A Tale of Two Stories
The ongoing weakness in tech
quotations as manifested by the Naz’s 7% fall wasn’t the only story last week.
Elsewhere, there was a more-important
story told by the "other market," the nontech market (see below).
Meanwhile, Friday’s afternoon
reversal, sparked by elevated hopes for a Fed cut next week, occurred amid an
absence of real volume.
That’s reason no. 1 not to trust it.
Reason no. 2: Never trust the first
few days of rally off any low.
Reason no. 3: With the market already
discounting 75 basis points of cuts by the May 15 Fed confab, it is unclear why
Friday’s hope for a Fed cut next week might suddenly produce the sort of bottom
that’s proven elusive.
Among the names, Lincare
(
LNCR |
Quote |
Chart |
News |
PowerRating)
began rallying out of a weeklong pullback after bouncing off its 50-day.
Walgreen
(
WAG |
Quote |
Chart |
News |
PowerRating) sets up.
As was the case a week ago, for
intermediate-term players, selected issues within the oil patch provide the best
bases.
But even they began looking a mite
heavy over the past three sessions.
Whether you trade them or not is up to
you.
Just keep in mind that four of five
stocks decline in a bear.
Step No. 1 for any recovery for tech
will be a return to the bad-news-is-good-news groove that held sway for a few
brief weeks last month, i.e. a company announces bad news and the stock rises.
No. 1 feature of the week: the
downdraft of the semis.
Over the past few months, the positive
divergence between the semis and the rest of tech — the former rose while the
latter fell — was one of only two pluses in an otherwise bleak tech backdrop.
The other was the aforementioned
positive reaction to negative news, as brief as it was.
No. 2 feature of the week: More
notable than the semis’ comedown was that of the financials, down about 10% over
the past eight sessions.
The likely answer to the question as
to why rate-sensitives have come undone has to do with the economy.
Specifically, it doesn’t matter how
many rate cuts fatten the profit margins at banks if loan demand slows at a
faster clip.
Profits are still on the bottom line.
And since the consumer is
still two-thirds of the economy, the next chart remains important in terms of
understanding how deep this slowdown might go.
The market has, up until
now, indicated that the capital spending slowdown in tech won’t cause a severe
slowdown.
As noted on several
occasions, the strength in early-cycle groups like the banks, builders,
department stores, apparel retailers, discount retailers, and media stocks told
you this.
At least up
until now.
The crack in the
financials last week — not just the banks, but also the insurers, the brokers
and other lenders — is ominous.
If confirmed by more
selling in the retailers, the notion of a shallow slowdown, or no slowdown at
all, would be, well, shallow.
At the same time, it is
to be remembered that the market discounts the future.
Thus, bull markets almost
always begin when the news is the worst, the backdrop the blackest.
In the meantime,
long-side-only intermediate-term traders can be thankful there is an alternative
that is anything but a four-letter word: cash.