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Market Wrap

After All, It's Still Earnings Warning Season

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       6-20-2000           High     Low     Volume Advance Decline
DOW    10435.20 - 122.60 10561.40 10407.90   923,114k 1,265  1,616
Nasdaq  4013.36 +  23.53  4050.58  3982.23 1,695,145k 1,901  2,082
S&P-100  797.56 -   5.35   803.78   794.08    Totals  3,166  3,698
S&P-500 1475.95 -  10.05  1487.32  1470.18            46.1%  53.9%
$RUT     525.69 +   2.90   526.98   520.75
$TRAN   2662.72 -  17.95  2693.83  2657.93
VIX       23.65 +   0.85    24.29    23.07
Put/Call Ratio       .51

After All, It's Still Earnings Warning Season

You wouldn't have been able to tell from looking at the Dow Jones Industrials, but there was reason to smile over on the Nasdaq. Just like it did for the first time in mid-December, the Nasdaq was greeted with praise after closing over the key 4000 level. It wasn't easy though. You had the DJIA exerting its force to pull sentiment down and the direction of the Nasdaq was noticeably undecided for most of the day. With that said, it still spent almost the entire day to the plus side. Led mostly by some big name winners like BRCM, YHOO, INKT, ARBA and BVSN. Those names sound familiar? Ahh, it is nice to be back near earnings season. Some of the earnings runs are kicking into gear. In fact, the Nasdaq is now down less than 2% on the year.

But, some of the cyclicals and old economy stocks are putting pressure on the DJIA. The Industrials fell by 122 to 10435. An earnings warnings from HON on Monday continued to weigh on this index as HON fell another 10% today. IBM, HWP, UTX and the big oils also traded lower today. The oil stocks are dipping in fear of the OPEC meeting on Wednesday which may help to limit production. These losers were offset by gains in INTC, MSFT and AXP. Volume was good at 1.02 bln. The S&P 500 was off by 9.72, or just over one-half of one percent.

OK, enough with old stuff, let's go to where the action is. The composite was a back and forth story. I sat at my desk watching the market while I worked and seemed to be changing my sentiment hourly. Here we go, time to get out, here we go again, oops rolling over. You get the picture. But, there were a few key indicators that are tough to deny after the tape stopped for the day. First, we closed over 4000. That is quite an accomplishment. The Nasdaq has now closed positive for the fourth straight day. And it has done this in the face of a weak old economy market. Does this remind you of the some story we heard over and over from October to March? I wouldn't mind seeing market conditions like that again. The fact that the Nasdaq has closed above 3900 after two and a half weeks of consolidation under that level is also a sign for the bulls to charge. The official close was at 4013.36, up 23.53 on volume of over 1.65 billion. Ahh, volume! Another friend from the past.

Here's a daily Nasdaq chart showing the close back over a key psychological level. On Tuesday's chart below, you can see the indecision towards market direction throughout today's session.

Some of today's market action stemmed from the April Trade Deficit which was released this morning. It came in above the expected $29.2 billion at $30.44 billion, but today's number did shrink for the first time in four months. March was also upwardly revised. This caused the dollar to weaken slightly against the yen to 105.54. All in all, it wasn't much of a story. Not like the one you will be hearing about all day tomorrow, which is the OPEC meeting. Oil producers from around the world are meeting in Vienna to discuss production cuts. All Americans will have their eyes on this story as gasoline prices are hitting records highs across the country. August crude jumped $0.86 to $30.50 on Tuesday. The markets will focus on this as well because higher oil can ultimately lead to higher production costs and an outbreak of the "I" word.

Broadcom stole the spotlight for big gainers today after it was announced they will be added to the S&P 500. The word came before the market open and was good for a nearly $20 gain in BRCM. The more impressive part came as BRCM was able to hold those gains to close up $19.28 to $165.88, due in part to a strong Semiconductor group today. This group was lead by both BRCM and INTC as Intel's President, Craig Barrett, made bullish comments about the outlook for the second half of 2000. He said, "The PC market is very strong right now... It is stronger than Intel thought it would be this year." INTC closed up $1.81 to $138.31.

In merger news, France's Vivendi confirmed it was acquiring Seagrams in a $40.4 billion dollar deal. This is the third such merger to create a global media giant. The other two, of course, are AOL/Time Warner and CBS/Viacom. Now that Seagram is tied to the price of Vivendi, shares of VO fell by $5.94 to $58.06.

Oracle was the big earnings news of the day. The company reported their fourth quarter numbers and beat the street by a healthy margin. They turned in $0.31 cents a share versus the First Call estimate of $0.25. Sales and margins rose in what appears to be an extremely solid quarter for the company. Needless to say, but ORCL did trade down after-hours. ORCL closed the regular session at $86.03 before declining to $82.19 after the news. No big deal some say, as ADBE did the same thing last week after their earnings report, only to find its stock back at new highs today. Just a typical post-earnings decline, but again, a pattern we have become accustomed to over the last couple years. In reality, I am more comfortable trading in these known patterns than fighting against the unknown, which we had during April and May.

So I still have to side with the bulls. Monday's breakout of the recent trading range and today's close over 4000 is bullish. And I am glad it finally happened, because as you know, I had been trying to keep a market neutral stance while the Nasdaq consolidated and choose a direction, but have been siding with the bulls that an upside move was coming. There have been two basic points that confirm such a bullish position. First, the Fed is likely to stand pat this month for the first time in awhile. It's time to let the rate hikes sink and judge their effect. It wouldn't be prudent to continue raising rates without much more concrete evidence then is currently seen. Second, earnings are here and the first three big names (CMGI, ADBE and ORCL) have proven they have the numbers to back the valuations. These earnings runs are just kicking into gear too, as evidenced by Yahoo today. YHOO typically leads the July Internet earnings season and showed a lot of strength on Tuesday with increasing volume. There are similar patterns emerging in other stocks as well.

The little voice in my head always has a few negatives to calm my "irrational exuberance" though and here they are. First, that darn VIX has found its way down to the lower 20s. I am actually kind of glad to see it there because, once again, it used to always hang out at these lower levels, but we still need to watch it to gauge whether or not we are nearing the top. At today's close of 23.57, a slight backtrack from Monday, I still see more room to dive and don't fear it quite yet. It is when we start to dive under 21 that I will be more hesitant. Remember though, last July it spent the first half of the month at or under 20. Second is the already expansive moves of some stocks. It was easy to pick up on an entry for SDLI under $200 last month, but it is not as easy at $300 plus. I would be cautious on those stocks that have already posted 60-70% gains from last month's lows. That kind of move is so hard to sustain (unless your RMBS which seems to trade under an entirely different set of rules!).

Many stocks seem to be selling off a little after the close, so keep your eye open for entry points. The mother of all would be the Nasdaq at a bounce off 3900. My guess is we won't be so lucky. You never know though. After all, it's still earnings warning season for a few more days.

Ryan Nelson
Asst. Editor

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