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Market Wrap

November Opens Strong

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     11-03-2003            High     Low     Volume Advance/Decline
DJIA     9858.46 + 57.34  9896.16  9802.38 1.66 bln   1979/ 854
NASDAQ   1967.70 + 35.49  1969.26  1941.31 2.06 bln   2107/1035
S&P 100   524.01 +  4.03   525.42   519.98   Totals   4086/1889
S&P 500  1059.02 +  8.31  1061.42  1050.71
RUS 2000  537.84 +  9.62   537.84   528.22
DJ TRANS 2940.73 + 27.62  2947.79  2913.81
VIX        16.55 +  0.45    16.70    16.22
VXO        17.01 -  0.14    17.43    16.72
VXN        25.38 +  0.49    25.95    25.15
Total Volume 4,163M
Total UpVol  3,129M
Total DnVol    991M
52wk Highs    1167
52wk Lows       19
TRIN          0.71
PUT/CALL      0.63

November Opens Strong
By James Brown

It was another busy Monday with the bulls once again in control. As the mutual fund scandal claimed another victim, this time at Putnam Investments, Wall Street chose to ignore the news and focus on positive economic data. The ISM report beat economists' estimates and turned in its best pace since January 2000. Cementing the positive mood was a strong showing for business construction that also turned in its best numbers in a year. The icing on the cake was Sunday's chip sales numbers, which were the strongest in 13 years. At the end of the day the tech-heavy NASDAQ closed at 21-month highs. The S&P 500 and the DJIA closed at 17-month highs.

U.S. markets got a big boost from their overseas counterparts. The Japanese NIKKEI may have stumbled 135 points to 10,559 but its Hong Kong neighbor the Hang Seng index added 196 points to close at 12,386. Across the Atlantic were gains in the British FTSE, up 1.05% to 4332. Meanwhile the Germans lead the charge with a 2.42% gain in the DAX. The Dow Jones Industrials Average closed up 57 points at 9858, almost breaking 9900 intraday. The NASDAQ Composite added 35.49 points or 1.83% to close at 1967. The S&P 500 added more than 8 points to follow through on Friday's close above technical resistance at 1050. The SPX closed at 1059.

Today's biggest gainers were in technology lead by the Semiconductor index (SOX) and followed by stocks in Networking, Internet and Hardware sectors. Non-technology winners were heavy in homebuilders and the broker-dealer sectors. Selling was concentrated in gold stocks, oil services and the healthcare sector. Market internals were very bullish. Advancing issues whipped decliners almost 20 to 8 on the NYSE and 21 to 10 on the NASDAQ. New Highs soared to 817 versus new lows of just 16. Up volume was very bullish coming in at three times down volume on both exchanges.

Chart of the DJIA:

Chart of the NASDAQ COMPX:

The big economic event for the day was the ISM index. Released at 10:00 AM ET the ISM manufacturing index rose to 57 percent, beating estimates of 55.4 percent and jumping 3.3 percent from September's reading. October was the fourth consecutive month of gains. Readings above the 50 mark indicate that business was improving or holding steady. October's reading at 57 is the best pace since January 2000. Manufacturers have seen business improving due to the need to refill low customer inventories. October's reading put customer inventories falling to 39 percent, a record low only matched by May 2002. Investors cheered the new orders component, which rose to 64.3 percent in October from 60.4 percent in September. This is the best pace since June 1994. Optimists also noted the strong jump and nine-year high in the export component, which rose to 59.6 up from 52.9 in September. Overall it was a very strong report and yet another stepping stone the markets needed to hear to keep the momentum alive. With inventories so low the manufacturing sector should be humming throughout the rest of 2003 as they race to replenish the country's inventories.

Bulls also cheered the positive construction spending numbers that came out today. Construction spending rolled out at +1.3 percent versus estimates for a gain of just +0.4%. Economists noted that private non-residential building construction rose 2.5%, which is the biggest gain in a year.

Today's biggest winners were in the chip sector as the SOX index rose 3.87% and closed at levels not seen since May 2002. The rally was fueled by a 6.5% jump in global chip sales for September, according to the Semiconductor Industry Association (SIA). The rise in sales was the biggest monthly improvement since 1990. The SIA also said quarterly revenues soared more than 17 percent to $43.3 billion compared to a year ago. Technology bulls will be looking for more good news from the SIA when the industry group releases its long-term outlook for 2003 through 2006.

Nowadays we can't have a Monday without some merger news and today was no different. Chips stocks also got a boost from news that Conexant Systems (CNXT), a broadband chip producer, would buy GlobespanVirata (GSPN). GSPN shareholders will get almost 1.2 shares of CNXT for each share of Globespan, which at Friday's prices valued GSPN at a 14% premium. There was also merger news in the energy sector. Exelon (EXC), a Chicago-based energy company, announced it would buy Illinois Power from Dynegy (DYN) for $425 million. Both EXC and DYN rose higher on the news.

Bulls were definitely in control on this first trading day for November but not everything closed in the green. The strong economic numbers in the ISM boosted the dollar and suddenly traders felt less inclined to buy gold as a safety hedge. The U.S. dollar surged to one-month highs against the euro and the yen. Meanwhile December gold futures dropped $7.50 to close at $377.10 an ounce. The XAU gold & silver index fell 2.13%. All together these influences sent bonds lower and the yield on the 10-year note jumped to 4.36%.

Oddly enough the markets seemed to ignore the growing mutual fund fiasco. The growing firestorm over fraud charges for illegal trading forced Putnam Investments to fire CEO Lawrence Lasser, who lead the company for 18 years. Lasser was one of the highest paid industry professionals earning more than $160 million over the past six years. NY State Attorney General Elliot Spitzer said the bloodletting isn't over. At a Senate subcommittee on financial management the high-profile prosecutor called the mutual fund industry a "cesspool" and suggests that funds should surrender all fees that were collected while these illegal trading abuses were being practiced.

Normally the first three to five days of the month are bullish as mutual funds put new money to work and this can be exceptionally true in November as they begin a new fiscal year. The breakout to new highs on the $INDU, NASDAQ and the technical breakout over 1050 on the S&P 500 should have bears running scared again. It wouldn't surprise us to see sellers just step back and wait for the Dow to hit 10,000 and the NASDAQ to hit 2,000 before attempting to short these round-number psychological resistance levels. The impulse to short these levels may be compounded by the new lows we are witnessing in the VXO. The combination will likely be too much for bears to resist, even in their current state of pain. The next couple of days could prove interesting.


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