Techs Soar as Bulls Buy The Dip
Stocks rushed higher on Monday as investors blew a collective sigh of relief. The weekend was a quiet one with no terrorist events being reported as we approach the close of Ramadan, which should end tomorrow. This left investors with one focus and that was the host of economic reports due to be announced tomorrow and Wednesday. The underlying theme today was "buy the dip" as UBS said investor optimism rose to 20-month highs. Investors are expecting the economic news this week to be positive and reaffirm that the world's largest economy is still on its path to recovery.
Asian markets were relatively flat but European exchanges reported strong gains. The English FTSE rose 1.47% and the German DAX rocketed 2.6%. Both exchanges have bounced strongly the last few days with the German DAX up more than 4% from its recent intraday lows near 3590. Bulls took their cue from their European counterparts and U.S. exchanges witnessed a very broad- based rally. The only sector not in the green today was the XAU gold & silver index, which closed down 1.59%. December gold futures fell about $5 to settle at $391.50 an ounce after the U.S. dollar improved against the yen and the euro.
The buying pressure was strongest in technology stocks with the NASDAQ 100 (NDX) index rising 3.34%. All of the major technology-related sector indices ($SOX, $NWX, $INX, $GSO, $GHA, $DDX) added 3 percent or better with a few adding close to 4 percent in today's session. Investors also saw strong gains in airlines (+3.85%), biotech (+3.95%), homebuilders (+3.72%), retail (2.59%) and the HMO index (+2.54%). The rise in the DJUSHB home construction index broke through the 600 level to close at new all time highs. By the closing bell the DJIA added 119 points to settle at 9747. The NASDAQ Composite added 2.81% (53 points) to close at 1947 and the S&P 500 added almost 17 points to close at 1052.
Market internals were very bullish. Advancing stocks outnumbered declining stocks 21 to 7 on the NYSE and 22 to 9 on the NASDAQ. The only big losses were in the volatility indices with the VXO (old VIX) falling 13.77% and the VIX down 8.1%. The up/down volume numbers were very optimistic with up volume approximately 5 times down volume across both exchanges. Unfortunately, total volume was rather mild and will probably continue to worsen as we head toward the weekend in this holiday-shortened week.
Chart of the DJIA:
Chart of the NASDAQ:
Chart of the S&P 500:
Surprise, surprise! As if the huge gains today didn't say it enough but UBS reported that investor optimism has soared to 20- month highs. The UBS Index of Investor Optimism jumped to 93 in November, a gain of 24 points. According to the survey 57 percent of investors are optimistic about the country's economy and 60 percent feel the economy to be in a recovery. All of this pent up optimism is great but it sets us up for one heck of a let down if any of the major economic reports this week fail to deliver. Contrarian investors, who like to run opposite the crowd have to be cringing, especially as the volatility indices plummet today.
Tomorrow's economic reports will take center stage with the Third Quarter Preliminary GDP numbers, the Redbook Retail Sales report, the October Existing Home Sales figures, and the November Conference Board Consumer Confidence numbers. Paramount on the list is the GDP figures. It was only a few weeks ago that the Commerce Department reported a 7.2% annual pace from July through September. Now economists are estimating that the government could revise these numbers even higher, not lower as previously thought. Some estimate that the new upward revision could put GDP at 7.8 to 8.0 percent growth. This would be the strongest quarter since early 1984 where GDP grew at 9.0 percent. Furthermore the National Association for Business Economics believes the economy may expand by 4.5% in 2004, an upward revision from their previous 4.0% forecast.
There were several companies making headlines today. Boeing (BA) led the list as it fired its CFO Mike Sears "for cause". Evidently, Sears had unethically hired one Darleen Druyun, an Air Force official. The two had communicated about future employment with Boeing before Druyun removed herself from acting as a government official in business deals regarding Boeing. Druyun was apparently involved in BA's tanker-leasing deal and the Joint Strike Fighter contract. Shares of BA closed up 3 cents on the session.
Time Warner (TWX), previously known as AOL Time Warner, reported that it had sold its music business for $2.6 billion. Buying the music division was an investor group lead by Thomas H. Lee Partners, Bain Capital, Providence Equity Partners and Edgar Bronfman Jr.'s Lexa Partners. Shares of TWX rose better than 2 percent on the news.
Jumping more than 5% today was Boston Scientific (BSX). Weeks ago Johnson & Johnson (JNJ) tried to get a preliminary injunction against Boston Scientific to stop development and marketing of its Taxus drug-coated stent, which would compete with JNJ's Cypher stents. The majority of analysts did not expect JNJ to win the suit but it had kept a lid on BSX's share price. Today a U.S. District Judge has denied JNJ's request. Analysts believe drug-coated stents could be a $4 billion business in the U.S. by 2005 and BSX is going to be stiff competition for JNJ.
Another Dow component making the rounds was Wal-Mart (WMT). WMT affirmed that its November same-store sales were tracing inline with estimates for 3 to 5 percent growth. Most believe that this holiday season will probably be the best since 1999. Recent earnings announcements from a number of apparel stores have been strong and investors have high hopes the trend will continue.
Tech investors will also be happy to hear that Novellus (NVLS), the manufacturer for tools used to make semiconductors, raised its earnings guidance after the closing bell. NVLS' CEO told investors in a mid-quarter update that expected orders were on track to rise 25% to $275 million. The company said total revenues for the quarter should actually come in at $220 million, topping analyst estimates of $217 million. NVLS raised their net income guidance to the top of their range at 6 cents, a penny above consensus estimates. The SOX added 3.6% today but given its bounce from the rising 30-dma this NVLS news could propel it to current overhead resistance near the 530 level.
This hasn't been the best year for using historical trends to time market performance but once again traders are faced with a strong history for bullishness during Thanksgiving week. The general concern is that volume tends to dry up as market players go home for the holiday. The low volume will then exacerbate moves in either direction. The real danger here is the numerous economic reports on Wednesday, one of the lowest volume days of the week. A positive surprise and we may or may not get the pop higher one might be expecting. Yet a negative surprise could catch many off guard and quickly send us lower. In spite of my cautionary tone today's gains, which erased most of last week's losses, confirms that buyers are still there. The upward trend hasn't been broken just yet. Another couple of positive days and we could see NASDAQ 2000 by Thanksgiving.