Abby Is Selling, But Will Funds Start Buying?
Abby Joseph Cohen spoiled the markets today, but it may be time for other money managers to start their quarterly window dressing shopping spree. If you caught any of the action today, you know it was famed Goldman Sachs analyst Abby Joseph Cohen who brought a dark cloud to Wall Street today. In a somewhat confusing move before the market open, she changed her allocation in stocks from 70% down to 65%. It was confusing in that she had just upped her price targets for the DJIA and S&P 500 last week. How does she expect to hit those targets with everyone selling stocks? I guess what can be derived from this change in allocation is that she is expecting better gains in the non-Nasdaq stocks, which is in line with her comments about the switch. Still, ahead of what should be an incredible earnings month, the timing seemed suspect. Nevertheless, the futures were near +10 this morning until the news hit and they quickly dropped to -6 and set the tone for the day.
The damage might not be as bad as it looks at first glance though. Sure the Nasdaq was -124 and closing right smack on the low, but volume was flat out anemic at 1.5 bln shares. Also, you had a lot of people talking over the weekend about a sluggish start to the week and then picking up ahead of March 31st and the end of the quarter window dressing. Throw in some decent support at 4800 on the Nasdaq supported by the 10-dma and we might just be a quick morning capitulation away from an entry point. Losers did almost double gainers by a 27-15 margin on the Nasdaq though. A bounce at 4800 will be the key before jumping back in with both feet.
The DJIA held up better, but still gave up gains in the final 90 minutes of trading. The Industrials fell by 89.74 to close at 10936.11. Advancers beat decliners by a 17-12 margin on light volume of 952 million shares. Yep, back under 11,000 as the DJIA again failed at resistance of 11,100 during the past few days. The chart below is an updated version of the one from last week showing this resistance level. It is clear where the sellers are accumulating, but the light volume is suggesting there aren't a whole lot of sellers out there. It is probably more along the lines of some healthy profit-taking after a big run up on the DJIA.
In fact, there was a lot of good news that went relatively unnoticed today. For instance, Oil tanked again on news that OPEC has reached an agreement in principle to increase output. There has been no formal announcement yet to just how many barrels they will send to market, but it is expected at any time. Oil prices finished down $0.70 cents to $27.09. Not bad compared to the $34 level we were looking at just over a week ago. The preliminary report is a 1.7 million barrels a day increase, which is closer to the high end of expectations. Although, the word crossing CNBC late this afternoon suggests that maybe the deal at 1.7 million is not final. Either way, oil continues to fall and that will help curb inflation.
Also, consumer confidence fell for the second straight month on worries over inflation. If people start spending less, it is hard for prices and inflation to increase. In the treasury market, bond prices gained ground. The 10-year bond (the new bellwether) gained ground and saw its yield fall to 6.15% from 6.18%. Most of this was a flight to quality reaction to today's market, along with the positive economic numbers.
The winners today could mostly be found in Airlines, Banking, Retail, Insurance and other Cyclicals. The losers were in High-Tech, Internet, and Utilities. The best bet was to stay in those stocks that were showing strength or holding support as they are likely to take off when the market recovers. Other- wise, finding an exit point on the losers is time well spent. You don't want to get caught watching something bleed to death. Sounds simple, but a reminder is always useful. You may remember what happened the week of March expiration when the entire Nasdaq bled all week long, leaving call-sellers happy and call- buyers mourning.
The biggest joke of the day was rumors of an emergency Fed meeting that might be called to raise rates ahead of their next meeting. Come on guys, who starts some of these. I think it is a pretty safe bet that isn't going to happen. Alan and friends have been fairly systematic about the way they've been raising rates. They have had five, 25-point moves over a period of 9 months and are not likely to do anything so drastic. This could have sparked some selling, but not by smart money as they know the Fed will sit pat until their next scheduled meeting.
PALM was our big earnings news after the close today. In their first report as a publicly traded company, PALM beat the street by two cents. First Call had an estimate of $0.01 and they earned $15.5 million, or $0.03. This was a pleasant surprise and hopefully the beginning of many more to come in the next month. PALM was trading up from their regular session close at $54.81 to $57 after-hours.
Logical thought would lead us to believe that a negative open tomorrow is imminent, barring some market moving news. Despite PALM's solid earnings and some more late news that AT&T has set the range for the IPO on their wireless tracking stock, a close at the day-low is never good. As mentioned above, we may see a morning dip before stocks stage a mid-week comeback. Paul Cherney, market analyst at Standard & Poor's said it best today, "A lot of the mutual fund managers, especially those that are in the blue chips, are just biding their time, trying to pick a point to stuff the ledger with some of the better-name blue chips,". Agreed. The market has been trending lower for three days now and it may be time for a bounce. Watch the 4800 level on the Nasdaq for a bounce. The futures are down less than a point at the time of this writing, which isn't telling us anything except we will have to sign on a few minutes early tomorrow to figure out which way sentiment is leaning.
If you are brave, look for a capitulation early confirmed by volume or a major support line. Others should watch for a breakout of the current downtrends in all major indices to confirm the reversal. A well-placed trend line along the falling intraday highs should be a good guide. See the one on the DJIA above as an example. A move above such a line will help to restore confidence for a short-term rally. In all cases, trade smart and sell too soon.
P.S. The first seminar concluded today in grand fashion and second one began this evening. That one will end this coming weekend and Jim will be back to work providing his market analysis starting next Tuesday, after using Monday to recharge his batteries from those 14-hour days. We like to give him one day off from time-to-time!