Brigitte
12.12.2000, 11:25
* * * *
12/11/00 Investment House Daily
* * * *
Investment House Daily Subscribers:
TONIGHT:
- The Nasdaq gives another confirmation day as techs rally.
- The election had no impact on the stock market? Where have these
analysts been?
- What happens when the U.S. Supreme Court rules?
- Another slow weekend of retail sales.
- Subscriber Questions
- Team Trades
The techs fight off the urge to sell and give us another positive session.
There was uncertainty going into the trading session today given the
weekend events, but the techs quickly fought off the urge to sell and
rallied more or less for the remainder of the session. There was a dip
during the replay of the U.S. Supreme court hearing, but investors
apparently did not hear anything they did not anticipate, and the Nasdaq
rallied higher almost to the close. The Dow and the S&P 500 were up, but
they suffered some pretty sharp selling in the last half hour that tainted
the day for those indexes. The techs look solid, but there was grumbling
among the 'traders' according to the television faces.
There are two schools out there. The 'traders' were quoted as saying they
were going to sell into any Supreme Court announcement, apparently on the
belief that the rise we have seen was built only on the Bush prospects of
winning, and once that is gone we are back to the same old game. The
others are saying that the election has had no impact on the market and
that what investors are really worried about are earnings, and with more
warnings coming up we are going to see weaker action in the markets.
Thus, they both come up with the same result, but use different analysis
to get there.
The focus of the popular media is wrong.
We would suggest they are both wrong. Looking at the latter position
first, it is pretty preposterous to state that the selling since November
8 was on earnings worries. Well, the market had sold down over 20% to
that point on earnings worries. They were not re-ignited on the eighth
for another sharp sell-off on new earnings worries but on very harsh
rhetoric about the election and uncertainty as to whether the next
administration will be business friendly or business fighters. Then there
was rallying as the Bush campaign, considered business friendly by the
markets, won the majority of the court battles in Florida. That was
coupled with huge news of a change in Fed views on the economy. The
markets have been rallying since.
So we have two schools saying that the markets are going to sell off no
matter what. What they are doing (as they often do) is failing to look at
what the market is saying but instead relying on their emotional
interpretation of events. What we have is a Nasdaq and S&P 500 that gave
us confirmation days last Friday. Today we had another confirmation day
on the Nasdaq. Those set the stage for each bull rally. Moreover, we had
bad news from INTC last Thursday after the close, but the stock rose the
next day as did practically every tech stock. After the close today
Dallas Semiconductor warned of slower earnings as did AMD and HON. DCLK
warned of a 5 cent shortfall. Has this impacted the market? Not that we
can see in after hours trading. Tech stocks continue to hold onto their
gains. To us that indicates that earnings are not the focus right now,
but as we have noted, the changed circumstances looking forward, i.e.,
rate cuts and tax cuts to help with the economic problems, are what
investors are looking at. The key will be whether those measures work
moving forward, but we won't know that until next year. For now,
expectations about the future have changed for the better at least as far
as the stock market is concerned. Indeed, very late in the evening, GE
indicated it was right on track for its 2001 earnings.
Straight up from here?
That does not mean that the Nasdaq is up, up and away. As we have stated
several times over the past month, there are not a lot of great patterns
from the leaders that foretell a host of stocks breaking to new highs and
leading the market higher and higher. There are leaders that are building
the last parts of their bases, but there is still work to do over the next
few weeks. That does not mean we don't continue to move higher, but we
most likely will not have a rally that leads us straight up.
In that respect those saying there may be selling on the news of the
election outcome have some validity, but the path to that conclusion is
wrong, and that means they don't understand what is going to happen next.
What we have is the Nasdaq reversing off of a new low set for the year and
showing us confirmation as institutions are buying into the move. What we
have is a Nasdaq that has moved up 492 points in 8 days. What we have is
a Nasdaq that bumped into its down trendline connecting the September and
November tops. That means that we will in all likelihood see some lower
volume profit-taking in the near future, perhaps tomorrow before any
Supreme Court announcement is out; that could lead to a nice rally on the
news, but a little rest is warranted. That can give us another good entry
point on these leaders that have been racing up, e.g., NEWP, EXTR, BRCD,
SEBL, and others. We also note that many of these stocks rose on lower
volume today, and that is an indication of some profit taking to come. As
usual, we want to see any pullback on lower volume and rise on stronger
volume. Right now that is what we are getting.
What happens on a Supreme Court ruling?
The problem with this question is that there are various outcomes and
possible remedies within those outcomes. That is part of the fallacy of
the 'sell on the ruling' statements we are hearing. If Bush 'wins' in the
ruling, the remedy could be a total, end of the game victory (a 'head
shot' as we used to call it when I practiced) or some requirement of a
full recount with a unified standard that would require further actions in
Florida. One gives certainty while some variation of the latter means
more to come. A Gore 'win' means at the least that the counting
continues.
With the possibilities, anything can happen. Generally, if Bush 'wins,'
we anticipate a rally on the news. It may be muted as this has been
priced in and out of the market over the past two weeks. Still, as we
noted, the Nasdaq has made a steady march higher during that time. It has
had good news from the Fed and is expecting good news at least in the form
of election finality. Thus any rally will give way to some necessary rest
sooner than later. As we noted earlier, we may even see that tomorrow
morning ahead of any anticipated announcement. That is not uncommon
action for the market as we have seen in anticipation of FOMC results:
rise during the meeting and then some selling right before and right after
the news hits. Rally or not, the Nasdaq has come a long way and has to
deal with some significant resistance. Do not be surprised to see it take
a rest. If there is more counting to go on in the aftermath of the
decision we think that will add to some profit-taking pressure.
Overall, we look for whatever resolution as positive. The market has
shown an affinity when Bush is perceived to be doing well, presumably due
to his tax cutting ideas given the current worries about the economy. In
any event, some certainty will eventually return and the markets can then
fall back on the idea that the Fed is now looking to protect the economy.
THE ECONOMY
Wholesale inventories rose at 0.3%, higher than the 0.2% rise in
September, and less than the 0.5% anticipated rise. Apparently
manufacturers were wary of the slowdown they saw coming and did not
produce as much. No surprise looking at the national NAPM numbers that
have shown a contracting manufacturing sector for the past four months.<B
12/11/00 Investment House Daily
* * * *
Investment House Daily Subscribers:
TONIGHT:
- The Nasdaq gives another confirmation day as techs rally.
- The election had no impact on the stock market? Where have these
analysts been?
- What happens when the U.S. Supreme Court rules?
- Another slow weekend of retail sales.
- Subscriber Questions
- Team Trades
The techs fight off the urge to sell and give us another positive session.
There was uncertainty going into the trading session today given the
weekend events, but the techs quickly fought off the urge to sell and
rallied more or less for the remainder of the session. There was a dip
during the replay of the U.S. Supreme court hearing, but investors
apparently did not hear anything they did not anticipate, and the Nasdaq
rallied higher almost to the close. The Dow and the S&P 500 were up, but
they suffered some pretty sharp selling in the last half hour that tainted
the day for those indexes. The techs look solid, but there was grumbling
among the 'traders' according to the television faces.
There are two schools out there. The 'traders' were quoted as saying they
were going to sell into any Supreme Court announcement, apparently on the
belief that the rise we have seen was built only on the Bush prospects of
winning, and once that is gone we are back to the same old game. The
others are saying that the election has had no impact on the market and
that what investors are really worried about are earnings, and with more
warnings coming up we are going to see weaker action in the markets.
Thus, they both come up with the same result, but use different analysis
to get there.
The focus of the popular media is wrong.
We would suggest they are both wrong. Looking at the latter position
first, it is pretty preposterous to state that the selling since November
8 was on earnings worries. Well, the market had sold down over 20% to
that point on earnings worries. They were not re-ignited on the eighth
for another sharp sell-off on new earnings worries but on very harsh
rhetoric about the election and uncertainty as to whether the next
administration will be business friendly or business fighters. Then there
was rallying as the Bush campaign, considered business friendly by the
markets, won the majority of the court battles in Florida. That was
coupled with huge news of a change in Fed views on the economy. The
markets have been rallying since.
So we have two schools saying that the markets are going to sell off no
matter what. What they are doing (as they often do) is failing to look at
what the market is saying but instead relying on their emotional
interpretation of events. What we have is a Nasdaq and S&P 500 that gave
us confirmation days last Friday. Today we had another confirmation day
on the Nasdaq. Those set the stage for each bull rally. Moreover, we had
bad news from INTC last Thursday after the close, but the stock rose the
next day as did practically every tech stock. After the close today
Dallas Semiconductor warned of slower earnings as did AMD and HON. DCLK
warned of a 5 cent shortfall. Has this impacted the market? Not that we
can see in after hours trading. Tech stocks continue to hold onto their
gains. To us that indicates that earnings are not the focus right now,
but as we have noted, the changed circumstances looking forward, i.e.,
rate cuts and tax cuts to help with the economic problems, are what
investors are looking at. The key will be whether those measures work
moving forward, but we won't know that until next year. For now,
expectations about the future have changed for the better at least as far
as the stock market is concerned. Indeed, very late in the evening, GE
indicated it was right on track for its 2001 earnings.
Straight up from here?
That does not mean that the Nasdaq is up, up and away. As we have stated
several times over the past month, there are not a lot of great patterns
from the leaders that foretell a host of stocks breaking to new highs and
leading the market higher and higher. There are leaders that are building
the last parts of their bases, but there is still work to do over the next
few weeks. That does not mean we don't continue to move higher, but we
most likely will not have a rally that leads us straight up.
In that respect those saying there may be selling on the news of the
election outcome have some validity, but the path to that conclusion is
wrong, and that means they don't understand what is going to happen next.
What we have is the Nasdaq reversing off of a new low set for the year and
showing us confirmation as institutions are buying into the move. What we
have is a Nasdaq that has moved up 492 points in 8 days. What we have is
a Nasdaq that bumped into its down trendline connecting the September and
November tops. That means that we will in all likelihood see some lower
volume profit-taking in the near future, perhaps tomorrow before any
Supreme Court announcement is out; that could lead to a nice rally on the
news, but a little rest is warranted. That can give us another good entry
point on these leaders that have been racing up, e.g., NEWP, EXTR, BRCD,
SEBL, and others. We also note that many of these stocks rose on lower
volume today, and that is an indication of some profit taking to come. As
usual, we want to see any pullback on lower volume and rise on stronger
volume. Right now that is what we are getting.
What happens on a Supreme Court ruling?
The problem with this question is that there are various outcomes and
possible remedies within those outcomes. That is part of the fallacy of
the 'sell on the ruling' statements we are hearing. If Bush 'wins' in the
ruling, the remedy could be a total, end of the game victory (a 'head
shot' as we used to call it when I practiced) or some requirement of a
full recount with a unified standard that would require further actions in
Florida. One gives certainty while some variation of the latter means
more to come. A Gore 'win' means at the least that the counting
continues.
With the possibilities, anything can happen. Generally, if Bush 'wins,'
we anticipate a rally on the news. It may be muted as this has been
priced in and out of the market over the past two weeks. Still, as we
noted, the Nasdaq has made a steady march higher during that time. It has
had good news from the Fed and is expecting good news at least in the form
of election finality. Thus any rally will give way to some necessary rest
sooner than later. As we noted earlier, we may even see that tomorrow
morning ahead of any anticipated announcement. That is not uncommon
action for the market as we have seen in anticipation of FOMC results:
rise during the meeting and then some selling right before and right after
the news hits. Rally or not, the Nasdaq has come a long way and has to
deal with some significant resistance. Do not be surprised to see it take
a rest. If there is more counting to go on in the aftermath of the
decision we think that will add to some profit-taking pressure.
Overall, we look for whatever resolution as positive. The market has
shown an affinity when Bush is perceived to be doing well, presumably due
to his tax cutting ideas given the current worries about the economy. In
any event, some certainty will eventually return and the markets can then
fall back on the idea that the Fed is now looking to protect the economy.
THE ECONOMY
Wholesale inventories rose at 0.3%, higher than the 0.2% rise in
September, and less than the 0.5% anticipated rise. Apparently
manufacturers were wary of the slowdown they saw coming and did not
produce as much. No surprise looking at the national NAPM numbers that
have shown a contracting manufacturing sector for the past four months.<B