Lack of Conviction Makes For A Sleepy Day
Today can be summed up with one phrase: lack of conviction. That's the way it felt from the minute the markets opened this morning. After two of the biggest point gains in history for the NASDAQ, it seemed that all sights were set on the index to give us an indication of the market's next big move. It opened at 3832 and within an hour slid down to 3720. With the echoes of "suckers rally" in the back on many minds, a healthy retest looked underway. Yet, we wouldn't be so lucky. Instead, we got a sleeper of a day as both the NASDAQ and the DOW flatlined. The DOW fell 92.46 to 10680 in a relatively uneventful session.
The NASDAQ slowly climbed from 3720 toward 3800 where resistance was thwarted. Shortly thereafter, it made its high for the day and rolled over for the day, off 87.16 to 3706. Not very exciting. Looking at the NASDAQ's broader trend on a daily chart, we can see that trading has been bound in the regression channel. Today, it traded right up to the upper limit and backed off.
There were a handful of standouts for the NASDAQ. INKT decided to break the trend and beat First Call estimates by $0.03 with a $0.01 profit, their first profitable quarter ever. This prompted a strong rally as INKT rose to $132.13, up $16.13. The rest of the Internet sector pullbacked for the day. Also beating estimates was ITWO with earnings of $0.07 vs. $0.05 per share. Their stock soared $11.88 to $108.19. Another B2B company that had good upside today was CMRC, which ran up $16 to $95.50. The company reported after the bell today a loss of $0.09 per share, better than the expected loss of $0.22. In after-hours, CMRC traded $98.50. QCOM beat the Street by $0.02 and traded up $2.75 to $115.13, coming off a high of $125.88.
CSCO was in the news today. As if Cisco wasn't big enough, they signed a multi-billion dollar marketing and sales alliance with SBC communications today. The deal will allow Cisco to become the preferred provider of networking gear for SBC's infrastructure. Despite the agreement, both stocks remained relatively calm. CSCO ended down $2.75 to $66.50 and SBC finished at $42, up $0.50.
With one of the biggest days for earnings behind us (Super Tech Tuesday), let's look at how some of the big names faired. INTC beat the street by a similar two cents, only to be punished with a $10 loss to $119. Oh, the irony of the markets. Other notables included AOL beating the street by...you guessed it, two cents and traded up $1.38 to $62.13. Does this convince you that Wall Street CEOs know how to do enough to please the Street and save some profits for a rainy day?
We can't forget IBM. Big Blue exceeded expectations and reported profits of $0.83 a share, but revenues were 5% lower than their fiscal first quarter. As a result, investors sold shares of IBM which ell to $105, down $6.50. This is just a small sampling of companies that have reported in the past two days. We haven't seen a sell the news attitude which is typical of this time of year because of the markets massive decline. It appears that companies with good earnings are being rewarded with a rising share price while others like IBM are being taken down for weak results. Finally, the system working the way it should! One last earnings note, First Call reports that out of the S&P 500 that 187 companies have beaten earnings, 29 missed and 2 were even-Steven with their estimates.
It was a rocky day overall as many investors took some money off the table. Financials were sold today as preemptive interest rate fears may be creeping up on the market: C down $2.50 to $59.63, LEH down $3.13 to $83.06, and CMB down $2.50 to $78. Like IBM, other NYSE big cap tech stocks felt the pain as well as HWP(-3.25), EMC(-2.13), and TXN(-7.00) were all lower.
One blue chip that felt the pain in a big way was BMY. Bristol-Myers was a disaster today when the company announced they were withdrawing their application to market the hypertension drug Vanlev because of concern about side effects. They should have been concerned about the side effects this announcement would have on BMY's share price. The stock was halted this afternoon and when it reopened, BMY had lost $30 bln, or 28% of their market value. BMY last traded at $50.50, down $14.50. They said they're doing this in response to questions raised recently by the U.S. Food & Drug Administration regarding the incidence and severity of an infrequent side effect known as angioedema. Vanlev had been projected as an $800 million dollar revenue generator in the next two year. BMY did say they plan to resubmit the application next year.
It appeared that money went into those old economy stocks in a move to safety. Airlines were strong as both UAL(+1.38) and AMR(+0.63) beat their earnings estimates. Also on the upside were the Pharmaceuticals. They did well throughout the day as investors sought out safehavens. WLA(+7.00), MRK(+2.75), AHP(+2.75), LLY(+2.38), and PFE(+1.75) had strong buying. This rotation that we have seen recently, reminiscent of this time last year, may be a telling sign of what's to come in May, after this earnings season passes.
With such a rapid recovery on Monday and Tuesday, today's lack of conviction to the upside concerns me for the next couple of trading days. Tomorrow is option expiration and the last trading day before the long holiday weekend. Volume should be light as many professionals will be beginning their vacations early. As a result of thin trading, there may be more volatility. Monday will be an important day as everyone has that "NASDAQ retest" in the back of their minds.