Who was that masked man? The Lone Ranger rode off into the sunset today after rescuing the markets from three months of being held hostage by the Fed bears. Alan Greenspan stepped up to the podium at 10:30 this morning and let fly with several market moving points which calmed investor fears and ignited the mother of all relief rallies. Claiming that the economy had moderated appreciably and the stock market woes had negatively impacted the wealth effect he set the stage for at least a bias change to neutral in December if not a complete rate cut. Saying the situation was not as bad as the 1998 crisis he was none the less encouraged by the change. His "don't worry, be happy, the Fed is in charge" speech lit a fire under the already exploding market. The possibility that the election was almost over after a series of setbacks for Gore had already gotten the market off to a flying start at the open and the kinder gentler Greenspan was more than traders could even dream.
The bounce on Friday and then the rise this morning had shorts on the run and the unexpectedly clear good news from Greenspan sent traders into a buying panic. Anybody still short was met with a massive jump in almost all the leaders. The Nasdaq was full of double digit gainers like EMLX +33, BRCD +28, MUSE +33, PMCS +27, JNPR +26, QLGC +22, ITWO +19, CIEN +19, IWOV +24, NTAP +23, CHKP +23, and SDLI +32 to name a few. The light at the end of the tunnel turned into a possible "Santa Claus Rally." The Nasdaq rose +274 points, the biggest point and percentage gain ever. The Dow rose +338 for the third largest point gain ever. The good news was so overwhelming that almost no sector was ignored. That is except the defensive sectors which saw an outflow of funds as traders threw money at tech stocks. The possibility of lower interest rates ahead powered banks and brokers to strong gains with JPM +13 leading the list. The transport sector rallied along with the market with oil prices falling again.
"Santa Claus Rally", wow! From testing new lows to S.C.R. in only 48 hours. What stretch of the imagination will the talking heads come up with next? Before you start buying calls on every double digit gainer from today lets look at the facts. Earnings are still down. Greenspan cannot change earnings with a carefully constructed string of adjectives. While he may be giving the market a green light several others on the FOMC are not convinced. Perry said this afternoon that he did see slower growth but it was too soon to be talking about rate cuts and he wanted to see lower inflation first. Mike Moscow said it was too soon and he felt the risk of inflation was greater than the risk of recession. OOPS! Looks like some dissention in the ranks. This means we will not likely see a rate cut on Dec-19th. Maybe a bias change but there is still a lot of convincing still to be done.
Earnings warning season is about to heat up with the next three weeks a real serious risk. Today alone we had XLNX, COMS and AAPL confess they were not going to make estimates. XLNX had the audacity to actually gain after their warning which says something about how beat up the semiconductor sector is currently. 3Com said lower than expected sales to telecommunications customers would increase their losses to over double the current estimates. COMS dropped -25% on the news. BRCM struggled after the COMS announcement since 14% of BRCM business comes from COMS. BRCM finished up +6 for the day but without the negative news it could have easily been up double digits. AAPL warned after the close today that it would lose money this quarter for the first time in three years. Saying the inventory channels were full and holiday sales were flat the computer company confirmed what analysts were speculating for the sector over the last two weeks. Dell and Compaq both fell in after hours trading and even though AAPL is seen to be almost in a sector by itself the implications of dead holiday computer sales took some of the bloom off the rally.
Holiday sales were seen as mediocre at best over the Thanksgiving weekend and according to Telecheck sales of all goods have slowed significantly since then. This news was glossed over by traders consumed by election news and Greenspanisms but it will come back to haunt us soon. Wal-Mart fell almost -$2 at the close on the AAPL news and the other retailers like BBY, FD and CC could see another round of drops on Wednesday.
3M spiked over +$16 in the last three days on the news that GE executive James McNerney Jr. had been named as its new chairman and CEO. This makes the first time in 98 years that an outsider has taken the helm of the company. When McNerney lost out to Jeffrey Immelt as successor to Jack Welch last week is was widely speculated that he would leave. Good news for MMM but +16 in three days? We feel MMM may be a little over extended with almost $7 billion in market cap being added simply due to a new CEO. He may be good but $7 billion?
+338, +274, I love it but I am not convinced. Bah humbug I am not but the volume did not confirm the jump. The Nasdaq managed 2.3 billion shares and the NYSE 1.3 which is not heavy volume. Good volume yes, but not heavy. The advance decline ratio was only 2:1 in favor in advances. Now think about it. The Nasdaq was down -50% from the years highs and almost -1000 points from the Nov highs. A +274 point gain was amazing but it should have been on much closer to 3 billion shares and advancers beating declines by 3:1 or even 4:1. The problem as I see it is trader anxiety. Everybody wanted to believe it but after getting their hands slapped when buying bounces on a weekly basis for the last three months they are just cautious. A caution that comes from pain. The "ask me again Thursday" crowd wants to see more than one day of panic buying. They want to see what happens when the euphoria wears off then decide if they want to buy. Remember, earnings warnings and tax selling are still in our immediate future. Resistance on the Nasdaq is at 2900 and then again 3000. Once we close over 3000 many more traders will start to relax and feel like Santa Claus is really coming to town and start making up a Christmas shopping list. I am not saying we should not take advantage of this rally. Trade away! I just caution you that nothing material has changed. Everybody expected a bias change in December, this is just a confirmation that it might actually happen. The good news is of course the money built up on the sidelines. Add to that the retirement funds that are beginning to flow and we have all the earmarks of a possible rally now that the head of the Fed has put on his Santa's hat. So chill the champagne, get out the glasses but wait for tomorrows close before popping the cork.
Good luck and don't buy too soon.