I Can't Do It Captain, I Need More Power
More power? Shatner and company, Priceline.com(PCLN), need more revenue! Taking the honors today, PCLN was the next in line to warn about 3rd quarter revenue. Their reason: lower-than-expected airline ticket sales. While the company expected September to be their strongest airline ticket sales month, it actually turned out worse than both July and August. We can deduce that the indirect culprit is...you guessed it...higher oil prices. Now, who would have thought that oil prices could catch up with a dot.com? Captain Kirk?
As a result, PCLN gapped down and lost an astounding 42% on the day, closing at $10.75. That was enough to spark a sell-off in the Internet Sector. No one was spared and it was a burden on the NASDAQ. EBAY was down $7.19(-10%), CMGI fell $3.81(-12.5%), AOL lost $2.21(-4%), and YHOO broke down to levels not seen since last November, chalking up a 12% loss. Merrill Lynch analyst Henry Blodget downgraded his intermediate rating on PCLN from a Buy to an Accumulate. Jefferies also downgraded the stock as a result of the lower revenue estimates. It has gotten very ugly out there on the NASDAQ as traders have continually sold into strength. Ryan mentioned in last night's Wrap that it has been a steady bleed for the tech index. On the chart below, you can clearly see that every time the NASDAQ gaps up on positive news, traders take advantage of the opportunity and sell positions. After the INTC disappointment, many market pundits said that the gap down and recovery to 3800 was reason to buy, especially after a 2 bln share day last Friday. Yet, I would caution putting too much merit in these gaps down because they really don't sell-off to that level, rather simply open lower as supply takes over. It is evident that Friday's euphoria didn't carry over to this week. The NASDAQ gapped right up into the downtrend line on Monday and we've bled since then. Trading continues to be choppy, unpredictable, and like I mentioned last week, volatile.
The bad news seems to be outweighing the good news. Sellers are in control despite the massive amounts of cash that lie on the sidelines. Looking ahead to the rest of the week, we can expect it to be volatile. The recent selling that has hit the NASDAQ has managed to give a little pop to the VIX.X. Today was the fifth session in a row that the NASDAQ was in the red. It is the third time this has occurred this year. On a short term basis, the markets look oversold. A bounce tomorrow and into the weekend would seem logical and probable. Ralph Bloch of Raymond James was on CNBC this afternoon and commented that the markets appear to be the most oversold he has seen, even more so than March. Yet, with the NASDAQ at 3656, it is dangerously close to 3600. If that support is violated, the tech index may retest early August's lows of 3521. On top of that, based on the past trading range, a buy signal isn't triggered until the 30 area on the VIX.X. The NASDAQ Advance-Decline line continues to be concerning for technicians as decliners outpaced advancers today by a margin of 6-4. Volume has been coming back, coming in at 1.9 bln share at the NASDAQ. This indicates that there is a real battle going on between buyers and sellers, resulting in increasing volatility.
As for the INDU, it continues to be volatile as well. The trading range today was 100 points and the INDU managed to close above the key support level of 10600. It was the same scenario at the NYSE, traders selling into strength and taking the index right back to support. Although trading in a 100 point range, the INDU closed down only 2.96 at 10628. Market watchers will be keeping their eyes on that support of 10600, since a clean break from there will likely attract sellers to 10500. Over at the NYSE, advancers actually outpaced decliners by a narrow margin of 15 to 13, on 1.17 bln shares.
Driving most of the choppy trading this week has been window dressing before the end of the quarter, which is this Friday. As fund managers unload their losers and add to their winners, the markets tend to experience more volatile conditions. Given that the past three days have resulted in much selling, we can speculate that a bounce may be imminent as fund managers put some of that sideline cash to work. Typically, mutual fund investors don't like to see their fund managers holding too much cash, but rather be fully invested, and we know that fund managers aim to please. This may give an added boost technically to the market in the coming days.
Today's news that the Labor Department botched its calculation of the CPI over a period from December 1999 to August 2000 didn't seem to command much of a market reaction. The Labor Department issued a slightly upward revision to 2.7% from 2.6% for that period, which appears negligible. These miscalculations were attributed to software erroneously calculating rent components in its index. This was a non-event for the markets, especially now that more global concerns hang over the market, namely oil prices and the Euro.
The road ahead looks rocky. What is the catalyst going to be to get this market out of the funk that all of these earnings warnings put us in? We're due for a bounce, yet everyday there's a new company lining up at the confessional booth to tell of its woes. Window dressing the next two days will also be a factor, hopefully to the upside. Expect volatility, tests of key support, and a continuation of the heated, high-volume battles between the bulls and the bears. This type of market is difficult to trade, especially with huge funds positioning themselves for Friday's close, so exercise caution. There will be more answers for the market once we make it to October and earnings announcements begin to come in.
With the end of the month and quarter drawing near, October is just around the corner. I wanted to mention that I will be speaking at the Advanced Option Seminar in Denver at the end of the October on how market-makers price options, based on my experience in the IBM pit in Chicago. I look forward to meeting many of you. As time continues to fly on by, it will probably be sooner than later. See you there.