Shake Down On Wall
Like the 7.0 earthquake hitting Seattle, Greenspan rocked the market. In a big disappointment to the market, the Fed Chairman's much awaited testimony provided little relief to a market that began to fade yesterday as the 2 o'clock hour came and went. Investors were looking for signs of an inter meeting cut, as predicted by Wayne Angell of Bear Stearns, but instead were greeted with a calm and eerily confident Fed head. While Greenspan noted that he was concerned with the dropping level of consumer confidence, the rapid slowing of the economy seen in December was less evident in January and February. The market's response was at first muted to his comments, but as the Q and A progressed, it became clear that the Fed was going to wait on the sidelines until the regularly scheduled meeting. The result was a continued unwinding of blue chips, especially in the technology sector as many stocks hit fresh 52-week lows. The financial sector was also hit hard, as the play on falling interest rates boosting interest rate sensitive stocks reversed.
In the end, the Dow finished off 141 points, or 1.33% to end at 10495, with cyclicals, interest rate sensitive banks and brokers falling sharply. Safe haven stocks were unable to lift the index into positive territory with just slightly higher moves in the drugs, beverages and house ware sectors. The S&P, closing at a 52-week low, dropped 1.4% under performing the small cap Russell 2000 which only fell 1% on the day. The Nasdaq, which is now at 2-year lows finished with a loss of over 55 points, recovering only slightly from the lows on the day to finish at 2151, a drop of 2.54%. 15% of the stocks in the Nasdaq 100 are now trading at 52-week lows. Among the carnage in the index, big cap leaders such as Oracle fell over 10.4 percent and JDSU fell over 4%.
Volume was brisk, but not overwhelming considering that Greenspan was hitting the tape today with the NYSE printing over 1 billion trades, and the Nasdaq logging in volume at 1.85 billion. Market breadth was deadly negative with losers overwhelming winners by a margin of 17 to 13 on the NYSE and over 2 to 1 on the Nasdaq.
The market continues to trade with the complete absence of any leadership. The biotech index, chock full of companies with little earnings and high multiples, however, was able to pop over the unchanged line in the afternoon despite the sell off in the Nasdaq to record a 9-point gain. The index still failed to breach the 610 level, which was again tested in the morning. MLNM trading as high as $37 in the early morning finished the day with only a 0.75 point gain to close at $33.75. The SOX.X, under pressure for the last three sessions, was slammed again for almost 5%. Led by a warning from Altera on Tuesday, the company guided revenues expectations to $294 million vs. $368 million in fourth quarter. As early as mid-January, despite heckling from Dan Niles at Lehman, Altera was expecting first quarter revenue to decline by only 5% to $350 million. In the communications chip sector, once highflying stocks such as BRCM and AMCC again hit 52-week lows. DSL chip supplier, GSPN, lost almost 19% or 4.5 points to close at $20.00.
Treasury rose only slightly as the stock market began to sink deeper into the red as a flight to quality found a home in the bond market. The 10-year Treasury note moved up an 1/8 to yield a 4.935%, while the longer end of the curve lost just 6/32's to yield 5.365%. Fourth quarter GDP was revised lower to 1.1 percent from the previously reported 1.4 percent gain.
The February Chicago Purchasing Managers Index rose to 43.2 percent in February from a previous reading of 40.2 percent. The market took the reading less then rate cut friendly as the report foreshadowed a possible up-tick in the more closely watched National Purchase Managers report due out Thursday.
In the currency markets, the dollar/yen picked up 1.3% to 117.44 while the euro/dollar rate rose .4 percent to .9215. The Bank of Japan, in attempt to slow the free fall in its equity markets once again lower its discount rate by 10 bps to .25 percent, after a rate cut just 19 days ago.
The ARM's index registered a reading over 2.0 today as the selling accelerated following Greenspan's testimony. Closing with a reading of over 1.5 an increase of .4 from yesterday's closing level, the index is suggesting the market is still in dramatically oversold territory.
In after hour's news, 3COM warned for Q3 seeing revenues coming in below estimate of negative 14 cents a share. Economic conditions were sited as well as the continued slowdown in the telecom sector, which is reducing demand for products across a number of the company's business segments. PC maker Gateway also warned for Q1, which was little surprise to investors cutting earnings to about breakeven from current estimates of 17 cents.
As the market continues to slice through support levels, investor sentiment continues to weaken in the market. The market has yet to experience much of a whoosh higher as few signs of catalyst appear to be seen on the horizon. There is an obvious disconnection between what corporations and the market feel about the future direction of the economy and how Greenspan is interpreting the latest data. The bears are in complete control as the market sink lower and will probably use any relief rally as an opportunity to set new shorts. With the March 20th meeting approaching, the window for an inter-meeting cut is closing fast, and with it, the only near term relief for a market sinking lower. Despite the bargain looking levels of many of the blue chip technology leaders, attempts at stepping in front of a runaway train south seem foolish at this point. Continue to trade lightly as the market is clearly oversold on the downside. Remember, however, that you putting on a trade to simply have one on usually ends with a loser.
Gregory J. Casals