March Opens Bullish
Investors came back from the weekend in a buying mood and sent the Dow to one of its best gains in 7 weeks and the NASDAQ above short-term resistance at 2050. Fueling the market-wide rally was the ISM index that reported growth in the manufacturing sector for the 10th month in a row. The markets were also encouraged by a stronger employment component in the ISM as they look forward toward this Friday's employment report. Even the semiconductor index overcame early losses due to an Intel downgrade and closed higher with a 2% gain.
According to the Stock Traders Almanac the first trading day in March has been up 6 out of the last 8 years. We can now scratch another point in the up column. The Dow Jones Industrials added 94 points to close at 10,678. The NASDAQ surged nearly 28 points to 2057 and the S&P 500 added 11 points to close at 1155. The rally was very wide spread with every major index closing higher save for the BTK biotech index, which lost 0.07%. Buying interest was very strong in homebuilders, airlines, oil and gas, semiconductors and retail stocks.
Global markets were generally positive as well. The Japanese NIKKEI added another 229 points on top of Friday's 2.1% gain to close at 11,271 - a new twenty-month high for the index. The Chinese Hang Seng added 11 points to close at 13,918. European stocks were higher as the dollar added 0.4% against the euro. The British FTSE jumped almost 45 points to 4,537 and the German DAX added 36 to 4054. The gain in the dollar puts the brakes on gold today. Gold futures had rallied above $400 an ounce earlier in the session but couldn't hold it and closed at $399.60 an ounce (+2.80 for the day).
Gold wasn't the only commodity making a move today. Platinum rallied to $902 fell back to $895 and then rallied again in the afternoon to close up $18.70 to $906.80 an ounce - a twenty-four year high. Silver broke above the $7.00 level intraday and closed up 3.4% or 23 cents to $6.945 an ounce. This was the best level since February 1998 for the metal. Copper surged another 3.9% or 5.25 cents a pound to $1.3985. This is an eight-year high for the metal and helped drive shares of Phelps Dodge (PD) a copper miner to new all-time highs at $89.81 (+4.11% today).
Not to be out done by the metals crude oil rose 70 cents to $36.86 a barrel, the highest since its pre-Iraq war spike in March 2003. Normally when crude prices trade above $30 a barrel it's tough for OPEC to keep its members from pumping more than their agreed to quotas but oil has risen more than $4 a barrel since their last meeting in February where they agreed to reduce their quotas another 4% starting in April. I've mentioned it before but it's amazing that the economy has been able to absorb this sort of increase. The rising cost of oil affects numerous sectors from manufacturing to transports. I'm honestly surprised that the airlines whose profits are directly affected by fuel costs have been able to trade sideways with oil skyrocketing. It won't be long and consumers are going to feel the sting of higher oil prices at the pump and that will weigh on retail sales and consumer confidence.
Market internals were very bullish today and bode well for the strength in this rally. Advancing stocks outnumbered losers 3 to 1 on the NYSE and 2 to 1 on the NASDAQ. New highs surged to 645 versus 11 new lows between the two exchanges. One of the most bullish internals is how up volume sprinted past down volume by more than 4-to-1 on both exchanges.
The daily chart for the Dow Jones Industrials looks pretty encouraging with its short-term oscillators (RSI and stochastics) curling higher from oversold. We could see the index challenge resistance at 10,750 soon. The rally in the NASDAQ was enough to push the Composite back above its simple 50-dma and its technicals suggest we could see a run toward resistance in the 2090 range.
Chart of the DJIA:
Chart of the NASDAQ Composite:
The single biggest factor in today's rally was probably the ISM index. Economists had been expecting a dip to 62.1% from January's 20-year high at 63.6%. Remember that readings over 50 indicate growth and expansion. The headline number was worse than expected at 61.4% but investors cheered anyway. February's ISM marked the 10th month in a row for an expanding manufacturing sector and the fourth month in a row for a reading over 60. The New Orders component slipped to 66.4 from 71.1 and prices paid rose to 81.5 from 75.5 but the component that drew the most excitement was the employment index component. Manufacturing employment rose to 56.3% in February from 52.9% in January. This was the best reading in 16 years for the employment component and sparked renewed enthusiasm for this Friday's unemployment/jobs report. Currently the forecast on Friday is for unemployment to hold steady at 5.6% while the economy is expected to add 125,000 new jobs last month.
The ISM wasn't the only economic report out today. The U.S. Commerce Department also released figures for January construction spending and personal income and spending numbers. Construction spending fell 0.3% to an annual rate of $931.2 billion, its first decline in eight months. The decline was lead by a 0.8% drop in business construction as residential construction spending remained strong. Meanwhile personal spending rose 0.5% in January, which was inline with estimates. Personal income rose 0.2%, which was below estimates.
Monday's biggest story stock was Sepracor (SEPR). Before this morning's opening bell SEPR announced that it has received a conditional "approvable" letter from the FDA for its insomnia treatment called Estorra. While it is unknown what sort of conditions the FDA set for SEPR to market its new drug the company did say that additional patient testing would not be needed. SEPR now plans to ramp up its sales forces and marketing costs to launch Estorra by mid-2004. Analysts were very bullish on the news with Deutsche Securities, Lehman Brothers, Morgan Stanley and Standard & Poor's all upgrading the stock. One analyst expects that Estorra could grab 25% of the $2 billion market currently lead by insomnia drugs Ambien and Sonata, produced by Sanofi-Synthelabo (SNY) and King Pharmaceuticals (KG), respectively. Shares of SEPR gapped higher on the news and continued to rally ending the session up 56% to $44.30.
Medimmune and AAIPharma were two drugs stocks also making headlines today. Unfortunately for shareholders in the two companies their stocks went south. Medimmune (MEDI) lost 6.18% after lowering its earnings estimates due to increased R&D costs. The company plans to increase R&D to 20% of sales but this will reduce Q1 earnings to 40-43 cents a share, which is below estimates of 54 cents per share. MEDI expects full year 2004 earnings in the 50-60 cents a share range, which is well below estimates of 94 cents. Investors were also concerned that Wyeth (WYE) may back out of its FluMist marketing partnership with MEDI after a disappointing launch last year. Meanwhile AAIPharma (AAII) announced it had hired an independent auditor to investigate "sales abnormalities" in its recently launched Brethine and Darvocet drugs. Brethine is an asthma treatment and Darvocet is a painkiller. AAII withdrew their 2004 earnings guidance given the ongoing investigation and S&P lowered their credit rating on the stock. Shares of AAII dropped 36% to close at $9.77.
The big news for tech stocks this morning was a downgrade for both Intel (INTC) and its rival Advanced Micro Devices (AMD). A J.P. Morgan analyst downgraded Intel from "over weight" to "neutral" over concerns for notebook PC sales and product delays. Intel will take center stage on Thursday evening this week with its mid-quarter update but the JPMorgan analyst does not expect Intel to raise guidance for the first time in nearly a year. JPM also downgraded AMD from "neutral" to "under weight". Shares of AMD recouped most of its losses but still closed down 11 cents to $14.89. INTC was stronger and added 1.67% or 49 cents to close at $29.69. Contributing to strength in the chip sector was news from the Semiconductor Industry Association (SIA) who reported that January's global chip sales rose 27% over a year ago period to $15.6 billion. This was a 2.4% decline from December levels but the pull back was expected and SIA stands by their 2004 forecasts for 19.4% sales growth. Readers may remember that it was just last week that the Gartner research group raised their 2004 semiconductor sales forecast to +23% growth.
Tomorrow will be interesting. Bulls will be looking for some follow through on today's rally. After six weeks of sideways to down trading we're probably overdue for the bounce anyway. Tuesday we'll hear the auto and truck sales numbers but most investors will be focused on Wednesday's ISM services index and the Fed's Beige Book report. Overall traders sound pretty confident as I keep hearing comments about what a great environment this is for stocks with low interest rates, rising earnings and a recovery economy. Or if you prefer a little Greenspeak we can call it a "vigorous expansion".