By Todd Harrison Oct 24, 2003 8:26 am
Good morning and welcome back to the trading shack. Thursday's attack ended in black after Boo tried to chow but couldn't quite snack. He went home confused (and ready to lose) while rubbing his buns and nursing the bruise. "I can't tell you why," he said with a sigh, "my best laid plans have all gone awry." He met with his crew (the talented few) at The Birdland for food and a few ice cold brews. The conversation went a bit like this:
Hoofy: I've gotta tell ya, I walked into work yesterday, saw the Nikkei down 550 points and was sure I was French toast. When the dust settled, however, the action wasn't too shabby.
Snapper: Outside of the semis, which got KLAKed, I'd say it was outright snazzy! The Jinx blink? That was simply a function of macro hedgies sitting on huge gains in the Nikkei (whether it's the actual market or the Japanese ETF's (EWJ) and locking in their gains before their year end (many of them in October).
Boo: (shaking his head) Do you know why the Nikkei was down 550 points? BECAUSE IT WAS! Mark my words, it'll play out the same way over here. You'll walk in one day and poof!--you'll wake up to reality, oops there goes gravity. At that point, all of these obsolete measures that don't matter will suddenly seem obvious. Come on now--the common thread beyond a few standout reports is that the recovery--particularly on the corporate side--isn't up to snuff. And it's not like the market is cheap. The S&P 500 is trading at a trailing 12-month Price/Earnings (P/E) is about 30 (vs. a historic average of 15.5). The Nazz? How on, I'll tell you in a second...I can't count that high!
Hoofy: Hold on, lemme get my umbrella--Boo's gettin' grizzly!
Boo: Mock me all you want, Hoofy, but caveat emptor. At this point, there will be no excuses if (when) the house of cards collapse. The teletubbies will offer reasons, after the fact, but you can wipe your nose with that. I mean, look at how they responded when Microsoft (MSFT:NASD) started trading lower (after reporting last night). "Well, it must be reflected at current price levels." Ya think? Give 'em a gold star!
Sammy: To be fair, Boo, there was a lot of noise in that report. They guided higher, offered cautious comments on I.T. spending (slow to improve), solid comments on the consumer (revenue driver) and they've got a bevy of tax rate, rebate and deferred revenue issues. Later in the conference call, the CFO said "unearned revenue will continue to fall" and that he "doesn't expect bookings to increase this fiscal year." That's not a good composition, Mr. Beethoven.
Boo: Or, perhaps, everyone and their sister is trapped in tech and counting on Microsoft to bail 'em out? Thursday's action, while massively frustrating, served one purpose: it shook out a LOT of my bearish brethren. I may be outa my tree but I would be shocked if they can shake off a bad Microsoft. THE question, in my eyes, is whether they can get the Nazz and the S&P down in synch.
Sammy: There's also been a lot of rotation within the marketplace (and among asset classes in general). I would think that if Toddo's Burned Razor is to, well, burn, there's gotta be a little fear among the bandwagon bulls. That would include the banks (which acted great yesterday but filled the gap to BKX 930), the semis (continued lethargy among the semicaps), the biotechs (leading indicator and seem to be breaking down), the cyclicals (watch the autos) and retail (consumer proxy).
Boo: I just wish that this tape would Monica already. Go down...and stay down!
Hoofy: Just remember that hope isn't a viable investment vehicle (either way). Monitor your tells and watch the levels as a backdrop. A nice gap remains between NDX 1340 and 1360, the S&P has held 1025 through most of October (with further support at 1015-1020 [50-day and acne] and the G-Spot). And watch the breadth, please, as it's been a fairly consistent pulse.
Sammy: And Boo, I'll leave you with a final thought. There has surely been a fair amount of bad news the last two weeks, both from corporate America and abroad. If the tape continues to shrug it off, you must respect that supply/demand equilibrium. You know Elmer has his hose open...the goal, for you, is not to get hosed.
They sat there in silence and let the conversation creep into their keppes. Freaky Friday was right around the corner and, after that, a weekend full of football and finales. As they looked around the table, wondering which critter would soon be bitter, they couldn't help but feel grateful. After all, they wouldn't trade their friendship for the world.
Good luck today.
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