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Monday, July 12, 2004
Good evening friends,
Market Recap
The Dow was up +25 points after making a nice reversal off the morning lows (At one point it was as low as 10,162). This was a good reversal and may hold up tomorrow. The Dow closed above its 50/200 SMA after being below both of these averages intra day. This is a positive sign however; the markets are not in sync with each other at all. The NASDAQ dropped -9 more points today; it was down to a low of 1921 but bounced back to close at 1936. The NASDAQ's low of 1921 was far below the Bollinger bands and was very over sold, so a bounce (although small) was due. The NASDAQ is still below its 50/200 SMA which is very negative unless you have short positions. To top it all off, the S&P is trading between its 50/200 SMAs. Here are three indices saying three different things:
Dow - Bullish
NASDAQ - Bearish
S&P - Neutral
The market cannot get more undecided than that. I would like to see the Dow, NASDAQ, and S&P all trading in the same direction. The markets are very hard to trade when charts of these big three are not on the same side of their respective 50/200 SMAs. It just keeps us as neutral as ever and still in this holding pattern.
Do you Google?
Looks like Google has decided to list on the NASDAQ instead of the NYSE. If you are a tech company, the NASDAQ is the place to be in my opinion: lots of action, lots of interest, and definitely more volatility. MAMA's move up today could possibly be tied in to Google's decision to list on the NASDAQ. We could be seeing the first steps to the Google effect mentioned here before. Of course, the Google effect was partially based on what I thought the YHOO earnings would be. Even though their earnings were good, the market did not like Yahoo's forward guidance and the stock sold off. I was hoping to see the momentum from YHOO to carry over into the Google IPO and heat up the whole sector. It now remains to be seen whether or not there will be any lasting Google effect at all.
Taking Your Chips off the Table
The chip sector took an early hit today when Merrill Lynch down graded the whole sector before the bell. As a result of this downgrade, chip stocks began the day with a sell off that continued through the day on fears that Intel's outlook will not be a strong one. What is particularly interesting is that we have not heard any pre-announcements or warnings from Intel. Yet, there seems to be panic in the streets already. Could it be overdone? Possibly. The real problem is that stocks like Intel are being set up for failure. Unless they have blow out numbers and an extremely strong outlook, I suspect Intel will sell off after earnings. The chart is certainly indicating a lower move.
Tomorrow will be a key day for the week. If Intel fails to exceed estimates or guide higher, I think we can take the rest of the week off. There are many earnings announcements this week, starting off with a couple of big guns, MSFT and IBM. Everyone will be watching closely to see not only what they say about earnings but also about inventories.
The rise in wholesale inventories can be construed as either positive or negative, depending on your point of view. On one hand, if inventories are rising, that could be due to a build up of goods in preparation for future demand which would be positive for businesses. But on the other hand, it could also mean there could be a slow down in the sales of end products which causes inventories to become stagnant. Businesses do not like to carry inventory; they pay to warehouse goods and that cuts into the bottom line. Inventory also shows up on the balance sheet.
It is a tough balancing act for businesses, if they fail to have inventory on hand when the demand rises, consumers get upset and look to other sources to purchase their goods. So businesses carefully watch consumer demand and hope to be able to meet the demand by having just enough inventories on hand and not be over stocked.
At this point, Intel needs to forecast an increased demand for their chips in the coming quarters. If we do not hear that, it will be a long road ahead for the SOX, NASDAQ, and technology stocks in general.
Market Outlook
If the news from INTC, MSFT, and IBM is not bullish, I cannot see any advance in the market for months. I think we will see a continued sideways to down market unless we have some unforeseen blowout earnings and economic numbers in the future. There is just no catalyst to move the markets, and I do not see anything coming anytime soon that will be enough to launch it upward. This sideways market has lasted for six months and we have yet to see anything significant enough to break us out. We need to be very cautious if we enter any long positions this week. Stops may be taken out in a hurry if panic sets in. Just remember to play the markets safe. Use well positioned stop losses, and do not enter too many trades until we know what is coming.
OTC BB Watch List
- GTEL
- TLPE
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