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Oversold, Window Dressing Bounce

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    09-29-2003           High     Low     Volume Advance/Decline
DJIA     9380.24 + 67.16  9395.32  9293.22 1.56 bln   1991/ 839
NASDAQ   1824.56 + 32.49  1824.59  1786.57 1.66 bln   1880/1195
S&P 100   505.02 +  5.41   505.03   499.23   Totals   3871/2034
S&P 500  1006.58 +  9.73  1006.89   995.31 
RUS 2000  492.71 +  7.42   492.86   482.13 
DJ TRANS 2710.29 + 46.46  2710.42  2660.66   
VIX        21.67 -  0.56    22.85    21.64   
VXN        30.66 -  0.22    31.88    30.62 
Total Volume 3,222M
Total UpVol  2,365M
Total DnVol    803M
52wk Highs      56
52wk Lows       68
PUT/CALL      0.84

Oversold, Window Dressing Bounce
By James Brown

The U.S. markets ended a three-day slide with a bounce as we step one day closer to ending the third quarter. The morning session was actually rather weak as traders pulled back over concerns for the drop in the U.S. dollar. The $INDU pierced the 9300 mark shortly after 11:00 AM ET before rebounding skyward more than 100 points. Many commentators remarked that after last week's painful sell-off the markets were short-term oversold and due for a bounce. Combine that with the normal end-of-quarter window dressing by fund managers who sell some of their worst losers and buy recent market winners to improve the look of their portfolio and it's not much of a surprise to see the major indices green today.

The bounce today was wide spread with every major sector index trading higher save for the RLX retail index, which closed down fractionally. Wal-Mart continues to sing the same tune that weekly sales are ringing in at the high-end of their estimates but investors chose to react to negative news from J.C.Penney (JCP). JCP said its department stores' same-store sales were coming in at the low-end of its forecast, while its catalog and Internet sales were doing better than expected. The American consumer continues to endure the weak job market but they appear focused on stretching that dollar at the checkout counter. This morning's economic reports showed that August Personal Spending rose 0.8 percent, which was in-line with expectations. The August Personal Income data settled at +0.2 percent, below estimates of +0.3 percent.

Speaking of the dollar, the U.S. greenback dropped to a new three-year low against the Japanese yen and a fresh three-month low against the euro. Rumors were flying this morning. One of them was that the Bush administration had changed their stance on a "strong" dollar. Treasury Department spokesman Rob Nichols was widely quoted today with his comment, "We are not going to respond to every goofy market rumor on currencies...there is no change in policy." Nichol's comments did little to stem the decline in the dollar, which dropped against 15 of the 16 most widely traded currencies. Thus far the Bank of Japan has not intervened since the G7 meeting last week but word has it Japanese officials are blistering under the sudden rise in the yen against the dollar. The dollar's move below the 111 level against the yen was also fueled by speculation that U.S. Treasury Secretary Snow is planning to be tougher on global trade issues with Japan. Meanwhile the strength in the euro spiked higher on what many believed was a wave of short-covering when the euro passed $1.155 against the dollar. The euro closed at $1.1608 against the dollar.

This weakness in the U.S. dollar against the yen had Asian markets falling again. The Japanese NIKKEI dropped 88 points to 10,299 while the Hong Kong Hang Seng index fell 148 points to 11,141. European exchanges were also lower but the declines were shallow. Market internals here at home were mostly bullish but not excessively so. Advancing stocks beat decliners 19 to 8 on the NYSE and almost 19 to 12 on the NASDAQ. Up volume was two to three times down volume on both exchanges but over all volume was modest. The Dow Jones Industrials closed up 67 points to 9380. The NASDAQ Composite jumped more than 32 points to 1824 and the S&P 500 index added almost 10 points to 1006.

Chart of the DJIA:

Chart of the NASDAQ:

The lion's share of gains today landed in the technology issues with the DDX disk drive index up 2.2%, the GHA hardware index +2.09%, the GSO software index up 1.95%, the INX internet index up 2.27%, the NWX networking index up +2.7% and the SOX semiconductor index bouncing +1.93%. The chips were not the biggest winners today but they helped drive the rally with positive comments over the weekend and this morning. The Semiconductor Industry Association (SIA) reported that August sales are up 4% and the SIA continues to see strength throughout the industry. Monthly sales improvements have been a growing trend for the sector and helped power much of the February- September rally. This morning there were some analyst comments on the SIA report with a JPM analyst raising their 2003 industry sales growth forecasts from 12% to 15%. Plus, another broker upgraded a slew of chip stocks in a morning report claiming a sustainable recovery for the chip equipment industry should happen in the next three quarters.

Of course it wouldn't be a Monday without some merger news. Less than two weeks after French insurer AXA declared it had signed an agreement for its U.S. subsidiary to buy the MONY Group (MNY) for $1.5 billion in cash we have another insurance merger. This morning Canada's Manulife Financial Corp (MFC) announced it would acquire John Hancock Financial Services (JHF) for $10.5 billion. The merger was announced on Sunday and investors reacted negatively to the news with MFC and JHF both down on the session. The initial reaction on the street was that JHF was being sold too cheap. Terms of the deal will have JHF shareholders receiving 1.1853 shares of Manulife for each share of JHF. The new company will be based in Toronto.

Influencing trading tomorrow will be a number of factors but most pundits expect the averages to be erratic. First and foremost it is the end of the month for September. The last 52 years have shown September to be the worst month of the year for equities. This month's losses have been rather mild given the gains in the first two weeks but we will still close in the red unless we see significant bounce tomorrow. More importantly it is the last day of the quarter. This is the last chance for fund managers to "dress up" their portfolio before they print your end-of-quarter statements. Managers will be dumping their losers and buying some of the stronger performers to show you what a great job they're doing. Hopefully, they've been at least tracking the market. Currently, the U.S. is on track for its first back-to- back quarterly advances since 2000. As of Monday's close the NASDAQ is up 36.6 percent YTD while the DJIA is up 12.4 percent and the S&P 500 is up 14.4 percent (YTD).

A potential stumbling block for tech traders tomorrow will be Sun Microsystems (SUNW) earnings warning tonight after the bell. SUNW will be replacing a $12 million profit with a $1.04 billion loss. The company is writing down this non-cash charge for the fourth quarter of its FY '03. The stock was down 9 percent in after hours trading. A few years ago this would have cast a dark cloud over the entire sector and possibly the market as a whole but SUNW is just a shadow of its former self and investors may regulate the news as company-specific.

Investors will also need to keep their eyes open for the September Consumer Confidence report due out shortly after the opening bell. Economists expect the confidence number to dip from 81.3 to 80.6; if the report comes out any weaker it could undermine the markets after Friday's negative Michigan Sentiment data. Economists are also expecting a small dip in the Chicago Purchasing Managers Index (PMI) but the report should still show an expanding manufacturing sector.


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