ARGH, The Pain Of Range-Bound Trading!
What happened to our post Fed decision rally? I know, I know, we had a pre-announcement rally instead. Unfortunately, many were hoping that a 50-point move would bring closure to the rate issue and the return of volume. Ehh! Wrong answer. Back into the range we go. That's what I get for not remaining market-neutral. Until we see strong volume, these head-fakes can really put a dent into your trading capital. Nevertheless, not everything looks bleak on Wall Street.
In searching for new plays today, our short list was as long as ever, both calls and puts, which leads us to a conclusion. Perhaps this range-bound trading has brought the game back to the individual stock pickers, instead of massive sector momentum pulling everything back and forth. What a concept! Individual companies moving based on company fundamentals and performance. The hot list I use showed only two stocks on the double-digit gain list and only five on the double-digit loss list. Most moves were subtle and part of a bigger trend. Trends...remember those. We have even seen an increase in stock splits, especially today. CPN, VSH, TIF, HBAN, HC and TBL all announced today, proceeded by INTC and five others on Wednesday. This is a drastic rise over the past few weeks and is possibly indicative of the feeling from CEOs that the market has stabilized or has an upside bias.
On to today's action, the DJIA struggled to hold its gains in the final hour and ended up with a 7.54 to 10777.28. Yes, volume was light once again at 808 million. The financials played a big part in holding up the DJIA as the sector had a better day with J.P. Morgan up $0.94 at $133.56 and Chase Manhattan gaining $1.13 to $75.13. Big Board losers outpaced gainers by a 5 to 4 margin. Here is the chart to show you just what an 0.07% gain looks like...
It was the tech shares bearing the brunt of the selling. Names like CSCO, MSFT, IBM, ORCL and SUNW all lost ground. The Nasdaq ended right smack on the low at 3538.71, down 106.25. It looked like most traders just gave up at the end of the day and went home early. The volume finished out at 1.25 billion. You can see the trend since Tuesday's Fed announcement. The 50-point hike could have started a meaningful rally, but the Fed's tough talk in the comments kept the buyers at bay for a little while longer.
The "big" bells were ambushed by The Wall Street Journal who reported today that federal antitrust enforcers have recommended blocking WorldCom's $115 billion buyout of Sprint because it would violate antitrust law. The Justice Department's concern is that the two companies would dominate Internet switching services. FON ended down $1.75 to $56.25 and WCOM headed lower to $39.56, down $2.44. This didn't help the rest of the sector either as AT&T dropped $1.25 to $36.88.
Today, the Labor Department's weekly jobless claims report showed that new claims for unemployment benefits fell last week for the second week in a row. The weekly initial claims fell 21,000 to 276,000 while the Philadelphia Fed index for May rose to 20.2 from April's 12.8. This news pushed bond prices down for the second day in a row. The next economic report with true potential to move markets is due May 25th, when the Commerce Department issues its preliminary report on first-quarter gross domestic product. Maybe this will spell relief for the markets over the next couple days. No news has been good news of late.
After-hours brought on a lot of action today. Companies like CIEN, NTAP and SCMR all reported earnings. CIEN beat estimates by $0.02 with a $0.12 profit. Revenues grew by a healthy 66%. Investors were rewarding CIEN in after-hour trading, pushing the stock up to $139 from a $137.31 regular session close. NTAP also reported a better than expected profit, by a penny. They earned $0.07 versus a First Call estimate of $0.06. There revenues were up an astounding 120% over Q4 of last year. This news didn't do much for the stock price though as it was trading in line with the regular session close. Finally, SCMR beat the street by turning in $0.05 versus an estimate of $0.03. This wasn't good enough apparently as SCMR traded down after the close to $90, down $2.25 in after-hour trading.
It is hard to say with certainty what the Fed's next move is, and traders were looking to the minutes from the March 21st meeting, that was released today, for answers. It showed that although it was a unanimous vote for a 25 point hike, some members actually favored a 50 point move. But they also said they saw "little evidence to date of any acceleration in core inflation." Another positive was the committee saw a softer stock market as one of the key drivers behind slowing growth down. I think they got their wish in April. It is possible that they can now take a wait-and-see attitude to the current hikes, but not all traders think they are done quite yet. Some feel the Fed has one more move left in June and this sentiment is holding back the buyers.
So interest rate fears continue to reign on Wall Street. I have to believe they are nearing an end though. You almost got the sense that a rally was very possible after the Fed meeting on Tuesday. The strong statements from the Fed held back the buyers though. Some suggest, and I agree, that the strong statements were just aimed to keep buyers off the Street a little longer becuase another 50 point move in June is far from a lock at this point.
That is ok though. This has become a stock-pickers market. Use the VIX as your guide and watch for those stocks that are establishing good trends and have some catalysts, such as stock splits. (The VIX is currently sitting middle of the road at 26.50). The Nasdaq will likely test 3500 in the morning tomorrow. A bounce off this level will be encouraging, but watch for light volume on expiration Friday to cause some sizable swings in individual issues. As for me, I have no agenda for trading tomorrow. The typical Friday afternoon sell-off pattern doesn't lend a lot of time for an intraday trade. You are probably more safe just taking the day off. Let's face it, that is what everyone else is doing lately.
When in doubt...get out, stay out and enjoy the weekend.