Pessimism Prevails in Nasdaq Trading

Tech stocks resumed their downward spiral today, as investors reaffirmed a decidedly pessimistic outlook for the near term. As we suggested this weekend in our commentary, selling pressure resurfaced after yesterday's short-lived rally. The truth is the market is lacking any substantial catalyst to continue to propel technology stocks to higher levels.

Although the current earnings season has been fairly positive, it would seem that the Nasdaq (COMPX) has run its course for now. With that said, the COMPX gave back most of yesterday's gain, dropping 81.48 points to close at 3685.51 on volume of 1.3 billion shares. 1,675 issues advanced while 2,316 declined today within the COMPX.

The Ying to the COMPX's Yang, the Dow Jones Industrial Average (INDU), managed to advance 84.97 to close at 10,606.95. Helping to lift the INDU higher were old-economy stalwarts Eastman Kodak (EK), Merck (MRK) and Procter & Gamble (PG).

As for market breadth on the Big Board, advancers beat decliners by a margin of 17 to 12. Volume was light, with only 921 million shares changing hands.

In the smaller and broader markets, the S&P 500 (SPX) closed 7.27 points higher to 1,438.10, while the small-cap Russell 2000 (RUT) closed 2.87 points lower to 497.77.

As far as sector action, we saw a continuing rotation out of technology and into biotech and pharmaceutical issues. The AMEX Biotechnology Index (BTK) moved up over 5.5% today on positive cancer research results from many companies in the industry group, including Onyx pharmaceuticals (ONXX).

Meanwhile, the PHLX Semiconductor Index (SOX) resumed its downward trend, but it's still resting above its 200-dma of 934. If a break through that level occurs, we could see a re- test of the May lows of 865. Recent earnings weakness from telecommunications companies (think Nokia), which are providing an increased portion of the demand for semiconductors, has hurt the index recently.

In happier news, the PHLX Oil Services Index (OSX) rose 3% today, further illustrating the sector's continued strength. What's more, an unexpected decrease in American Petroleum Institute (API) estimates of oil reserves reported today, could drive the sector higher tomorrow.

The Dow Jones Utility Average (UTIL) closed just shy of an all-time high at 333.5. Utility stocks are receiving premium treatment for a couple of reasons: In the event that the economy slows, as some reports have been indicating, such companies provide a steady stream of revenue, as well as an attractive yield. Additionally, recent deregulation has stimulated earnings growth, and, thus, has transformed utilities into potential growth stocks.

In earnings news, soap-maker Proctor & Gamble (P&G) reported earnings of $0.55 per share, in-line with analyst's downwardly revised estimates. The company also reported that it is unlikely to meet third-quarter estimates this year. The stock initially traded lower on the news, but later rallied to close up $2.25 to $59.25. Future cost savings and ramped-up growth projections for next year, in addition to a tech sell-off, helped the stock in afternoon trading.

Echostar (DISH) reported a lower than expected loss of $133 million vs. a loss of $76 million a year ago. Massive spending trying to lure new coach potatoes to DirecTV has paid-off, as sales surged 84 percent. The stock rose $1.69 to close at $41.13.

Meanwhile, Captain Kirk's Priceline.com (PCLN) beamed-up another $1.31 to close at $24.94 after disclosing a $190 million investment from Vulcan Ventures and John Malone's Liberty Media. In fact, the cash infusion was so appreciated that the stock was trading as high as $25.50 in after-hours trading.

In other stock news, SpeechWorks International (SPWX), a maker of voice-activated e-commerce software, raised $90 million, pricing 4.75 million shares at $20. The stock closed up $36.75 to close at $56.75, trading as high as $67 after opening at $47.

Today's other IPO, Western Multiplex (WMUX), a maker of high- speed wireless access systems, closed up $2 at $14 after trading as high as $16, which was a far cry from its competitors, Airspan (AIRN) and Triton Network Systems (TNSI), 100 percent IPO gains only a few weeks ago.

And finally, for the feel-good stock story of the day. Pfizer (PFE) closed up $2.38 to $45.75 after a study revealed that the all-mighty Viagra (what can't this drug do?) might help treat a gastrointestinal disorder that afflicts millions of diabetics (This could kill two birds with one stone. After all, impotence is another undesirable side-effect of diabetes).

In economic news, the National Association of Purchasing Management (NAPM) monthly report exhibited some signs of slowing growth in the country's factories. The NAPM numbers correspond to a 3.4% increase in GDP, a healthier rate of economic growth than the 5% growth indicators we have seen earlier in the year. Construction spending fell 11.7% in June following a 0.2% decline in May. This report was generally interpreted as bullish by the market and helped move bond prices higher early in the session.

Speaking of bonds, the 10-year Treasury note traded up 10/32 to push its yield back under 6% to 5.98%. The 30-year Treasury bond moved up 25/32 to yield 5.73%. However, the jury is still out on whether or not the Fed will continue to hike rates at the upcoming August FOMC meeting. Yesterday, Abby Joseph Cohen of Goldman Sachs went on the record as saying a 25 basis-point hike is probably in the cards.

Looking ahead to the rest of the week, the markets seem to be waiting for Friday's unemployment and payroll data before taking a stand. Still, even a benign employment report probably won't be enough to jump-start the Nasdaq. In fact, the Nasdaq might not get a boost until earnings begin rolling in again around October and November.

So much for that summer rally we've all been waiting for.

Chris Pikul
Assistant Editor