Ok here is the plan, heads its Bush, tails its Gore.
You know the story, you have heard it over and over all day until you are almost to the point of wishing you had voted for Nader. (I said almost!) As I write this 97% (65 of 67 precincts) have been recounted and the Bush lead has slipped to only 225 votes. Sheeesh! Talk about a nail biter. If it was only a matter of the Florida recount being completed tonight and a winner named we would almost be out of the woods. Unfortunately for traders the outlook is still grim. Regardless of the final count tonight there are numerous suits already filed and recounts underway in other states besides Florida. The closer we get to a tie in the Florida recount the more importance the absentee ballots will become. The Bush camp says those ballots come from a lot of military personnel and will add to the Bush totals but the Gore camp says a lot will come from Israel and be for Gore after the Clinton effort to help in the recent conflict. The bad news, they can come in up to ten days after the election and still be counted as long as they were postmarked on Nov 7th. The bottom line, we are not done having fun yet.
Other than election news, yes there was some, the PPI report this morning was mixed with a headline number increase of +0.4% which was far more than the +0.1% that analysts expected. The major reason was higher food and energy costs. The core rate which is more important came in at -0.1% which was less than expected. The mixed numbers had very little impact on the market with all the real attention being focused on the election results. The Fed meets next week and today's numbers were a non-event as far as the Fed is concerned.
Dell did what everyone feared after hours tonight. Dell met analyst's estimates with earnings of $.25 but guided analyst's earnings lower for the future. Dell feels they will achieve a +27% growth for the full year going forward which is decent growth. The bind here is what we were worried about with CSCO on Monday. They have been growing at a +50% clip for so long that anything less than that is viewed as a negative. Dell dropped to $26 in after hours trading from a close of $28.38. With Nasdaq futures down -50 already for tomorrow you can bet Dell is a substantial reason. Intel dropped -1.50 in after hours after the Dell guidance. Fewer computers sold by Dell mean fewer Pentiums sold by Intel. CSCO dropped about -.50 for no reason we can find. MSFT lost about -$1.00 after the announcement and SUNW only -.50. SUNW is likely to benefit from the impression that they are getting more server business than Dell.
Today was tough for the Internets with YHOO dropping over -$6 as the leader by default of the Internet sector. After the missed earnings and warnings from last night the carnage was widespread and severe. CMGI -3.81, ICGE -5, SFE -2.69, DCLK -3.25. Anything related to Internet advertising revenue took a serious hit and many hit the lows for the year. The shock wave from that bubble bursting is still being felt as investors login to see that their Internet stocks which could not go any lower actually did.
Even the largest profitable Internet company took a hit but from a different source. AOL dropped -$4 after the government said they were delaying the decision on the TWX/AOL merger. AOL is not as susceptible to advertising revenue as most other companies and the TWX merger will make them even stronger going forward but there are many hurdles they must cross before that happens.
If you were sitting in front of your PC today when the Gore team started talking trash about the election and all the suits and recounts and irregularities then you are well aware of the intraday havoc they caused. The Nasdaq, which had been trading sideways since the opening drop, promptly headed south to the tune of -144 points and a low of 3087 before rebounding to close dead on 3200. The low was about +6 points above the low of 3081 set on October 26th. In my book it was another successful retest of the entire series of October lows from the 13th, 18th and 26th. With any kind of resolution of the election crisis we should move up from here. The Dow dropped almost -300 points to a low of 10618 and rebounded after the press conference to close at 10834. Volatility anyone? The prospect of the election crisis dragging out days, weeks or even months had traders running for the sidelines. Did you buy the dip like I suggested last night? I did.
Here are my reasons which with $3.00 will buy you a cup of coffee but they are my reasons. I think 3100 is strong support and 3000 even stronger. I think our downside from here is slim. Yes the election news is grim. What is the worst case? One of them will finally be declared the winner and the market will rebound. The possibility of Gore being the winner has now been priced into the market. If a possible Bush win had added several hundred points to the indexes then the two day sell off has corrected that. This does not mean new news cannot cause further problems but almost every possibility has been priced in at this point. Then there is the wildcard. The Fed. If the markets keep bouncing all over the place could the Fed possibly be a little more open to a rate cut next week to soothe the markets until the election is resolved? Who knows but I would not put it past the current administration to put pressure on Greenspan to cool the markets while the Gore team goes about trying to find enough votes to claim victory. Is that a conspiracy or just good politics? After all, you take the pressure off the markets and you take pressure off the timing of the results. Maybe I am just skeptical but Greenspan has been known to ride in on his white horse in times of crisis in the past and save the day. What is the worst case? They raise the rate again next year if the economy is still growing too fast. Add to this the high VIX at 30 and the put/call ratios near .80 and you have a great possibility for a positive market on the right news.
What should you do tomorrow? If I knew the answer without a shadow of a doubt Austin and Wendy would both be driving new Jaguars on Monday. Nobody knows and nobody can predict due to the enormous possibilities of more press conferences by the dueling election teams and the possibility of each trying to grab the headlines with multiple forms of sensationalism. What if Florida completes the task and Bush is still the winner, by 50 votes? What is Gore is the winner by 50? What about the absentee votes? What about the suits? There is simply no way to know which way this election will go and that could impact the market either way. If the Florida recount is completed tonight then Friday could be a decent market day. HOWEVER, any negative headlines that will lead to weeks of uncertainty my cause a flight to cash before the close on Friday. With two days of dueling headlines before the market opens again, skittish traders will be looking for safety. What you do on Friday depends on your risk profile and there may be a great opportunity to profit from that risk. As I said before I think the downside is between 3000 and 3100 but that is just my opinion. This event has never happened before and there are no historical precedents. Greed however is alive and well and will jump in when the outlook is the worst. You can count on that! I am.
Good luck and don't buy too soon.