358 advancers. The Nasdaq was no better with decliners beating advancers by 2462 to 1808. Several analysts said there was heavy margin related selling when the averages dipped at mid-morning. With the Dow down -1600 points from the Jan-14th high we are reaching the pain threshold for many highly leveraged traders.
Part of the credit given to the turn around today was the flurry of stock buyback announcements. The leader with the mother of all buybacks was MRK. Now trading at a 52 week low the company announced that it would buy back $10 billion of shares. Following in their footsteps were GIS 50 mln shares, Goodrich $300 mln, LTD $200 mln, WFC 81 mln shares, KMB 25 mln shares, VISX 10 mln shares. Share buybacks tend to energize investors and markets. The investors are encouraged that there will be less shares in the market place and therefore higher earnings and share prices. The markets are energized because buy backs tend to occur at market bottoms. The flurry of announcements today would tend to make investors believe that 10000 is as low as we are going.
The strong afternoon rally on the Dow and the Nasdaq's struggle back to positive territory were blunted by the realization that Greenspan testifies before Congress again tomorrow and many traders do not want to hold over that event. The interest rate worries continue to plague the market and bonds are benefitting from the shift out of stocks. As a result, bond prices rose a full point pushing the yield, which moves inverse to the price, down to its low of the day at 6.08%.
The Dow is still in oversold territory and the Nasdaq is just consolidating from the recent gains. The challenge will be holding today's gains on the Dow. We need to build a base here above 10,000 or the future looks bleak. The 10,000 level is a very important psychological support level. As long as we stay above it we have a chance at catching fire and running back to record levels. Once we slip and close below 10k the bloom will be gone from the rose and some analysts are calling for 8800-9000. It will never happen in my mind because the economy is still firing on all cylinders. Mr G., as much as we poke fun at him will manage the inflation and keep us on track. We will take our monthly vaccinations for a while but then we will get healthy again. The next two rate hikes are already priced into the market and once past the verbal abuse by Greenspan on Wednesday we should be on track. I just hope that track is up! AMG data reported today that $16.9 billion came out of growth and value funds so far in February. Don't look now but that money has to go somewhere and all bets are on tech stocks. Anybody else want to make that bet?
Good Luck, Sell too Soon
Disclosure: I did not pull the trigger at 4300 today. It was just under for a minute and only 9 points.
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, OEX, QQQ.