What’s Behind The Price Action

May 31, 2002
Daniel Beighley

The major indexes began the day with rallies that held to
mid-session, when the sellers took control, leaving the indexes mixed at the
close. The strongest sectors of the day were oil, transportation, forest and
paper products, and broker/dealers. The biggest losing sectors were
biotechnology, computer hardware, software, and networking.

Flirting with its 50-day moving average, the Oil Index
(
$OIX.X |
Quote |
Chart |
News |
PowerRating),
up 1.09%, has made its second consecutive close below this mark. This sector’s
sensitivity to global issues can often bring volatility to the sector.

U.S. Treasury Bonds were
down 5 at 102′ 09.

Economic news was positive today, with the Chicago
purchasing managers index rising to 60.8% for May, up from April’s level of
54.7%. This was higher than economists had anticipated, and the highest level in
three years. Also, the University of Michigan’s consumer sentiment index
rose to 96.9 for May, up from April’s reading of 93.

Market breadth was mostly
positive, with NYSE advancing issues over declining issues by a ratio of
1.57, and up–volume
over down–volume
by a 1.59 ratio. This is an underlying positive
technical indication which traders need to keep their eyes on, in spite of the
mixed close. Nasdaq
advancing issues over declining issues came in at 1.06, and down–volume
beat up–volume
by a 2.91 ratio. The
VIX
was down 0.30 at 22.84. The TRIN
was down 0.93 at 1.00.

Below-average volume
moved the Dow to close above its 200-day MA in another “doji”
formation, and the S&P 500 and Nasdaq closed below their 20-day MAs after
testing this mark during the day. The Semiconductor Index
(
$SOX.X |
Quote |
Chart |
News |
PowerRating),
down 0.88%, remains below its major moving averages. The Broker/Dealer Index
(
$XBD.X |
Quote |
Chart |
News |
PowerRating), up 0.64%, closed at the bottom of its range below its major
moving averages.

Financial services company Citigroup (C),
down 0.36% at 43.18, has been reported by the Wall Street Journal as
being subpoenaed by the SEC in the Dynegy (DYN),
up 1.60% at 8.89, investigation for information about “Project Alpha”,
a transaction it helped arrange for the energy trader.

Security technology company Visage Tech (VISG),
down 5.15% at 5.15, is being reported by the LA Times as being replaced
by rival Visionics Corp. (VSNX),
up 1.75% at 10.44, as the facial recognition security system for Fresno Yosemite
Int’l Airport, which was the first airport to use Visage Tech. Visionics’ system
is reported to be more accurate.

Drug company Bristol-Myers Squibb (BMY),
up 4.25% at 31.12, is reported by the New York Times to be in merger
talks with GlaxoSmithKline (GSK),
down 3.11% at 40.75.

Retail company Michaels Stores (MIK),
up 12.85% at 43.45, reported earnings of 29 cents a share for the first quarter.
Earlier in the month, the company said it had earned 20 cents a share, beating
estimates of 18 cents a share.

Bear Stearns has upgraded the cruise sector based
on attractive fundamentals with reasonable valuations. Royal Caribbean (RCL),
up 0.89% at 30.40, has been upgraded to “buy” from “attractive,
P&O Princess Cruises (POC),
up 1.91% at 26.04, has been upgraded to “attractive” from
“neutral,” and Carnival Corp. (CCL),
up 0.89% at 30.40, has had its “attractive” rating reiterated.

In the computer peripheral industry, Palm Inc.
(PALM),
down 28.05% at 1.59, announced that sales for its fourth quarter came in $70
million less than it had anticipated two months ago. Also, Handspring (HAND),
down 13.36% at 1.75, and Research In Motion (RIMM),
up 3.20% at 15.12, have been downgraded by CSFB to “hold” from
“buy” based on weak demand in the industry.

Restaurant company Wendy’s International
(
WEN |
Quote |
Chart |
News |
PowerRating), up 5.47% at 37.97, announced that it has agreed to acquire Baja Fresh
Mexican Grill for $275 million.

Communications services company AT&T
(
T |
Quote |
Chart |
News |
PowerRating), unch at 11.97, announced that it plans to raise $2.25 billion through an
equity offering to purchase the part of AT&T Canada it does not already own.

What’s Behind The Price Action

BUY THE FEAR, SELL THE GREED

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