The Excitement Was Overwhelming Today
Nasdaq up 10, Nasdaq down 5, Nasdaq back up 10. Not to mention, the continuing debate over the FOMC decision tomorrow (which is already a given) and it's no wonder I was having trouble staying awake during today's trading. Will Labor Day ever get here? That is traditionally the return of traders and the ever important higher volume. Today's volume of 1.24 bln on the Nasdaq and 730 mln on the New York continued a trend of light action.
The one point of interest that I kept checking throughout the day was the VIX. It broke below 20 for the first time since last December. That is incredible that it took over eight months to finally pierce that level. You know what that means too. Use extreme caution going forward if you are long the market. I think we are all in agreement that the VIX won't return to its normal, active self until volume returns, but anything under 20 always makes me nervous. The VIX ended up closing right near the day low at 19.56.
As far as the official numbers, the DJIA closed up 33.33 to 11,079.81. Declines led advancers 14-13, or nearly unchanged. The S&P 500 ended at 1499.48, up 7.76. The Nasdaq finished up 22.81 to 3953.15. The Advancers/Decliners were unchanged. There just wasn't a whole lot of action among either the indices or individual stocks. I have added a more long-term chart of the Nasdaq to show how the Nasdaq range is narrowing. I would expect an upside breakout when the volume returns to more active levels, in the neighborhood of 2 billion shares a day. That won't happen until just after Labor Day at the earliest or the end of October at the latest. The timing isn't precise, but the return of volume is highly likely.
In Treasury action, the 10-year Treasury note was down 2/32 bringing the yield up to 5.78%. The 30-year bond was down 12/32 to yield 5.72%. There was no fresh economic data for analysts to get their hands on today. The highlights will come later this week with Durable Goods Orders on Thursday and GDP and Existing Home Sales on Friday. But we will have something to chew on tomorrow with the Fed comments after the rate announcement. The Fed has been somewhat quiet lately and those comments will shed some light on their current focus and stance.
Big news from INTC is coming tomorrow. It is reported that company executives will announce new chips for wireless technology as well as giving design details for their latest processors. Executives of the world's biggest chipmaker will spell out the advances in Intel's latest processor designed for desktop PCs and laptops at its Intel Developer Forum in San Jose, Calif. The Pentium 4, which will run at speeds of 1.4 gigahertz, will be available in the fourth quarter and laptop versions sometime after that. "It was really designed for the visual Internet going forward," said Albert Yu, senior vice president of Intel's Architecture Group. The trouble is, according to analysts, there aren't many challenges for the microprocessor's extra horsepower yet, especially considering the expected sticker shock. INTC closed near a new 52-week high at $72.06, up $1.50. On a pre-split basis, we would be looking at INTC up near $144.
Ford said on Monday it will idle three truck assembly plants for two weeks beginning on Aug 28th in order to free up 70,000 tires which can be used as replacements in the Firestone recall. In a conference call, senior vice president Martin Inglis said 25,000 trucks will be cut from Ford's Q3 production schedule. He declined to estimate how the schedule change would affect earnings, but it is obvious that estimates would start coming down for the short-term. F lost $0.50 on Monday as it ended at $27.25.
Shares of MicroStrategy closed 40% higher on Monday, after news of an alliance with International Business Machines caused what traders called a short squeeze. According to Prudential Securities analyst Larry Wachtel, "There was a big short position against it, and any news with the IBM name next to it could have very well caused this short squeeze." If anything, it was nice to see MSTR back in the spotlight again, if only for a day. This stock was rapidly growing in popularity early in the year as it traded above $300, only to get cut in half on the open one March morning on accounting irregularity issues. The short players are not likely to abandon this play for good just yet.
Oil prices rose again on Monday, for the fourth straight day. This was on concerns that a tropical storm could threaten the U.S. Virgin Islands, which is home to large oil refineries. Crude prices gained $0.48 to $32.47, despite surging above $33 intraday. Hopefully, this uptrend will falter before economists start screaming the sky is falling. High oil costs will bring inflation talk back as fast as anything.
Tomorrow should be interesting. How will traders react to an announcement that is 99% in the bag? Typically you could at least expect huge volatility in the hour or so following a rate announcement, but tomorrow may not even provide that. My guess is that the markets will weather the announcement without a major move in either direction. Leaving me basically in the same frame of mind I've had all summer long, in that it's still a stock-pickers market.
The one kicker that still lingers in my mind is the VIX, which I mentioned above. I never want to be long bullish positions when it is under 20. There is just too much risk. Sure, it seems as if it has become a lesser indicator this summer, but that is what everyone always says when the VIX is under 20. It is the classic sign of complacency. Therefore, if anything, you may want to err on the side of caution. There is no point in being in anything too heavy during the third week of August. I would rather be in cash and re-evaluate new positions later in the month. In all cases, be smart until volume returns.