Greetings and Welcome to "Bash The WorldCom Scoundrels"!
If I'd just awoke from Rip Van Winkle-like slumber, I'd swear from today's WCOME testimony in Congress that this must be an election year. Rarely have I seen so many so blustery with so much chest- thumping, yet saying so little. The political posturing and grandstanding should get a few of these frustrated actors and actresses into Julliard without a hitch.
Lest we think there was something of meaning coming from Kangaroo Court today, remember that Congress has no power to put these people on trial no matter how egregious or corrupt the acts of the accused. Trial is a function intentionally left to the courts precisely to avoid persecution by the government who would arbitrarily prosecute without a jury of peers or an appointed judge. To recognize Congress's "right" to meddle in business and in the court system's turf is a dangerous precedent that puts a lid on freedom and removes another layer of protection from the government afforded us by the Constitution of the United States.
I'm not trying to get political here, but rights are being trampled in the form of class envy for political gain. Holding Bernie Ebbers in contempt for taking the 5th is ludicrous. Let those accused suffer at the hands of real prosecutors to the fullest extent the law permits, including jail time for fraud if judged guilty in a court of law, lest citizens of this country regret the day they ever gave Congress the right to hold trials without due process. A destructive cancer is spreading and gaining legitimacy because otherwise thinking citizens don't object to an abuse of power by elected officials. Next, it won't be just corporate brass; it will be you and me.
Alright Buzzard Breath. . .off the soap box. So how about those markets? Well, it should come as no surprise that some of Friday's gains were given back today. 300+ point days on extremely low holiday volume, like Friday, simply can't be sustained or carried forward at the next open. At least that would be highly unusual. Anyway, it was interesting to hear the reasoning behind today's selling. At first, it was suspected accounting trouble at MRK's drug benefit unit called Medco. Come to think of it, that notion never left the trading floor.
Horrors! MRK booked $12 bln in revenue they never received and never intended to collect! Those bothering to read the second sentence would have also noted they expensed an equal amount, and thus net income was unaffected by the bookkeeping entry. From my own business experience, I would have done exactly the same thing lest the IRS come knocking at my door asking why I never booked the income. And explaining to them the offsetting expense would have been a greater exercise in audit defense.
In the end, that put MRK down $1.05 to $47.80, about $0.50 above last Wednesday's close before Friday's ramp job. The news had no real effect.
What else? EBAY is buying PYPL. . .no, that couldn't have been the reason for the selling. OK, how about this: Buffet investing $100 mln in LVLT, a battered fiber optic voice and data carrier. Along with Legg Mason dropping in $100 mln and Long Leaf Partners dropping in $300 mln for a total of $500 mln, it is expected that the funds will be used for consolidations born of acquisitions. Notes paying interest of 9% cash for 10 years are convertible to shares at $3.41. Based on today's close, Buffet already has a 51% profit on paper with a 9% cash flow. Nice day's work! But the risk is that LVLT won't make it through the shakeout, which remains to be seen. Bet on management to make this work though since LVLT's founder sits on the Board of Berkshire Hathaway.
Hmmm, a 51% return in one day. . .nope, guess that didn't cause any selling either. I go back to last Friday's 325-point gain on low volume. Without conviction backed by volume, those gains won't stick.
Dow Industrial chart - INDU (weekly/daily/60):
OK, losing 104 points looks bad no matter how we slice it. However, that the Dow only gave up on third of Friday's hypoxic gain should be considered a gift to the bulls. The weekly trend while turning up stochastically, hasn't had candles to match. Note the daily chart too where candles have hit resistance at the 9400 level. 9500 +/- is the next stop if it can break through. While 5-period daily stochastics are pointed in the bullish direction, the 10-period may hit some resistance. The 60-min chart, however, found support today around 9250. Meanwhile the 60-min stochastics are turning up from oversold. Still, I can't get to comfortable with that since the 10-period stochastics are still pointed down. Support held, but resistance is strong. No clear direction here, but bulls might make some fractional gains based on the 60-min chart pattern.
NASDAQ chart - COMPX (weekly/daily/60):
NASDAQ too is in limbo on the 60-min frame. Support is holding at 1400 as the 5-period stochastic is turning up. But as we have seen before, this could remain oversold with an albatross around its neck for a while. Plus the 10-period stochastic is still declining. Not much strength in techs as the daily candles have been in rangebound decline for two months. Daily and weekly charts reflect that as support at 1400 barely holds there too.
S&P 500 chart - SPX (weekly/daily/60):
Chart pattern looks pretty much the same here too - muddy. Lame, and in conflict. While oversold conditions should have provided a bullish springboard for prices, it hasn't happened that way yet. If you are a bull, the glimmer of hope lies on the 60-min candle potential bullish flag pattern where there might be 10-15 points to garner with small amounts of risk capital as the 5-period stochastic attempts a climb to overbought. For itchy trigger fingers only.
Meanwhile the VIX hovers and sputters still over 30, which reflects a degree of uncertainty and fear on part of investors. But jumping the gun on a bullish rocket reversal has only resulted in heartache (not to mention wallet-ache) for the anxious who view 30 as a reversal point to couple with the oversold-and-upturning stochastics.
Quiet reminder: this is still a bear market where it is tough to make upside money. The day will come when that can be done, but it will be a minor bullish trend in primary bear market good for not much more than a trading opportunity. For tonight, with no clear direction tomorrow, I lean on the side of keeping powder dry until points of resistance can be broken and held on the upside. Frankly, I would still play bearish on resistance and hesitate to play bullish at support. Wish I could add more to that, but I have to call 'em like a see 'em. And the view is pretty cloudy right now despite that there are economic reasons acting as a lifeline to bulls. Must be like a ray of sunshine in south- central Texas. Praise the sunshine; carry an umbrella and own a boat.