Proceed with Caution, Volatility Ahead
Is it just me, or does it seem like this earnings season is completely nuts? All a company has to do is announce earnings on target and they get whacked for not beating the estimates. God forbid a stock you own should miss earnings by a penny or two. You'll lose 20% on paper within minutes. I'm tried of waking up every morning to watch Joe Kernen (CNBC) call forth a bevy of graphs that look like Niagara Falls!
And the volatility! Oy Vay! I've never seen anything like it. Granted, I'm no Peter Lynch, my experience in the market is limited to the 1990's. I'm getting seasick out there. Apple is a case in point. AAPL saw an intraday low of $68 1/2 on Tuesday with about twice the normal volume. By Friday, they posted an intraday high of $77 1/4 with about half-normal volume! That's a huge trading range on no significant news.
Nevertheless, it was a good week for Apple, although the declining volume on the ascent portends further weakness to come this week. But who knows?
There was some news, the release party for Mac OS 9 was last weekend. But it seems to have come and gone with nary a raised eyebrow, even though it packs 50 new features and a supercharged Sherlock. Investors and consumers alike seem to feel it's merely techno evolution as expected. Ho-hum. The OSX client is the real world premiere Macheads are waiting for.
Of course, today (Oct 25) is the big day for Intel. "Coppermine" Pentium III debuts with speeds above 700MHz. WooHoo. Big deal. It's nice to note that Motorola isn't the only semiconductor manufacturer having trouble with the new .18 micron process. Intel will claim these are the fastest chips in the world. But I doubt it. Benchmark tests suggest, at least here in Texas, tortilla chips served with salsa go the fastest.
Choppy and Sideways
Yeah, traders are suppose to love these type of market conditions, but it's downright nerve-racking and difficult to call. The support and resistance levels aren't holding neatly. There is very little time to react; an hour can make the difference between a major loss and a major gain.
Then there are the market internals. They suck in just about every way. In the last few weeks, it hasn't mattered if the market was up or down, the advance decline line is always negative. The divergence between the Dow and the advance decline line is notable. It was actually positive on Friday for the first time in a long while. There's usually several hundred issues setting new lows, and never more than a handfull at 52-week highs. The Transports and Utilities look positively ill.
The markets just don't know what they want to do. There's not a guru on the planet that can tell you what's going to happen between now and Christmas. The Dow has been setting lower lows and lower highs since August. Next week, if the Dow doesn't move up to break cleanly through 10,700, that's a pretty strong indication that we'll go below 10,000 before November is over. If it does walk through 10,700, then we'll have broken the downtrend and may be in for a bit of market stability for awhile. That's if you consider a thousand point trading range stable. It's hard to imagine that we'll see new Dow highs before the end of the year.
The Nasdaq is the healthiest of all the indices. It really is diverging from the Dow and the S&P 500 quite dramatically. In fact, the Nasdaq could set new highs this week. If you listen to CNBC there seems to be a common chant among analysts that the tech stocks are the place to be. Most analysts seem to think that earnings growth will slow next year for everyone but the tech stocks.
Especially strong are those companies building the global Internet/telecommunications infrastructure like EMC, IBM, Cisco, Lucent, Nortel, Sun Microsystems and Oracle. It's the old sell-the-goldminers-shovels-and-Levis paradigm updated for the information age. These companies are bulletproof; at least once the Y2K fright passes. However, watch out for the semi-conductors. Short interest and insider selling is building.
Oddly, as inflation, DRAM and Y2K fears hammered much of the techs last week, the overvalued Internet stocks as a group advanced. People seem to be flocking toward companies with high growth potential. That would explain why Apple is back near its all time high of $80 per share. One can easily imagine that Apple will go to $90 by Christmas, but I don't doubt that we'll see $68 again before then either. We're on a rollercoaster ride.
May I suggest that long term shareholders of Apple just close your eyes? Don't watch CNBC! Go fishing or start an online business, but don't watch this stock market on a daily basis or you'll run the risk of getting shaken out prematurely. Things aren't going to settle down till after Y2K.
If you're a trader, get in there and have fun. You'll either win big, get stopped out or lose so much on paper that you'll join the ranks of longterm holders. I don't see much down side risk. Sure, the Dow may visit 9,300 before Christmas due to a further Fed interest rate hike over inflation fears. So what? Even if that happens, the 17-year bull market trend is still intact. All bets are off if the Pakistanis nuke Bombay, or if an asteroid collides with Earth. I worry about asteroids.
Your comments are welcomed.