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Greenspan Says No New Bubble

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     01-05-2004            High     Low     Volume Advance/Decline
DJIA    10544.07 +134.22 10544.07 10411.85 2.01 bln   1941/ 931
NASDAQ   2047.36 + 40.68  2047.36  2020.78 2.34 bln   2082/1025
S&P 100   557.31 +  7.32   557.31   549.99   Totals   4023/1956
S&P 500  1122.22 + 13.74  1122.22  1108.48
RUS 2000  568.92 +  8.07   569.48   560.85
DJ TRANS 3028.63 + 20.47  3031.56  3007.76
VIX        17.49 -  1.16    18.49    17.44
VXO        16.71 -  1.88    17.85    16.69
VXN        23.89 -  0.94    25.29    23.76
Total Volume 4,750M
Total UpVol  3,514M
Total DnVol  1,116M
52wk Highs    1135
52wk Lows       12
TRIN          0.65
PUT/CALL      0.68

Greenspan Says No New Bubble
By James Brown

The first real day of trading for 2004 started with a bang as U.S. markets launched to an early start as investors breathed a sigh of relief that there were no terror events over the weekend. Today's rally was very broad based and fueled by almost forty fresh broker upgrades, many of them targeting tech stocks. Some positive news from the semiconductor industry and encouraging comments from Bernanke and Greenspan over the weekend helped set the stage. Last week the S&P 500 ended its sixth consecutive weekly gain, the longest streak in nearly six years, and if Monday's performance is any indication we may see a seventh week.

The U.S. markets weren't the only ones making headway. The first Monday in 2004 witnessed global markets also ending with gains. The Asian exchanges were very strong with the Japanese NIKKEI adding 148 points to close at 10,825, despite a new three-year low for the dollar against the yen. The Hong Kong Hang Seng index soared 203 points to break above the 13,000 mark. European exchanges turned in more muted gains with the English FTSE up 3 to 4513 and the German DAX up 17 to 4035.

Market internals here at home were very bullish. 28 out of the 30 Dow components closed higher. Altria (MO) and Wal-Mart (WMT) were the only losers. Money managers put their funds to work in technology stocks with strong gains across the board for semiconductors, software, internets, hardware and networking. Wall Street firm SG Cowen helped set the mood with a number of upgrades. Cowen raised chip stock KLAC, PC maker DELL and software giant MSFT to "strong buy". The advance-decline figures closed with 19 winners for every 9 losers on the NYSE and 20 advancers for every 10 decliners on the NASDAQ. We also saw a return of volume with more than 2 billion shares trading on both exchanges (4.3 billion total). More importantly up volume was better than 3 times down volume on the NYSE and more than 2.6 times down volume on the NASDAQ. Joining the advance was crude oil; up $1.26 to $33.78 a barrel and February gold futures added $8.70 to close at $424.80 an ounce.

Chart of the DJIA:

Chart of the NASDAQ:

Wall Street did have some economic numbers to absorb today with the December auto and truck sales figures and the November construction spending data but all three reports were overshadowed by this weekend's comments from Fed governor Ben Bernanke and Fed chairman Alan Greenspan. In a speech on Sunday, Bernanke essentially reassured investors that the FOMC would do whatever it takes to leave interest rates low and keep the domestic economic recovery on track. He also reiterated that the government was not concerned over the U.S. dollar's decline and suggested that the greenback's open market slide has been "orderly". Furthermore there was little reason to worry about a "crisis" for the dollar.

His words helped grease the dollar for yet another decline on Monday and currency traders were happy to oblige. The U.S. dollar hit a new all-time low against the euro trading near $1.2679 after hitting $1.2697 midday. The greenback fell to an 11-year low against the British pound and a new three-year low against the Japanese yen despite the Bank of Japan's attempt to slow the drop by selling yen. By the end of the day the dollar had dropped against all 16 major currencies.

Yet stock investors continued to turn a blind eye to the dollar's woes. Any why not? Greenspan essentially gave them a free pass with his comments over the weekend. He said that we were NOT in a new bubble (emphasis mine). In fact he congratulated the Fed's approach to dealing with the bubble's "consequences" and not the bubble itself as having been successful.

There were plenty of stocks making headlines today. Leading the pack was Siebel Systems (SEBL). The software vendor, known for its "eBusiness" applications that help companies run call centers and track customers, raised its fourth quarter estimates. SEBL now expects sales to jump six percent above its October projections with earnings-per-share numbers to rise by five percent. This equals about 8 cents a share on revenue of $365 million. Investors greeted the news enthusiastically as new evidence that a turnaround in IT spending was indeed underway. Shares of SEBL added 10 percent to close at $15.39 while the software sector (GSO.X) added 3.49%.

The semiconductor sector turned in a strong session as well with the SOX adding 3.6%, surging strongly off the 500 level. Powering the move was a new report from the Semiconductor Industry Association (SIA) who reported that worldwide chip sales in November rose 26% from a year ago to $16.1 billion. This was the fourth monthly gain in a row with strong growth in flash memory, up 11.2%. As mentioned earlier, chip equipment maker KLA-Tencor (KLAC) enjoyed a fresh "strong buy" rating from SG Cowen. The analyst at the Boston firm actually raised both KLAC and AMAT to "strong buy" ratings on his belief that semiconductor manufacturers will raise capex spending by 40 percent this year.

Serving up its own "blue-light special" today were shares of Kmart (KMRT). The company reported that its November and December sales numbers had been very strong and that strict inventory management had resulted in "significant profit". The company reemerged from bankruptcy last May and shares began trading under the new symbol last June. The "profit" will be close to $200 million, before a $50 million one-time profit from real estate. This is encouraging news but sales have continued to slump with same-store sales dropping 13.5% and total sales falling 26% to just $5.1 billion. Yet investors were too enamored with the idea of a profit and got a little excited as the stock soared 26.6% (more than $6) to $29.12. Its larger rival Wal-Mart (WMT) also made some after-market news by announcing a $7 billion stock buyback program to replace an earlier $5 billion plan.

Tomorrow should be interesting. We might get some more news from the 2004 Detroit car show that opened today. The field is growing crowded with a number of new product launches but investors rewarded shares of GM, F and DCX with gains today. Meanwhile Wall Street will be looking for the ISM services index to come in at 60.8 for December, above its 60.1 reading for November. We'll also hear from the November factory orders report, which is expected to slip after last month's 2.2% gain. We could end up seeing a "sell the news" reaction no matter what the ISM Services index comes out to be but historical trends suggest the first several days of January are normally bullish ones. Right now there is a lot of excitement that the upcoming fourth quarter earnings season will unwrap a number of positive surprises but odds are very good that we will see some strong sell the news reactions in response no matter what those earnings results turn out to be. Look for Dow component Alcoa (AA) to open earnings season with its own report on Thursday after the close.


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