Market Once Again Proves That It Is One Taco Short Of A Combination Plate
Once again
this morning we witnessed the investment community completely
whipped into a frenzy by
an onslaught of bullish pre-market analyst calls and a
remarkably positive spin on the Motorola horror show. As a student of the
market, I was completely
flabbergasted as Wall Street’s shameless endorsement of
Motorola’s stinkbomb of a quarter created pure panic buying in the
semiconductor and
networking sectors. Forget about the fact that EMC warned pre-market
and put their revenue growth in the low 20% area, when last week the
CEO of the firm said he was confident that the firm would grow revenues
by 30+%. With the CEOs
that run the corporations we trade unable to make a revenue
growth projection within a 50% margin of error, should we believe the
army of analysts/market
strategists that have consistently misjudged this market
downturn? Nonetheless, we saw the commercials and institutions sell
relentlessly into the
retail feeding frenzy early this morning on the heels of
the unanimous battle cry from Wall Street that “the bottom” is in.
Honestly, these days I need to keep a
motion sickness bag next to my computer for
the times I can’t tolerate the foolishness I hear all day long.
Interestingly, Wall Street was able to
adrenalize the Dow for a 70-point rally
off its lows in the final 30 minutes of trading. Conveniently, the big
dogs were able to close
the index comfortably above the 10,000 level, after being
down to 9951 with only 30 minutes remaining in the session. Lewis Borsellino’s
Teachtrade.com site reported that they estimated Goldman Sachs to
be a seller of nearly 7,000 S&P futures contracts today. If
this market has bottomed and is such a screaming “buy,” why were they
selling? There is no doubt
in my mind that the market is setting up for another
precipitous decline in the next three weeks that will continue to punish
those who bought the bottom hype as the analysts and strategists shrug
their shoulders.
Yahoo’s earnings report continued to
show significant deterioration in their business
model. With an eroding bottom line, huge cuts in their workforce, and
a warning for the second quarter as well, I cannot see the silver lining on
this cloud, as Wall Street
has been so quick to identify with other horrific reports.
Nonetheless, the stock was bid up by the internet faithful who actually
bought CEO Koogles hype for the past three years. Tragic, indeed.
However, the earnings report wasn’t
the hot news at all. Yahoo today announced
that they have begun selling pornographic videos online. The firm went
on to say that they have opened an online store selling thousands of
hardcore videotapes and
DVDs. The slogan of “Do you Yahoo?” now assumes a whole
new meaning, as well as the term “internet pop-up.” I suppose that
with the
fundamentals of the Internet advertising sector continuing to deteriorate,
they had to fall back on some good old fashion smut to help their
bottom line. Maybe their new slogan should be, “When our sponsors
didn’t pay, we had to fall
back on some T & A.” In fact, I was expecting them
to announce some kind of alliance with Research In Motion (RIMM) as the
cherry on the sundae. Does
all of this seem surreal to you as well? In
fact, I logged on to Yahoo’s new online porn shop and observed a few
products that the company
must be confident will help them regain their once lofty
multi-hundred-billion-dollar market cap. One such item that personified
a desperate move by a desperate firm is the “Dirty Girl Bubble
Bath: Virgin Slut
Soap.” Whoa, I didn’t think soap had such underlying significance.
I can’t help but lament the boring life I’ve led by only using Safeguard.
Lam Research reported after the bell
as well and missed their own lowered expectations
by .03 cents a share. In addition, they are cutting 15% of their
staff and warning about the future. Amazing, as these firms are telling
us that no bottom to their decline is in sight, we still have people
willing to buy the semis
on the way down — afraid that they will miss some type
of magical rally that will leave us all behind scratching our heads. It
is exactly this type of
thinking that will prevent this market from marking an
important bottom. Until this type of “got to buy them so we don’t miss
the rally” is
eradicated, we will continue to move lower until it is. Thank God
for “pro-forma accounting.” Without it, we would really be able to see
how bad things are.
What we didn’t hear about today from
our friends in the financial media was the fact that the new Consumer Credit
Outstanding figures were released for the
month of February. It reveals that, “Consumers are still spending, and
they’re using credit to do
it — financing their spending through liquidating assets
and taking on more debt. At the end of February 2001, consumers were
$1.6 trillion in debt, not
counting home mortgages (to place this figure into perspective, the national
debt currently stands at $5.7 trillion). Consumer credit outstanding grew by
$13.5 billion in Feb. 2001 compared to $9.4 billion
in Feb. 2000. As a share of total consumption, consumer credit increased
to 22.3%, its highest level over the past decade.” (information
taken from “Taking
Undeserved Credit” from www.dismal.com) In this article, parallels
are drawn between the rise in consumer credit in 1990 and the rise
today. “In contrast
to current trends, growth in consumer credit outstanding (in
1990) clearly decelerated as consumers adjusted not only their rate of
spending but also their
use of credit.” At the present time, however, “despite
feeling less optimistic about the future, consumers are still willing
to finance present-time spending on goods and services by pushing payment
in to the future.”
What stood out as being enormously
significant in this article is the issue of
credit quality. Delinquency rates have risen to nearly 3.7% but more
importantly, the number of
loans that banks have written off as losses, or charge-offs,
is approaching 2.7%, higher than the peak reached in 1991. Unfortunately,
really important data like this doesn’t get any airtime as it completely
undermines the Bull’s attempts to brainwash us that the consumer will
lead this economy out of recession as the manufacturing sector continues
to fall deeper into
recessionary territory.
Many people have loved to point to the
10-day Arms index, VIX index at 40 last
week, etc. etc. as being signs of prior market bottoms in the past.
Could it be possible that
these technical readings don’t apply in today’s market
environment because, oh let’s see…we’re in a different market environment?
While I’m not suggesting that we shouldn’t use the past for informational
purposes concerning the current market conditions, I do believe that
this market will generate an entirely new set of technical readings,
etc. when we truly do
bottom that will be unique to other corrections/bear markets
of the past. As such, you can’t go long blindly because the 10-day
Arms index is giving you a
1.50 reading or because the VIX is at 40. It just isn’t
that easy.
As a fellow trader and dear friend of
mine, Steve W. has said in the past, “The market is neither right nor
wrong, it just is what it is.”
As such, the market continues to drive
by looking in the rearview mirror. It’s
easy to do this as long as you drive straight ahead, but wait until you
hit a few curves…
With March retail sales coming out
tomorrow morning as well as PPI, we should have plenty of news to move the
market over the next few sessions.
Let’s see how the indexes look after
today’s activity:
Chart is not telling us much. Tomorrow
will be a key session.
The chart of the Nasdaq Composite
clearly looks short-term toppy here and looks
poised for a healthy retracement.
As such, focus on shorting technology
stocks that have had enormous run-ups the
past several sessions. These names include: AMAT, JNPR, MUSE, CIEN and CHKP.
Let’s get ready for some serious fun
tomorrow with the PPI number and GE earnings
pre-market.
Goran