Barrons burgers anyone?
Are we having fun yet? You all know the story by now. The bull rally from last Thursday was turned into barbecue by the now infamous "Burning Cash" article in Barrons over the weekend, After applying flawed logic to old data Barrons had concluded that 211 Internet startup companies would run out of cash sometime this year and leave stockholders holding the bag. The promising beginning to a Nasdaq rally that started on Thursday afternoon was squashed on Monday morning as traders ran for the exits. After many companies, including many brokers, came out an strongly disagreed with the article and the logic, bargain hunters slowly started to ease back into the Nasdaq today.
With the Dow not bothering to even slow after last week's huge bounce investors in the old economy issues are having a picnic. Up +1120 points from last Wednesday's low there is rampant euphoria that the correction is finally over. Even the Fed raising rates by +.25% today had no impact and only a minimal blip in prices. The rate hike was widely expected and the rate hike language was the same as February. Analysts had expected a more bearish statement and the "same inflation risks as seen in February" statement was thought to be tame. After a momentary pause the markets put on their party hats and broke out the champagne.
The NASDAQ dropped -143 at the open and stopped just above 4450 support and again crawled back from the brink of disaster. Turning in an impressive range from -143 to +101, which qualified as the third widest range ever, the NASDAQ looked much stronger at the close. The big cap favorites appeared to shake off the profit taking and some added impressive gains. YHOO +20, CSCO +7, CMGI +10, EBAY +18, CHKP +25, JNPR +24, AMCC +20, EMLX +19, BRCM +15. Did you ever notice there is never a +1, +2 day? These stocks are almost always moving in double digits and appear to go from oversold to overbought on a daily basis. With the DOW very extended from the recent rally it is possible we could see some money moving back into tech stocks soon.
Market bull Abby Joseph Cohen was forced to raise her "year end" estimates for the S&P to 1575. Since that is only 81 points from where we closed today this is a double edged sword. While the bullish sentiment is welcomed the implications are immense. Since we could hit that number next week this means she either expects the market to go into a coma and flat line for the next nine months or she really expects another correction and she is trying to warn us without actually saying the words. The S&P closed at a new record today of 1493.
Earnings warning season is in full bloom but not like you would expect. GE pre-warned today that they would beat estimates and the stock soared over +$9. GE contributed almost +25% of the DOW's +227 gain, or +60 points.
In the "should have warned" column falls MU. Announcing results after the bell Micron fell way short of the $.74 estimate with only a +$.58 actual. The conference call was even worse. They cited a drop in chip sales of -20% and a drop in Q2 PC sales of -17%. Margins were down to 37% from 51%. The bad news for us was the claim of falling PC sales and drop in chip prices. The news will not be taken well by the rest of the chip/PC sector. Micron is down -$12 in after hours trading.
Warner Lambert is going to need a prescription in the morning. After the close today they announced they were pulling their Diabetes drug Rezulin from the market at the request of the FDA after the drug had been linked to liver failure. WLA had been counting on big revenues from this product and the morning sickness on Wednesday is likely to be severe.
Now that the Fed meeting is out of the way the economic calendar is rather slim. The focus should turn to earnings only three weeks away. The Fed did moderate fears of a bigger than +.25% rate hike in the future since this was the meeting most feared. The farther we get into the Fed rate hike cycle the less we have to fear about larger than normal increases. Alan Greenspan uses the example of the economy being a huge tanker and the rate increase a minute change in the rudder. Even a small change in the rudder will eventually change the course of the ship but the length and weight makes the change almost invisible for sometime. Each rate increase takes 6-9 months to be seen in the economy and the increase today was the fifth one in the current string which began last June. Analysts now expect at least two more rate increases in May and June. The May Fed Fund futures are indicating a 100% chance of another +.25% rate hike in May. Bond yields are now 5.96% and moved in agreement with today's expected rate increase. This is the first time in six months that the yield has been under 6%. The bond yields have not been below the fed funds rate since the Russian debt problem in 1998.
The NASDAQ struggled back to end with a nice gain but still less than Monday's third largest point drop ever. I will not look this gift horse in the mouth but with the DOW so extended as to be in imminent danger of profit taking the NASDAQ may have a tough time making back to back big gains. This tag team has the divergent market dance down to a science recently and a positive NASDAQ could mean a negative DOW. Nothing goes up or down in a straight line and the DOW has been vertical for five days. I am positive on the NASDAQ on Wednesday as long as the Micron earnings does not trip up the PC sector. Possibly this will be seen as a company specific shortfall and the rest of the group will continue on. Still I am not holding my breath. Protect your positions and wait until after amateur hour before opening any new ones.
Trade smart and sell too soon.
Current long positions include;