Greenspan Related Turbulence Calms As Records Fall
The Greenspan factor was in full force today and the related turbulence was relatively mild. With the Fed Chief speaking before congress today, the markets were mixed early before turning into a full-fledge market rally. Good old Greenspan was unusually candid when speaking about the future direction of the economy. He must have awoke on the right side of the bed too, because his comments were extremely market-friendly. The Nasdaq responded in a big way as it closed with a 168 point gain to a record high. That is nearly a 4% gain on the day. Even the Dow couldn't sour the sentiment with a 79 point loss. What a day to be long this market!
Let's take a close look at some of the comments from our best friend (for today anyway), Alan Greenspan. He did make some bearish comments, using an analogy of a ship headed towards a dock that needs to turn ahead of time if it wants a soft landing, referring to future interest rate hikes to keep the economy in check. In general though, his comments were both blunt and upbeat for the future. He said the labor pool was shrinking, but did not see any signs of inflation yet. He said that he would not be specifically targeting the stock market. And when asked how much the American public should fear inflation on a scale of 1 to 5, he responded by asking if he could go lower than one. These comments were taken to heart by investors and the stage was set for a mammoth rally on the street. You just get the feeling that no one wants to miss the next wave and are sitting on the sidelines with checkbook in hand for that next brief dip in the markets. Missing an entry point is the only real fear on Wall Street right now.
Back to the markets where records were falling. The Nasdaq broke both an intraday and closing high by ending at 4550.21. The Russell 2000 also had a big day closing up 8.93 to 549.88, while the S&P 500 finished at 1360.69, up 8.52. Like we said earlier, the Dow bore the brunt of the selling, giving back Tuesday's gains and finishing down 79.11 to 10225.73. Volume was big with 1.87 bln traded on the Nasdaq and 980 mln on the NYSE.
The VIX retreated after signaling a buying opportunity when it hit 30 yesterday. Now that cooler heads have prevailed, the VIX has retreated to 26.98, a more neutral position. The 30-year treasury also remained quiet, finishing with a yield of 6.12%. The bond market was hardly a factor in today's action after it was realized that Greenspan had said little other than what he said to the House banking committee a week ago.
You don't have to look hard to find sectors moving higher. The Biotechs were back leading the way higher like they have for most of the year with a 5% gain today. Other hot sectors include the Brokers, Internet, Hardware, and Software to name a few. The list of big point gainers was full of the same old stuff, VRSN +19, JDSU +20.75, NSOL +36.63, QLGC +19.81, LHSP +22.50, BVSN 20.75, DISH +20.81, EBAY +20.44, and QCOM +16.31. Sector losers also had a familiar ring with Banks, Cyclicals, Chemicals, Healthcare, Utilities and Gold/Silver all heading south.
Shares of Chemdex (CMDX) skyrocketed today following Tuesday's announcement that the company would be venturing into uncharted territory by taking the life sciences industry and combining it with the booming world of Business-to-Business. Chemdex will be forming a new corporation by the name of Ventro, which will begin trading under ticker symbol VNTR in March. While Ventro will maintain its current business in the agricultural, pharmaceutical, and biotech product arena, the company plans to expand into such areas as health care as well. Chemdex is introducing VNTR as the "leading builder and operator of B2B vertical marketplace companies."
Shares of Incyte Pharmaceuticals moved up today on a raised price target and the completion of a private offering. Deutsche Banc Alex Brown raised its 12-month price target for Incyte from $235 to $374. Incyte also reported that it had raised $422 million through a private sale of its stock.
Gateway began the day with a few upbeat comments from Bear Stearns analysts. The analysts stated that "we think the company has multiple engines of growth coupled with better execution against its goals of diversifying its revenue streams." Gateway then came out with a few upbeat comments of its own, announcing its goal of generating $30 billion in revenue by 2004, while expanding its product lines. In addition, GTW announced several new strategic alliances which include Sun Microsystems, OfficeMax and eSoft. Shares of GTW finished the day at $67.63, up $10.44.
Merrill Lynch analyst Henry Blodget, initiated coverage on eBay with a Buy rating and a 12-18 month price target of $175. The report went on to comment "We view the stock as a core holding. In the Internet sector, we believe it is important to stick with the clear leaders, and eBay is one." eBay closed today's session up over 20 points at $154.94.
Two other companies reaping the benefits of kind words from Merrill Lynch analysts, were Time Warner and America Online. AOL was given a 12-month price target of $90. The two analysts, Jessica Reif Cohen and Henry Blodget, commented that the recent slump in the share price of both companies following the merger announcement, may have resulted in "an excellent buying opportunity." AOL, which had traded through an important $50 support level in yesterday's session, reveled in the news and made a move back up to close at an even $57, while posting volume of over 43 million shares. Shares of Time Warner closed the session up $3. Henry Blodget made an appearance on CNBC after today's market close to reiterate Merrill's bullish stance on the pending merger and both of the companies involved. He further commented that he believed AOL was currently undervalued, a prospect that he found exciting in the current market.
In the quest to become the grandest of them all, MGM Grand has offered approximately $3.4 billion, or $17 per share, to purchase Las Vegas casino, Mirage Resort. The question MGM investors seem to be asking is, "what's in it for us?" The deal could have a prolonged impact on MGM's earnings. The proposed merger has many investors wondering if the move is more image than business driven. Mirage has until the 8th of March before the offer expires.
The only conclusion I can draw after witnessing the strength of the Nasdaq today is that investors are more afraid of missing the next big move than they are of a correction. This is not real fear. What ever happened to having your finger on the speed dial to your broker's office wanting to sell it all? That gut-wrenching feeling that if the market drops by just one more tick you are burning your investing books and buying 10-year CDs. CDs? Are you kidding me? Even Alan Greenspan concedes today that this is a new economy. "The new economy needs a new kind of monetary policy" to be exact. This policy has yet to be fine-tuned and there is a reason for that. It is hard to test a new fix when there isn't a problem to test it on. Until there is, don't get caught dumping your positions to someone else right at the bottom.
Looking ahead to tomorrow, Durable Goods orders for January are to be released before market open. Consensus is for a decline of 2.0%. Look for this only to have an impact if it is way out of line of estimates. Word on the street is that still more money is coming in from 401K, tax returns and bonuses. That should keep the market moving higher. The Dow could be a non-factor again. 10,000 on this index is still highly likely, but you won't likely see a real sense of fear unless you get a couple days of closing below that mark. We could be seeing what we did last October when buyers just stood aside until it hit that mark and then came flooding back in. Most stocks on my screen look to be higher after- hours so look for a pop on the open barring any unforeseen news. That could make it tough to find entry points, but that is usually the case among winners, especially on the Nasdaq. Just don't be lured into the value plays on the Dow until we see clear signs of a reversal in sentiment. It's like my friend Louis says, "Sure I can get into the WNBA games cheap, but do I really want to be there?" Maybe once the action picks up. But until then, I will do my playing where the stocks are hot, the moves are fast and the result is a slam dunk.