Nasdaq may be vulnerable
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The
churning seen in the Dow and S&P Tuesday spilled over to the
Nasdaq Wednesday, as the Comp went out little changed amid record
volume.
A number of people I speak with are
concerned that the typical early-month buying by institutions will peter out
this week, potentially leaving the Nasdaq vulnerable to its first correction
since the Oct. 18 intraday low…this could happen — but anything
could happen. People have been pooh-poohing this rally ever since it
began nearly eight weeks ago…The facts: There remains scant distribution. More
to the point, plenty of growth stocks continue to break out this week. Some of
Wednesday’s breakouts included Internet Capital Group, Rare Medium,
and Tibco.
When the rally does succumb to a
correction, so be it…Though there are plenty of money managers sitting on
bulging gains that will be inclined to dump at the first sign of weakness, the
first pullback following a stunning advance off an important low usually
is short-lived, and usually can be bought.
One of the best futures traders I know
checked in with me in the morning, inquiring as to why Yahoo! was off 29 3/4, or
9% on the day. This after Tuesday’s 24% runup. The easy answer (and the correct
one) was “profit-taking.” After all, the stock bolted 52% in the previous four
days, an uncommon feat given the company’s $82 billion size. And over 10.8
million shares changed hands in just the final 25 minutes alone. Was all that
volume in the closing half-hour coming from indexers or “hot money?” The real
question is whether Tuesday’s peak constituted an important intermediate-term
top. Gil Morales, portfolio manager and head of institutional services at
William O’Neil + Co., doesn’t think so. I won’t argue with Gil for two reasons.
First, his account has more than tripled year to date (more on Gil in this
month’s Trader Interview, to be posted Saturday, Dec. 11). Second, Gil brings up
a good point when he says that the stock just broke out of an eight-month
base–and climax runs don’t normally occur so soon after: 1) a breakout from a
multimonth base, and 2) a follow-through day in the big averages such as we saw
Oct. 28. Morales thinks it unlikely that institutions will blow out positions
that they accumulated at lower levels in recent weeks. He cites
VerticalNet as an example of a stock that broke out of a long base, ran
up mightily, only to build a new base and break out again. Wednesday, Yahoo!’s
8% pullback came as volume receded to 25 million from Tuesday’s 64 million, a
positive omen for the bulls.
Among benchmark
tech names, Gateway, Intel, and Motorola showed
the most serious distribution Wednesday.
Over in the oil
patch, a pair of reports showing petroleum inventories to be greater
than expected didn’t cause the reaction you would have looked for…the January
crude contract gapped down 81 cents at the open, only to reverse course at 10:30
a.m. ET to close inches below its session high…it finished up 33 cents to
$26.55…Oil service stocks, which often lead the commodity, bottomed about 45
minutes later, as players saw a “news reversal” in the making…meanwhile, the
sluggish integrated oils didn’t trough for a full 90 minutes after the bottom in
the oil servicers…Revealing.
At press time, Kevin Marder held long
positions in VerticalNet and Internet Capital Group.