The Slash And Burn Technique
Stocks are giving back gains made in yesterday’s reaction rally, trading on their lows of the session as they trace Pullback From Lows patterns below the necklines of head-and-shoulder top formations.
Traders are eyeing the latest negative from the telecom world: Corning
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PowerRating) announced that it would slash another 1,000 jobs, cut dividend payments, and burn off (write down) $4.8 billion in goodwill from recent acquisitions in response to slowing sales.
This latest omen in the days preceding next week’s kick off to the quarterly earnings season is being poorly received by Wall Street. Indeed, Nasdaq 100
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PowerRating) components in the related communications gear area are taking a sympathetic hit in the fallout of the Corning announcement.
JDS Uniphase
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PowerRating), a fiber optic concern; Cisco
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PowerRating), the largest maker of communication routing gear; as well as networkers Ciena
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PowerRating) and Juniper Networks
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PowerRating) are all down between 3.5% and 5%.
The Nasdaq 100 is down 27.68 at 1669.37, the S&P 500 is off 7.59 at 1191.21, and the Dow is off 41 at 10,257. The broader Nasdaq Composite is down 23.34 at 2003.06.
Highlighting the weakness among telecom gear outfits, the French phone equipment maker Alcatel said it too would slash workers from payrolls. Corning is just the latest in a string of telecom equip firms to slash jobs and scale back manufacturing. This type of better-late-than-never corporate reactive behavior leads to boom-and-bust cycles: strong and then oversupply periods followed by excess demand cycles characteristic of commodity markets.
But AT&T
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PowerRating) is following through for a second day on speculation that its broadband unit will be successfully acquired by Comcast to make the second largest US cable company with a reach into more than 20 million households. AT&T had its second biggest volume of the year yesterday on the news as it cleared its six-month base and is following through with an expansion bar and more heavy volume for back-to-back days of 9%-plus gains.
AT&T is also practically the sole buoy, propping up blue chips for a second straight session. JP Morgan
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PowerRating) is the biggest downer on the Dow, down 4% at 42.25, on worry that Argentina might postpone the sale of Treasuries and that the Buenos Aires government could have trouble meeting interest payment obligations on the debt. JP Morgan presumably has a heavy exposure in Argentina.
The Argentine situation, as well as weakness in US stocks, is boosting US Treasuries. September T-bonds
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PowerRating) are rallying for a third straight day, up 16/32 to 101 12/32.