Another volatile day........

By the end of trading last Friday, Wall Street looked like a crime scene. As we told you over the weekend, traders appeared to have inflicted serious harm to themselves and the markets by trying to once again jump the gun on the release of important economic numbers. In the course of explaining the carnage that remained in Friday's aftermath, we used a couple of clichés to put things into perspective. Well, at the risk of overdoing it, let us use one more. "Another volatile day for the markets in January". This has become THE market cliché for 2000. Well, the last day of January will go down as the day most befitting the cliché, at least on the Nasdaq.

The Markets diverged at the opening, with the Dow and the blue chips trading up from the get go, while the Nasdaq continued Friday afternoon's sell off. Buying on the NYSE was weak to begin with, but became fairly broad based as the morning wore on. Meanwhile, selling on the Nasdaq was broad based. The tech stocks led the Nasdaq down over the course of the morning and by midday had dropped another 135 points or 3.5%. This move took the composite index down to and through the 50-dma. As we indicated over the weekend, this level would be a real test. Fortunately, the Nasdaq was helped by the enthusiasm on the Dow, where traders had decided that a Fed rate hike would probably be limited to a 25bp move due to the more than 1000 point drop on the Dow from its all time high. Feeling secure that the bond and markets had already reflected the smaller move (as opposed to the 50 point move); traders decided that the techs were worth placing their money back into as well. This propelled the Nasdaq to bounce very strong off the 50-dma, trading up throughout the second half of the day, finishing right at its high. Remarkably, by the end of trading, the Nasdaq had managed to close up over 1.4% for the day, representing a swing of 188 points. Equally remarkable, the Dow managed to hang on to most of its gains, finishing up almost 2% on the day. Considering the amount of money that poured into the Nasdaq throughout the second half of the day, one would have thought that the Dow would have sold off some, but buying remained fairly broad based. Evidence of this could be found in the fact that along with the Nasdaq, the S&P 500 finished right at its high for the day. Leading the blue chips throughout the day were the drug stocks, retail, utilities, telecoms and most impressively the financials. On the Nasdaq side, techs were led back up by the semiconductor issues. The semiconductor index (SOX) closed out the day the overall index leader, gaining 3.9%. As we said previously, the 31st should befittingly be remembered as "the" volatile day in the volatile month of January.

Regarding trading on the Dow, it finished up +201.66 to close at 10,940.53, within easy striking distance of the previously visited 11,000 mark. Volume was a little light compared to recent days, coming in at 971 million. Up volume outpaced the down volume by a 2 to 1 basis, although the advance decline line maintained its negative trend, with decliners winning out once again 16 to 15. The number of new lows grew considerably, 175, especially on a day when the index gained over 200 points. Winners included C +0.88, AXP +6.5, JPM +4.88, HD +1, INTC +4.94, XOM + 4.56, SBC +3.75 and T +3.88.

As for the Nasdaq composite, it gained +53.28 points to finish at 3940.35, back within striking distance of 4000, a significant level for that index. The up/down volume managed to come in flat, but the advance decline line in the index managed to maintain its negative bias as well, finishing in favor of the decliners 26 to 16. Well over 100 companies manage to set new lows on the day. Among those companies playing leadership rolls in the afternoon comeback; SUNW +3.5, ALTR +2.38, CSCO +5.63, YHOO +8.56, SCMR +9.13, LVLT +13 and BRCM +5.31.

In the other indices, the S&P closed up at its high, adding +34.30 to finish at 1394.46. The SOX gained +29.05 to finish at 778.06, well within range of 800-its own significant level. The Russell 2000 gave back more again Monday, losing -8.39 to finish at 496.23. This is significant because the 500 level is an important level for this index, which up until several days ago was the leading index for 2000. After action today and Friday, the RUT is now under water. Failure to get back over the 500 level soon would probably mean bad news for the small caps. The Dow Utilities finished up +8.56 to close at 315.14, while the Transports continued to slide, losing -10.10 and closing at 2571.65.

The bond market remains captive to the upcoming FOMC meeting. Traders lost the appetite they developed for the 30-year bond on Friday, abandoning the treasuries for the financial stocks, especially in the latter part of the day. The bond finished down a half point at 6.49%. Until traders can be certain of the actual rate hike and straighten out the inversion problem with the 2 year note (mentioned over the weekend), the bond market will continue to fluctuate in a seemingly non-sensensical fashion.

There were a couple of stories of significance today. The most notable was probably that of Amazon.com (AMZN), who reported that it's buying 5% of Audible (ADBL), an audio services provider. Amazon will promote Audible on its site and provide $30 million over three years in return for access to over 200 thousand hours of digital audio content for its customers. AMZN finished up +2.88 at $64.56 while ADBL closed up +1 at $15.50. In light of the recent unease regarding Amazon's ability to profit in the long run, coupled with investors waning patience over their unending buying spree to "build out", it was a little bit of a surprise to see investors greet the news with enthusiasm.

The other story has longer-term implications for the telecom and the Internet sectors. There were reports that Qualcomm was close to clinching a mobile communications deal with China's second largest phone company to provide equipment and possibly service. The news helped to reverse the heavy sell off the stock incurred on Friday, adding +16.44 to finish at $127.

The earnings calendar remains heavy, with a little less than a third of the S&P 500 companies set to report this week. For today, over 50 companies reported, with roughly the same number set to report tomorrow. As we have been warning now for the last 2 weeks, you need to consult an earnings calendar to be aware of who's reporting and when. Even if the companies you follow are not due to report, they can and probably will be affected by industry partners or competitors who are slated to report. This is the last of the heavy reporting weeks for the first quarter, so you can expect the earnings volatility to continue throughout the week.

We had a number of companies declare splits today, including; InfoSPace.com (INSP), Accredo Health (ACDO), ARM Holdings plc (ARMHY), Otter Tail Power (OTTR), Molex (MOLX), Jack Henry and Associates (JKHY) and Onyx Software (ONXS). With the heavy week of earnings numbers still in front of us, we expect numerous more announcements prior to weeks end. Check the split calendar on the site for information on these and any of the other announced splits as well as the candidate companies we expect to announce in the near-term future.

Regarding trading tomorrow, it's anybody's guess, is another well used cliché. At this point, you would expect to see some follow through on the buying that set in during the second half of trading on the Nasdaq, let alone the sustained buying that occurred throughout the day among the blue chips. The wildcard to all of this is the FOMC meeting set to start tomorrow and last through Wednesday. From one hour to the next, you hear rumors or prognostications and let's face it-flat out guesses, as to what the Fed will do. Almost everyone at this point has conceded a rate hike of 25 points. The majority of those same people believe that the market can and probably will rally if that is in fact what the Fed does. The thing to keep in mind is that the Fed realizes that as well, so you can bet that there will be more than one Fed Governor arguing that the markets are going to use the 25 point increase as an excuse to run again, thereby negating the hoped for effect on cooling the economy. Those Governors know that they need to dampen the spending and enthusiasm in the market and in general to slow the economy. The last thing they want to do is to trigger another market rally at this time with an action meant to reign in the economy. The other thing to keep in mind is the fact that when all is said and done regarding the FOMC meeting and whatever hike they impose, you are still left with a February market-traditionally one of the weaker months for positive market returns. Keep the stops tight and watch your positions.

Louis Horkan
-Chief Editor