Two Very Constructive Weeks
Booking its fourth-straight positive
close, the Nasdaq managed to eke out a
0.5% gain Friday that put it nearly 16% above the multi-year, intraday low that
it put in two weeks ago. Whether the Nasdaq has successfully tested its October
1998 lows remains to be seen, but the index’s recent action has been very
constructive as it caps off a very impressive two-week rally.
Even a high-profile earnings warning from Sun Micro
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out the tech sector Friday, and many traders commented that it is that ability
to rally on bad news that the Nasdaq has been lacking for so very long. Sun
Micro ended the day up .56 or 6% to 9.85 on more than double average volume.
The Nasdaq was already on the ropes even before the terrorist attacks of Sept. 10, so once trading resumed on the 17th, it was no surprise to see the
index plunge even more. By the ensuing Friday, the Nasdaq had fallen another 18%
to trade intraday as low as 1387.06.
At that level the Nasdaq was within 30 points of its Oct. 8, 1998 intraday
low of 1357.09, and that was clearly a level that the Nasdaq would have to hold.
On Sept. 21, 2001, the Nasdaq did manage to finish off its lows of the day
to close at 1423.19. Was that the ever-elusive “bottom” that tech
investors have been looking for for the past 18 months?
Well, there were certainly extreme market sentiment readings that suggest an
important bottom may have been made. The VIX soared to 57.31 on the 21st, and
that was its highest level since, you guessed it, Oct. 8, 1998. In addition,
multiple ARMs reading above 1.5 also indicated a real bottom was at hand.
The Nasdaq had a great week last week that saw it gain 5.3% for the week ending
September 28. Many traders discounted the rally as merely a bounce from
extremely oversold levels or short covering, so the test for tech was how it
reacted in the “week just past” (to borrow a quote from Lou Rukeyser).
This week, despite war worries, earnings despair, and consumers heading for the
hills, the Nasdaq turned in a pretty solid week. What market technicians really
enjoyed seeing was the Nasdaq action on Wednesday and Thursday as the Nasdaq
pulled off back-to-back gains of 5.9% and 1.0%, respectively. All the more
positive for the tech index was the big volume that accompanied the moves.
Wednesday’s action saw 2.6 billion shares change hands, and then Thursday’s
trade topped 2.5 billion shares.
Outside influences that may have helped breath some life back into tech were
Greenspan & Co.’s 50 basis point rate cut on Tuesday as well as a bipartisan
stimulus package that could be in the $60 to $75 billion range. The apparently
successful coalition building in the war on terrorism also gave markets a little
less to worry about, as did the eloquent speech by British Prime Minister Tony
Blair that seemed to assure that the Brits and NATO would be behind any U.S.
efforts in battling terrorism.
What else could have helped tech this week? Positive comments out of the Cisco
and Dell camps also gave tech that extra shot of optimism it so badly needed.
John Chambers
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lowered guidance for the upcoming quarter, and that was the icing on the cake to
help tech wrap up an extremely productive two weeks.