After A Big Friday, The Markets Are Split
Kinda like the Election, right? Not anymore. Bush was certified the winner of Florida's electoral votes last night, but it is not etched in stone just yet. As promised, Gore and Lieberman are contesting the results in three Florida counties by filing legal documents in state court. So the battle continues. Did the markets pay much attention? Not really, the word "valuation" seems to be the driver on the Street. The INDU rallied quite nicely while the NASDAQ shied away from 3000 and sold off.
It feels like the Election snafu has been front and center for so long that market watchers have become numb to it. In fact, it seems like a non-event these days. The selling on the NASDAQ after Friday's impressive gains was a product of the technical health of the tech index and valuations. Just as 3000 represented a critical support level, it now represents a critical resistance level which will be formidable. But the NASDAQ only gave up 23.89 points today, hanging onto a large portion of Friday's advance. Not bad. The problem with today's trading was that traders sold into strength once again after this morning's gap up. As a result, on the chart, 3000 represents another failed rally attempt and a lower high in the downtrend. Quite honestly, I do not put much merit in gaps. There is no real volume to support the move besides negligible pre-market activity. Real volume is not buying the index to that level, or selling it down to that level. It is merely a perception of where the market should be valued at the open based on information priced into the futures contracts. NASDAQ futures were up 71 points this morning. S&P futures were up about 13.50.
Today's gap up can be attributed to the Florida certification, topped off with the Abbey Factor. CNBC reported before the market open this morning that Abbey Joseph Cohen of Goldman Sachs forecasted a 234 point rally for the S&P 500 year-end. That's a target of 1575, and the S&P 500 closed today at 1349. Essentially, this was a reiteration of her previous predictions last month and her list of tech favorites. It includes CSCO, SUNW, VRTS, GLW, ITWO, EMC, SLR, and DOX. Obviously, when she speaks, the markets get excited. But that was the pre-market, hence, the futures. The gap up brought the market near 3000 where traders took advantage of the artificial strength and sold. It has been the trend that the NASDAQ has been giving us, and another great opportunity to trade it. Put entries abound.
Adding to the negative sentiment was selling in the Semiconductor sector. ALTR and XLNX got whacked after Lehman Bros. lowered its earnings projections on them, citing slower demand in November. Both companies manufacture programmable logic device(PDL) chips. Of course, there's always someone on Wall Street that begs to differ. Bear Stearns analyst Charles Boucher, while agreeing that there is a slowdown, doesn't think it is very dramatic, calling the Lehman call "overstated." ALTR lost $3.88 to $27.31, and XLNX closed at $46.50, down $10.31.
BRCM felt the selling heat today after Salomon Smith Barney reduced its price target from $300 to $200, citing signs of flattening orders. BRCM lost 16.7%, almost $20 to $97.56. Some positive news for the Semis came from Ashok Kumar of US Bancorp Piper Jaffray on INTC. He sees modest upside to Intel's quarter-to-quarter revenue growth guidance and noted that the stock looks attractive at current valuations. WOW! Someone actually said it! Let's not forget that Ashok is the one who called the Semi slowdown in the summer and was almost chased off Wall Street. Not a bad call in retrospect, huh?
Splitting the market was the INDU which managed to muster up a 75 point gain on the day, following through from Friday's move. Investors piled into issues like WMT(+4.13), MMM(+3.44), MRK(+2.19), JNJ(+2.31), HD(+1.25), JPM(+1.94), and AXP(+1.63). That's what I call a well-rounded rally. Retails, Drugs, and Financials all attracted buyers. The holiday shopping season began with a bang on Friday. Drugs stocks held strong as usual, anticipating a Bush victory. And beaten down Financials had buyers step in at what appears to be attractive levels. Put it all together and the INDU looks really good. Friday's gains broke through the most recent downtrend since running into 11000, and today's trading showed some consolidation. Contrary to the NASDAQ, the INDU has been making higher highs and higher lows since bottoming at 9654. It would follow that the retested support at 10369 must hold for the INDU continue rolling higher. 10600 is the next level of resistance in the near term. Then, 11000 must be broken in order to establish a higher high. If this occurs, the INDU will be looking very strong.
Market bellwether and INDU component GE didn't add to the index's gains today but they did unveil the much-anticipated successor to CEO Jack Welch. Jeffrey Immelt, the head of GE Medical Systems, will succeed Jack Welch, who retires next year after two decades of leading a pillar of Corporate America. Analysts are pleased and confident with the choice. If GE gets the kick start in its stock price as predicted, the INDU could be off to the races. Watch this bellwether into year-end.
Looking ahead, pessimism on tech stocks continues to grow, which may indicate that we are nearing the end. The NASDAQ continues to be oversold. In fact, the NASDAQ generals are holding up relatively well: MSFT, INTC, and SUNW. The INDU is looking good. There is a ton of cash sitting on the sidelines. Money managers must be salivating at some of these current valuations. When the buying begins, it should be explosive. Once the Election results can be put behind us for good, the one catalyst that could set this market free is the Fed. They meet on December 19th and change to a neutral stance could be just what the doctor ordered. Until then, we must trade what the market gives us.