Equities Rally In After-Hours On Court Decision
It feels really good to write the word "rally." The markets were all over the map today as they anticipated every Election announcement. Many dubbed the INDU's rally today the "Bush Rally." Whether or not this is entirely warranted is now irrelevant as Leon County Circuit Court Judge Sanders Sauls ruled in favor of the Bush camp today after the close. Finally, something that we can call a catalyst. Equities just loved the news, and many of our favorite NASDAQ names are ticking across the Time & Sales a couple bucks higher than their closes. This should make for an interesting trading day tomorrow.
In addition to Judge Sauls decision against the Gore team's contest of Election results in South Florida, the U.S. Supreme Court also released their ruling after hearing oral arguments on Friday. The higher Court's ruling, stating that it finds "considerable uncertainty as to the precise grounds for the decision[that of the Florida Supreme Court]," essentially throws that ball back into the State Court again. Initially, the markets reacted with a jump to the upside, yet the rhetoric was deliberately vague, and true victory was not clearly spelled out. The INDU managed to sustain the rally throughout the day, while the NASDAQ whipsawed on the continued uncertainty.
In the chart below, the INDU hit its low for the day right after the open and mounted a rally that showed little sign of weakness. The bounce came at 10319 and established a higher low relative to last Thursday's low of 10292. Trading in almost a 300 point range today, the INDU encountered resistance at 10600 as it had all last week. The catalyst that it needs to move through that 10600 level came today with the Judge Sauls decision. A gap up on the open tomorrow will take out this resistance, yet it may be tested as support if traders sell into strength. But the implications of the decision are bright for the markets, and although Gore's team will appeal it, this is another step toward reconciling uncertainty in the Election and the markets. Tomorrow will be a very telling day as the market digests all of the news and Bush draws closer to a Presidential victory. Will the real "Bush Rally" that everyone has spoke about even before the Election truly materialize? Or will news of Gore appeals cast doubts on an expeditious remedy? S&P futures are up 14 points as of 7pm ET, and NASDAQ futures have soared 92 points in after-hours. All is pointing to an explosive day tomorrow. The markets will need to sustain that strength to remain optimistic.
Old cyclical stocks led the INDU today as investors remain cautious about the tech sector. The rotation continued and buyers poured into names like: Caterpillar(CAT: +2.63), Dupont(DD: +3.06), United Tech(UTX: +2.06), Wal-Mart(WMT: +2.63), P&G(PG: +1.44), and 3-M(MMM: +5.38). Those are significant moves for lower volatility stocks. This is also a sign that investors are seeking the relative stability of this cyclical sector as opposed to the tech sector. The momentum in the INDU will likely fare just as well tomorrow. Look for the components that did not participate in today's gains to act up tomorrow: AXP(-2.25), BA(-1.00), C(-1.13), INTC(-1.19), MSFT(-0.19), and DIS(-0.56). Tomorrow could be that broad based rally that could help investor morale.
And as excited as I am about having "rally" in my wrap title without a negative connotation, there was some bad pieces of news out today. Rumors continued to circulate on the Street that INTC might miss earnings estimates in the coming quarter. Yet, Bob Pisani on CNBC reported that the company(INTC) told him that they were on track to make their previous guidance and in no way were revising it. So that may just be a rumor. Regardless, the simple notion creates nervousness in the stock and the already fickle Semi sector. On that same note, XLNX came out after the close today and lowered its sequential sales growth forecast for the December quarter to 5-7% from a previous 12%. That's not a rumor. XLNX attributes this shortfall to weaker-than-expected bookings in November from some of its North American customers. International orders remained on track. An indiction of slowing demand in the U.S. This occurs just one week after Lehman Bros. lowered their earnings projections on XLNX, citing...guess what? Slower demand for November. I guess sometimes these analysts are on the right track.
The downfall of the Semi sector has been a tremendous burden on the NASDAQ. CSCO has been another drag on the tech index as of late. Sliding to close at $45.81 today, CSCO is now virtually unchanged from December 1st of last year. But on the upside, CSCO CEO John Chambers did not change the companies guidance for the coming quarter in an analyst call today. He remains bullish on CSCO's sales outlook as uncertainty looms about networking and telecom growth. As a result of the lack of earnings visibility for NASDAQ stocks, the index has continued rolling lower.
Notice the downtrending channel that has possessed the NASDAQ. While a massive recovery is unlikely for now, a consolidation after hitting a low of 2523 could be in store. This would be extremely welcomed. Trading today was volatile as the NASDAQ hit 2567 before rally back on the Supreme Court's ruling this morning. That represents a higher low from Thursday. In conjunction with the aforementioned decision from the Leon Cty. Circuit Court after the bell, a rally tomorrow could very well challenge Friday's high of 2749. Once again, we will definitely see a gap up on tomorrow's open, barring any drastic selling of the futures overnight, but the conviction of tomorrow's rally will lie in whether traders sell into strength. This has been the trend lately so sustained gains tomorrow would be encouraging to the beaten down NASDAQ. As for the actual trading, expect it to be volatile and choppy. It just may be one of the most heated battles in a while between the bulls and bears, given that the bulls have what appears to be a real catalyst.
Looking ahead, futures are indicating a big open tomorrow so watch for sustained buying activity or selling into strength. The first hour will be hectic. It may be prudent to wait until things settle after that first hour. Techs should get a relief rally tomorrow. It will be a very telling session. Wednesday has the revised Productivity number coming out and will be closely watched. Friday's Unemployment report will also be an important event. But the real catalysts this week that will drive trading are the Election and earnings prospects. Warning season is upon us and can be the bearer of bad news. Expect volatility this week and trade smart.