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06-16-2003                  High    Low     Volume Advance/Decl
DJIA     9318.86 +201.84  9318.96 9117.56   1583 mln  2154/ 729
NASDAQ   1666.58 + 40.09  1667.77 1629.59   1883 mln  2024/1090
S&P 100   509.33 + 11.51   509.42  497.82   totals    4178/1819
S&P 500  1010.74 + 22.13  1010.86  988.61
RUS 2000  457.47 +  7.76   457.47  449.71
DJ TRANS 2495.46 + 39.90  2495.46 2453.32
VIX        22.24 -  0.64    23.40   21.65
VIXN       33.76 -  0.67    35.34   30.46
Put/Call Ratio 0.66

Start Spreading The News
By James Brown

"Start spreading the news...I'm leaving today.
I want to be a part of it, New York, New York..."

The bulls were singing in unison on Wall Street today. The 107- year old Dow Jones Industrial Average sang a lively tune as it added more than 201 points or more than 2.2 percent to close 9318. Chiming in was the NASDAQ Composite with a 2.46 percent gain to close above 1660 for the first time in over a year. Meanwhile the S&P 500 index offered investors a standout performance with its own melody adding 2.2 percent to close above the 1000 mark for the first time June 20th, 2002.

Today's session marks the first time the DJIA has closed over the 9300 level since early July of last year. Pushing it higher was a chorus of support from all thirty components trading in the green today. That's right. Not one Dow component slipped lower today. Giving them something to sing about was the New York Empire State Index, which in essence is a manufacturing survey. Last month's May reading showed an increase to 10.6. Numbers over zero translate into a majority of businesses surveyed reported an improvement in business. Expectations had been for a slip backward to a reading between 9.6 and 10.1. Surprise, surprise, the report this morning showed vast improvement with a June reading of 26.8. This is the highest level on record in the index's two-year history.

According to the official report "virtually every index improved." The new orders and shipment index jumped above 15 while the unfilled orders index moved above zero for the first time in over a year. The report went on to say that expectations remained positive. This is a HUGE preliminary indicator in favor of the bulls because it reflects exactly what the markets have been praying for - a sign that the economy really is turning around for the better. Posted below is a chart from the report.

General Business Conditions (chart):

A few economists commenting on the results were quick to point out that after two months of strong gains we should expect a pull back in July to balance out the trends. You can read the full report here: http://www.newyorkfed.org/rmaghome/regional/mfg_survey/6_2003.pdf

This positive economic news lit a fire under investors and nearly every market sector was positive today. The tech sector saw some of the strongest gains with the DDX disk drive index adding more than three percent, the SOX semiconductor index jumped three percent, the INX internet index and the GSO software index both added more than 2.3 percent. Even the GHA hardware index added 2.4 percent after a Merrill Lynch analyst downgraded the entire sector. Financial stocks also participated with strong gains but they were overshadowed by big moves in biotechs and drug stocks.

That's right, drug stocks, who have been lagging the overall market gains for the last few weeks, roared back to life today after Pfizer (PFE) announced that preliminary studies showed diabetic patients who took PFE's cholesterol-lowering Lipitor had fewer heart attacks, strokes and other complications than those who did not. Lipitor is already the best-selling prescription drug in the world with more than $2.1 billion in sales for the first quarter alone. Shares of PFE rallied by more than 4.5 percent to close at $34.60, breaking out above eight month resistance at $34.00. The DRG drug index added 3.2 percent and the BTK biotech index added 3.7 percent.

Monday's rally was so strong that up volume beat down volume by more than 5-to-1 on the NYSE and more than 2-to-1 on the NASDAQ. There were 21 advancing stocks for every 7 losers on the NYSE while the NASDAQ's advance/decline ratio was nearly 2-to-1. New 52-week highs hit 702 while new 52-week lows rang in at 18. Total volume was decent with 1.58 billion on the NYSE and 1.88 billion on the NASDAQ.

Adding even more fuel to the fire was Wal-Mart's (WMT) June same- store sales numbers. The world's largest retailer reported that June (same-store) sales were on track to meet its expectations for a 2% to 4% increase for the five weeks ending July 4th. Contributing to the strength in retail was Kmart's first quarter earnings numbers. Kmart Holding Corp (KMRT), which just came out of bankruptcy last month, reported a better than expected loss that sent shares of its stock soaring by more than 20 percent. The No. 3 retailer in the U.S. turned in a Q1 loss of $862 million, which was significantly lower than the $1.44 billion lost the same quarter last year. Same store sales still slipped but investors were impressed by the company's improved gross margins.

Equally impressive is how strongly mutual fund managers are putting investor money to work in equities. It's been three months since the market's March lows and the DJIA is up more than 23 percent, the NASDAQ composite is up 30 percent, and the S&P 500 is up more than 25 percent.

Chart of the DJIA

Chart of the NASDAQ

Chart of the SPX

Last Wednesday marked the 13th week in a row that equity funds have reported inflows of cash. It's a nice change after months of outflows and now they need to put it to work. Many believe that the end of the quarter "window dressing" by fund managers has already begun. Whether they have or have not participated in this rally from March, their investors are going to want to see some winners in their portfolio. This means that recent winners that are overbought are likely to become even more overbought and there is going to be a reluctance to sell and take profits until after the 30th.

Keep in mind that there is always a chance for some event or "headline risk" to spark a round of selling but other than a terrorist event on home soil, we can't imagine what it could be. The bulls have been buying bad news and buying more on good news. Tomorrow will see the CPI, Housing Starts and Building permits before the bell tomorrow. Plus, the markets will get to digest the Industrial production numbers and the Capacity Utilization report, which both release during market hours. Nearly all the forecasts are slightly positive except for the building permits, which economists believe will be fractionally lower.

Be extremely careful entering new positions and don't forget to adjust your stop losses!


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