Techs Stocks Put Life Into The Averages
Ahh, the sweet smell of a rally was in the air today, but can volume of 1.3 billion really excite traders? Not this one, but even I can appreciate a rally in August. We've now seen three straight days of gains for the Nasdaq and five straight winners for the Industrials. Volume or not, the sentiment is getting better. You can thank the Financials too as the Banking index continued to climb today. This just proves the old adage that when the Banks rally, so does the market.
In fact, I am adding a chart of the BKX.X to show just how strong this move has been. This is the second time in a row that we have seen the Financials move up ahead of a Fed meeting. You can see on the chart how this occurred in May, only to give back most of the gains in June. That last rally took the index as high as 900 before running into a wall of resistance. It will face that same challenge again in another 33 points. A move above this level will be a strong bullish indicator. Does it have the strength for such a breakout? Well, it hasn't made it the past couple of attempts and, after all, it is August. On the flip side though, traders are pointing to this rally as the real deal since most expect that rate hikes have ended. We will find out if that train of thought is for real on Aug. 22nd when the FOMC meets to decide the direction of interest rates.
The DJIA traded up 99.26 points today on volume of 854 million. That puts the blue chip index at a level of 10867.01 and right at resistance. Advancers beat decliners 17-11. The S&P 500 closed at 1479.32, up 16.39. The Nasdaq finished up 75.63 to 3862.99 on sub par volume of 1.3 billion. The most interesting chart of the three is the Dow Jones Industrials. You can see the resistance I am referring too. In fact, it is starting to peak its head above that level. Again, thank the banks, but if they stumble, the index is likely to follow. A close above 10,900 would be bullish, but a move above 11,000 resistance would be shocking. You would really grab some institutional investor's interest if that were to happen.
Bond prices dropped as the stocks rallied. The 10-year was off 11/32 to a 5.95 yield. The 30-year dropped 15/32 to 5.75. Consumer Credit was the only economic report on tap for Monday and it rose $12 billion in June, which was slightly larger than the $9 billion that was expected by analysts. While this could have weighed on the market, traders were encouraged by the smallest gain in credit card debt in months. Most of the gains came from vacations, cars and other expenditures.
Technology stocks were leading the rally, with Biotechs, Semis, and Software as the standouts. Financials and Utilities also made gains. One group that didn't fare as well was the Net stocks. Henry Boldget stirred things up by "resetting" his ratings on a dozen Internet stocks. This was part of a new, "mature" phase for the sector, making valuations an even more important factor. "The tide is no longer rising fast enough to lift all boats. We continue to believe many sectors of the industry are transitioning from hyper-growth to longer-term growth and that this transition will continue to cause a shakeout and consolidation," Blodget said. Some of the names mentioned for lowered revisions were EBAY, BNBN, DCLK, ETYS, SFE, and BUYX. So there you have it, Internets are entering long-term growth instead of hyper-growth. Although, you aren't likely to stop daytraders from playing this group just yet.
Online bookseller Barnesandnoble.com is teaming up with Microsoft to open the first major Internet store selling digital books. A Barnes and Noble spokesman, Gus Carlson, said the books would be available for downloading and reading on a screen or in single paperback copies printed on demand. Microsoft, the world's biggest maker of personal computer software, is launching the latest version of its free software for reading on screens as part of the deal. Financial terms were not disclosed. MSFT gained $0.88 to $70 while BNBN gained $1.44 to $5.19.
Computer Associates said Monday its president and COO will take over as chief executive, replacing founder Charles Wang. CA also announced it will spin off its software and services businesses and later, its desktop accounting business and some other technology operations. The first spinoff will be a new company called iCan-ASP. They also said promoting Sanjay Kumar to president and CEO was part of a corporate restructuring aimed at allowing "the company to focus on its core businesses, support stronger growth markets, enhance client services and boost efficiency." CA finished down $0.06 to $26.88.
Although there were many other news stories of minor importance today, let's focus on what you will hear a billion times on CNBC tomorrow. That is Cisco earnings, which will be released after the close on Tuesday. You have to figure a solid number is in the works for this industry leader, but will it be enough to sustain the entire tech sector? I would guess no. I think we still need a another short-term breather in the Nasdaq. With the volume at 1.3 billion shares, it is hard to get too excited about the gains. I know that is the third time I have mentioned Nasdaq volume, but it is the classic August bear trap...a rally with no volume. I am more content to wait for signs of a true rally, which could begin again later this month after the Fed meeting.
There are some economic reports due before the open, but most expect the data to be market friendly. Productivity and Unit Labor costs will be the focus of traders at 8:30am EST on Tuesday. Productivity gains will likely be strong and thus continue to curb inflation. Economists expect to the gains to be around three to four percent. With these kind of numbers, it is more likely that Greenspan will stand pat instead of raising rates. After tomorrow's reports, all eyes will be on the PPI due out Friday. This may keep the market somewhat subdued, barring any major developments.
The VIX continues down at the bottom of the barrel, closing at 21.40 today. This would normally send me headed for the hills, but it has been stuck in the low 20s for so long that it doesn't play a major factor in my trading at this level. A break below 20 would have me thinking short-term top though. In all cases, play light and have your escape route mapped before you enter a trade.