The Return Of Net Stocks
Has anyone else seen the resurgence in the Internet sector of late? This sector is second-to-none when it comes to exciting investors. We have been watching stocks in this group begin to show life this month and the AMEX Internet Index broke out above resistance this afternoon. That puts the sentiment on full speed for a bullish move. Check out the chart below to see today's move over 550. I can't help being excited here too when I look at the individual charts of some Net stocks. This has been a classic summer consolidation and investors are breathing life back into these stocks. Many stocks in this group are trading at a five month highs. Check out LNUX, FMKT, CMRC, VERT, CHKP, HOMS, CNET, PPRO, GNET, VRSN, CPTH, and INKT for signs of stocks gaining momentum in a hurry.
Time for a deep breath. I just can't help getting excited over the prospects of a fall rally after such a dull summer. Nevertheless, we aren't there quite yet. The employment report due out on Friday is still on the forefront of most trader's minds. After the strong housing report this week, it will be crucial to see a number that doesn't spook the Fed. The current estimates is for 160K new non-farm payrolls created. Unemployment is middle of the recent road at 4% and average hourly earnings is expected to rise by 0.4%. Also on Friday, the NAPM will be released for August with an expectation of 51.8%. These are important numbers to say the least.
Now to the markets. The senior circuit was on the downside today as the DJIA fell 112.09 to 11103.01. Volume was average at 818 mln while the breadth was even. I consider this a bout of profit-taking ahead of Friday's numbers. The S&P 500 also lost ground today, giving up 7.23. But the S&P 500 did have a nice bounce off support at 1500 late in the afternoon. And the Russell 2000 went up 2.74 points today.
The home of the Net stocks, the Nasdaq, rallied today by 21.74 for its first close over 4100 since July 18th. The official closing number was 4103.91 on volume of 1.53 bln shares. Its nice to see decent volume even though many participants are waiting until after Labor Day to rejoin the markets. Advancers beat Decliners by a 21-19 margin. The big push for this index was the B2B sector which received bullish comments from CSFB.
The big news of the day was the announced merger of Credit Suisse First Boston and Donaldson, Lufkin and Jenrette. CSFB will buy the investment banker for $11.5 billion dollars. Zurich-based Credit Suisse will pay $90 for each outstanding share of DLJ held by the public, a premium of almost 10% on DLJ's closing price Tuesday. DLJ shares saw a 32% runup over the last two days amid rumors a deal was imminent. "Combining these two great firms creates a global powerhouse with the platform, financial resources and intellectual capital to rival any financial services organization in the world," said DLJ Chief Executive Officer Joe L. Roby. "The goal is to create a dominant global presence that can compete with the top firms." This will just fuel more global mergers within the sector.
Amazon.com rose more than 8% on Wednesday after a Wall Street analyst said that a new French store and a string of recent partnerships spelled a bright outlook for the online retailing giant. In the research note, Goldman Sachs analyst Anthony Noto reiterated his Buy rating on Amazon, saying the company's outlook was "positive". AMZN said on Monday it planned to start selling digital books using a special Microsoft format to make such books easier to read on a computer screen. AMZN closed up $3.31 to $42.94.
That's not all for major news either. Broadcom fell for the second straight day on word that INTC is suing, claiming patent infringement. In the suit, Intel alleges Broadcom has violated five Intel patents, one relating to networking, one to chip packaging and three to video compression. Intel is seeking an injunction preventing further infringement, plus unspecified damages and court costs. A spokesman from Broadcom said that this is the first they have heard about the matter and that Intel made no attempt to resolve the situation before bringing suit. BRCM closed $238.44, down $13.50 while INTC lost $0.63 to finish at $73.44.
So we are starting to see signs of the awakening of the markets. The QQQs are thinking about a move over 100. The volume is picking up on the Nasdaq composite. The Internets are moving to a four and a half month high. What a relief for us Market Wrap writers who have been rehashing the same "Summer Blues" sentiment for months. And while the fog is lifting, there are always thinks to watch out for. For instance, the data due out Friday carries a lot of weight. The month long rally has been due in part to a silent Fed. We could lose that key factor if more new jobs are created than expected and the hourly earnings number spikes up. No one wants to see unemployment back down to 3.9-3.8%. Not after the strong Housing Starts number from earlier in the week.
The DJIA is stalling this week despite some strong individual moves in the financials too. The main concern here is that some manufacturing companies will be hit with profit warnings due to a further interest rate rise and slowing demand. This is the same broken record we've been hearing for months and months, but it did weigh on the blue chips today. But it is time to start thinking about earnings warnings as September is only a day away. With the VIX down below 20 still, it will only take a few key warnings to spice things up.
With that said, I am still optimistic about the signals that we are seeing. But the one main signal I have been waiting four months for has still not happened. That signal is the two billion share volume days at the Nasdaq. I want to see back-to-back days, followed by a consistent average near that level. Then I will be in heaven. Actually, heaven is hand- held internet access to my trading account to trade options from a golf course somewhere, but I will settle strong volume on the Nasdaq. (For now anyways!)
The S&P futures are about flat right now. I expect the range on the key indices to be somewhat subdued tomorrow. Volume should shrink again ahead of the weekend. This is to be expected and barring a bad number on Friday, things should pick up again next week.