Given the lack of any strong countervailing bullish news that might impact the Market directly, the unsettling tensions coming from the Indian subcontinent helped keep potential buyers on the sidelines this morning. Given this situation, there was more impetus to get out then get in, so the orders that were coming in for the first half of the day were predominately on the sell side.
The second half of the session saw some bullish influences affecting Software and the PC sector that brought in some tech buying along with the same in healthcare, biotech and healthcare sectors, along with technical buying as indices held prior lows. The afternoon lift brought the Nasdaq Composite, Nasdaq 100 and the Russell 2000 indexes into slightly plus territory. The Dow Industrials (INDU) S&P 500 (SPX), and S&P 100 (OEX) indices got back to nearly unchanged, closing just fractionally lower.
Tomorrow is another story as far as potential for market-moving news - we'll see important releases on Productivity, Factory Orders, and Consumer Sentiment as noted on our Event Calendar.
THE POLITICAL FRONT -
Pakistan and India have now over a million troops in the Muslim dominated Kashmiri region, mostly under Indian control, but hotly disputed for decades. Muslim extremists seem to want to get the two big guys fighting, so they can advance more of their agenda: uniting the Muslim world and their "oppressed" breathen, weakening the moderate secular government of President Musharef, and taking the pressure off the same al-Qaida and Taliban forces that the U.S. has had on the run and on the defensive.
The Pentagon was said to be preparing plans for mass evacuations of U.S. government personnel as well as U.S. nationals in general - numbers of 60+ thousand people were being discussed. Secretary of Defense, Donald Rumsfield is planning now to go the area next week. Bush says that the ball is Pakistan's court to stop the infiltration of terrorists across into Indian controlled territory.
ECONOMIC NEWS -
The dollar fell against the Euro, Pound and the Yen. The Euro went to a 15-month high to 93.78 (+0.3%) and the dollar fell to a new 6-month low against the yen which closed at 123.3 yen to the dollar, with the buck off 0.8% against the Japanese currency. Keeping some of this in perspective, the yen was at one time going for 100 to the dollar and the Euro began its life trading at $1.15 - it has some ways to go to get back to "par"; i.e., 1 dollar equaling 1 euro, which is where I think it can and should wind up.
The weaker dollar helps many of the American multinationals, as U.S. goods and services become cheaper relative to our other major trading partners. A strong dollar is always a mixed blessing. Good if you want to tour Europe, not so great if you live there and want to buy American.
Many economists, being practitioners of the "dismal science", feel that a weak dollar could hamper the U.S. economic recovery. Their thinking is that a steep drop in the dollar risks a sustained, non-inflationary economic recovery, as Americans start paying more for foreign imports, pushing up prices and U.S. inflation.
In this view, the dollar is already overvalued. However, this viewpoint is debatable. It's like PE ratios - what level is over or undervalued? It's often a pretty subjective thing. Also, a cheaper dollar makes U.S. equities cheaper and foreign investing has been a significant influence in the past. It still is true that the U.S. is having a significantly stronger economic rebound than anywhere in the world. Bottom line, I would not necessarily take the recent months weakening trend in the dollar as another bearish Market influence without question.
Gold eased a bit, with the nearby futures at 326.20, -.15 the ounce. Bonds rose as there was a flight to the relative safety of U.S. Treasuries.
COMPANY/SECTOR NEWS -
Dow stock Philip Morris was up over a percent after the company announced the sale of its Miller brewing unit to South African Breweries PLC, a $5.6 billion deal creating the world's second largest beer maker. Microsoft (MSFT) was up 1.6 percent as investors reacted positively to a Wall Street Journal story that MSFT and the SEC are in negotiations to resolve allegations about fuzzy accounting that would give the impression of steady profit and earnings growth.
The Journal indicated that any violations were minor. The SEC has launched several investigations in recent days against energy firms for inflating their earnings through accounting tricks such as sham "round-trip" trades. The oil index ($OIX.X) fell 1.6%. Salomon Smith Barney downgraded several energy companies, noting continued scrutiny by the debt ratings agencies, mounting legal and regulatory risks and concerns over heightened challenges for their business models. El Paso Energy (EP) fell another 8 percent as investors sold EP following its restructuring announcement Wednesday.
Soundiew Technology, in an influential analyst report, said that there will be a "clear uptick" in the enterprise application software sector, Q2 forecasts are "realistic" and a repeat of the disappointing Q1 quarter was unlikely. Their report went to say positive things above PeopleSoft (PSFT - +9%), and Oracle (ORCL - unchanged). Besides these companies in the Software Index ($GSO.X +2.5%), the day also saw good gains in Veritas Software (VRTS - +10%) and Siebel Systems (SEBL - +6%).
TRADING STRATEGY -
One, is the still lackluster pace of business spending. Businesses spent so much on the last technology buying spree, that they are taking a very cautious stance on opening up the corporate pocketbooks again, until they see their earnings coming on stronger than they are; sort of don't fire until you see the "whites of their eyes!"
Two, there is still this basic view by professional and individual investors that stocks are still fully if not over -valued. I've stuck my neck out and said that the market is probably bottoming and that we're in a price area where further downside risk may be limited. However, that said it still takes BUYING to get em back up. I haven't seen that investors are finding any compelling reasons for sustained buying. And for index options players this factor, by necessity, keeps the trading focus short-term. The weak sector, as we've seen over and over, is tech.
Bottom line, buy the S&P and Dow indices and representative stocks around these recent lows, sell the Nasdaq indexes around recent highs. The strategy is that called for the likely continuation of a trading range. Any expectations, my own included, for a breakout of this range, are starting to look like they will not be realized this summer. The S&P 500 (SPX) would need a weekly close above 1140 and the Nasdaq Composite above 1700, to suggest otherwise. Support continues to look like it will come in the 1050 area in S&P and 1600 in Nasdaq. Like to trade? - there are opportunities within this range.
CHARTS OF INTEREST -
S&P 500 (SPX) Daily/Hourly charts:
The sideways to lower move is moving the daily stochastic indicator down toward an oversold reading, but its not there yet. Price wise, SPX rebounded today from the low end of its recent trading range, as can be best seen on the hourly chart. The pattern of a double bottom, in this case at 1054, was the same as seen back in February, although then the double bottom formed at a higher level, at 1075. The 1075 level, once support, will likely offer some resistance on a rebound back to it. Above 1075, focus would be at the prior 1097 (up) swing high.
Use of the 21-day moving average acts as a "pivot" point, with trade under this level suggesting a bearish near term trend and trade above it indicating upside potential as long as prices can hold above it. The percentage trading envelope lines reflect a tendency for extremes in the indexes trading range to be contained within these percentage envelopes (relative to the 21- day average). So, for example, if 1054 (also, 1048.9) was pierced, 1031 comes in as a possible "worst case" downside objective.
The Dow 1/100 index ($DJX.X) - Daily/Hourly charts:
As with the S&P, a double bottom low may have formed in the Dow at 98 in DJX or Dow 9800. Moreover, today's low formed in the area of the 3% lower envelope line that typically contains the Dow's trading range. The prior low at 110.6, then the prior high at 102.2, are potential resistance areas.
I favor the long side in the Dow sector, as the low end of a likely 98-103 trading range has been seen once again. However, if 98 gives way, 97 is a next possible downside objective, suggesting an exit/stop point at 96.8 for calls.
The Nasdaq Composite ($COMPX) - Daily/Hourly charts:
Today's low in the Composite at 1607, occurred a bit above the prior 1600 low. This makes an approximate double bottom low nevertheless. Time will tell. Key near-resistance looks like Near resistance is 1600, then 1560.
Notice that there is not yet an oversold reading on the 14-day stochastic - not so on the 10-day setting, which is another popular length and measures a 2-week time frame.
The ever popular QQQ tracking stock of the Nasdaq 100 has made a similar double bottom just under 30 (29.9 versus the 5/10 low at 29.5). The Q's continue to look like a buy on dips to and under 30 and a sell in 32-33 zone. That chart is in my Index Trader wrap up tonight.