Investors Still Playing It Safe
It's tough to find any buyers on Wall Street as every trader in a funny colored jacket is standing around with nothing to do. The buyers strike has forced traders to sit around talking about the Mets instead of taking orders. When will this buyers strike end? These people have families to feed and Mercedes payments to make! Besides, it's hard to make money in this market with such indecision.
The decision in question was...does the Nasdaq want to breakout over 4000? It had been knocking on the door for the past two days, but ran out of gas this afternoon. You could feel the wall of worry about the upcoming April jobs report and pending FOMC meeting. The Jobs report is set to be released this Friday, before the open. Another dagger on the economic front could send us right back to the lows on the Nasdaq Composite. With today's close right at the low, it is easy to envision. The Nasdaq was down 4.4% to end at 3785.45, -172.63. Light trading too with only 1.4 million shares traded.
Fueling the rumors that the Fed will raise rates by 50-basis points this month are comments from the Fed governors. They typically try to pre-announce such moves with hawkish comments and we have seen that lately. Last night came comments from Federal Reserve Bank of Dallas President Robert McTeer that he was concerned about inflation and the U.S. economy's ability to grow without overheating, which hurt interest-rate sensitive issues. The housing starts numbers today didn't help either. New home sales jumped 5% in March to a new 16-month high of 966,000. The thinking behind a 50-point move is the 25-point moves have done little to nothing to slow inflation. With that said, keep in mind that it takes time for the results to be seen. That is exactly why they started raising rates before we even saw a hint of inflation. It's hard for me to believe that Alan Greenspan would make such a big move and risk putting the economy in a tailspin. Also, remember that we have had five 25-basis point moves in the last nine months and Greenspan did seven 25-basis point moves in 1994. The 50-pointers don't seem to be his style.
The DJIA suffered today as well, but not as bad. Which is a change from the pattern we've seen the past few days. Although, a loss is a loss no matter what spin you put on it. It closed at 10731.12, -80.66 and, yes, volume was still weak. Can you tell it is almost summer time with this volume? Once tallied, the NYSE reported just over 1 billion shares traded. Note the lower-highs forming, but support at 10,700 is holding equally as strong.
The big drag on the DJIA came from AT&T and Microsoft. They both had healthy drops on individual news. First, T released their quarterly results this morning with EPS of $0.53, right in line with First Call. But, they suffered on costs associated with the purchase of Tele-Communications last year and a decline in its consumer long-distance business. Corporate sales growth also came in on the weak side and they announced plans to cut up to 6200 jobs. The stock plummeted $7.13 to $41.88. Some analysts are less concerned though as it is all part of a bigger plan to transition from older, less profitable businesses to the new high-growth areas such as wireless and broadband. Second, MSFT sunk on news that Morgan Stanley Dean Witter analyst Mary Meeker (who is a long time supporter of MSFT) said she likes the stock, but finds it more attractive in the sixties. MSFT finished at $69.88, down $3.56.
There weren't a lot of winners today with the exception of defensive plays such as Gold and Silver. Everything that had some gains posted by midday rolled over, such as Semis, Net stocks and Banking. In fact, the biggest point gainer for the day was BRCM (current call play) up $7.56. It's rare when the biggest gainer comes in under a double-digit gain, but it reflects the sentiment from this afternoon.
The bottom line is, the Nasdaq will likely gap down unless we get some market moving news. The question is whether or not it is a small gap near support at 3735 and a recovery for the rest of the day, which would obviously be very positive. Or a gap down that just keeps sinking. Support at 3600 deserves a bounce, but who knows how long that will last. If we get this second scenario, the bears will be strong and you don't want to fight them trying to pick a bottom. Instead, wait for a more clear trend. This buyer's strike we talk so much about has changed the way you should approach the market.
My gut feeling doesn't exist today. It is on strike too, I guess. I am always up for a rally and here are some thoughts to keep in mind. If the ECI from last week couldn't tank this market, there is a good chance that most sellers have been exhausted. It is hard to go lower without sellers. Quite frankly, this current correction has already lasted six weeks and if you haven't sold by now, you aren't likely to. Also, if the Fed does move 50-basis points, some say it is already priced into the market. The bond market echoed that sentiment somewhat today as well. Finally, a lot of stocks I was watching retreated to support only to find a good amount of volume ready to buy it up. If this volume holds those individual stocks at support, the sell-off is effectively over. These signs point to a market bounce off the 10-dma on the open tomorrow.
On the flip side, today's sell-off was swift and decisive. Clearly, no one was waiting to find out what was wrong. They wanted out and they got out. The Fed is hinting to strong action at the May meeting and investors are getting scared. Could it be that Greenspan will break the 25-point trend and hike by 50 points? This unknown is making investors nervous. No one wants to jump back in too soon.
On that thought, and with the futures down at the time of this writing, you are better staying sidelined than getting run over. And...when in doubt, get out.