Down, Up, Down, Up
If today wasn't enough volatility for you, check your pulse for signs of life. The action was fast and furious all day. The Nasdaq is where it was at too. The tech-heavy index (the key word being heavy) opened down 100 points before staging a quick comeback to positive territory in the first 30 minutes of trading. That should be bullish right? Wrong, call buyers on the recovery got taken to the cleaners as the Nasdaq made an even quicker reversal and never even came close to the plus column for the rest of the day. From there it was a stair- stepping pattern down from one support level to the next. The first one was 4500, which held for about an hour, then broke. Next up the famed 4450 support level that saved the Nasdaq just over a week ago. It also held for a brief period before giving way to selling pressure. From there traders were talking about 4400 holding up, but that support level lasted for about 30 seconds and it was bombs away from there. The Nasdaq started dropping in ten point intervals. Finally, some signs of a capitulation. It went as low as 4355 and started to stall. From there it was rubber band time as the Nasdaq sprung back towards 4500 before closing at 4457.89 or back above the key 4450 level. The final tally left the Nasdaq down 186.78 or the fifth biggest point decline in history. Not too bad when you consider that it would have been the biggest decline if it closed 30 minutes earlier. All in all, it was the kind of market that would leave you feeling drained if you had been playing all day.
The DJIA was a different and more positive scene. It held gains for most of the day and even pushed into triple-digit territory for awhile mid-day. In the end there was too much drag from the Nasdaq to close with any gains, but it still proved to be the leading index of the day, only finishing down 38.47 to 10,980.56. This is back under 11,000, but you have to give credit where credit is due. This index was building a nice upward trend all morning and broke above long time resistance of 11,100 before the buyers packed up for the day when they realized they were fighting an uphill battle. Volume was strong on both indices with the NYSE turning in 1.2 bln and the Nasdaq at 1.9 bln.
Like I said above, anyone in the market today was ready for vacation when it was all said and done. The market was jittery and I started wondering why I had some open long positions. I had to rely on some old trading advice...when in doubt, get out. It didn't take long for me to find my way into some QQQ puts either, which I closed out at the first uptick off 4355. That made for a nice recovery against the early long plays that gave me a few lumps. Nevertheless, it may be time to start looking long again with today's late day bounce on strong volume, with a lot of large blocks buying in at the close. Could we be in for one massive window dressing day after all? Hey, I'd settle for not dipping another 150 on the Nasdaq.
The VIX has been bordering on useless lately as it isn't heavily weighted in tech stocks. It finally started to push above 27 in the final hour, but no where near the 30 level, which signals a major turning point. You may have got your turning point this afternoon despite what the VIX is reading. There has been talk that a new indicator is needed to gauge fear in tech stocks. Some sectors experiencing fear today included Biotech, Internet and High-tech. While the winners were in areas like Insurance, Retail and Chemicals.
Part of the afternoon capitulation was due to Yahoo. It was reported that YHOO was the target of an FTC inquiry for its consumer information practices to see if they comply with federal consumer protection laws. This sent YHOO plummeting from $180 to $160 within an hour and really put fear into some sellers. It did bounce back late to close at $169.31, -7.75 and was up over a dollar after-hours too. This might have been that last chance entry for the earnings run. They are set to report Wednesday after the close.
INTC had some good news after-hours, which may help spur a market recovery tomorrow. There has been talk for weeks of a possible upside surprise for Intel's bottom line this quarter. That news was announced tonight when INTC said they will be adding $0.17 to their first quarter earnings. Unfortunately, it is not based on operating performance. Instead, the IRS has ended the review of INTC's 1998 taxes and determined that INTC is due an adjustment of $600 million dollars to be used in the first quarter of 2000. That 6-mil turns into an extra $0.17 cents profit. INTC closed down $4.88 to $127, but was up after-hours as high as $130.
Alan Greenspan did his best to calm fear today, although you have wonder if he was laughing inside. He said, "The Federal Reserve is not 'jawboning' the stock market or targeting stock prices," and he went on to say "I do not believe our short-term monetary policy operating procedures have a significant effect on stock prices." Interesting comment seeing how he has hinted towards a bubble in the markets and that the Fed is trying to curb growth in the economy. But if it helped improve market sentiment today, we'll take it. Besides, a market free-fall would likely help stop the current streak of interest rate increases. Alan has always been market-friendly in times of distress.
Tomorrow morning will start the day off with some fresh economic numbers. First up, February factory orders is expected to fall 0.9%. Also, the release of personal income is expected and the expectations are for a 0.3% increase, with personal consumption expenditures, expected to increase by 0.8%.
The economic numbers will probably be an after thought unless something is really out of line. Most traders will be trying to asses today's action and if we did see the short-term bottom this afternoon. It's my impression that we did, but tomorrow morning may have a retest of today's lows. You will get those longer-term investors that will come home tonight and check there stocks and get scared into selling. Assuming we confirm that the lows are in place, that would be the time to buy. Sure the Nasdaq is getting whipped and it may stay that way for months, but traders will always overdue everything to both the downside and upside. Today was a case for downside. Don't get me wrong, if the trend wants to go lower, I will jump back into those QQQ puts, but it feels like the sky is falling. Usually a contrarian view that a rally is in sight. With the rebound to close over 4450 on what appeared to be some good institutional buying at the close, it would seem the stage is set for a rally. The futures confirm that thought as they are currently up 4.40 at the time of this writing. In all cases, keep this thought in mind...when in doubt, get out.