Time
Ticking Away On Complacency
By Duru
March 2,
2005
The post-earnings complacency I
spoke of earlier continues to travel a bumpy road. The market has been
extremely volatile day-to-day lately with sharp moves in the market following
the latest gyrations in oil or the words of the Fed. Folks are trying to stay
calm, but their trigger fingers cannot help but fire nervously away. Witness
the three or four sharp sell-offs we had in February and look at the sharp
reversals that have occurred within the day --- there has been a lack of
conviction for taking out the 2004/2005 highs (in the Dow and S&P 500) as
sellers get nervous about protecting profits and capital. Finally, the poor
NASDAQ cannot even take out its now declining 50-day moving average line. Techland has been lagging the market ever since getting
absolutely crushed to start the new year. Ever since, it
has languished, it has jerked up and down, but in the end, it has refused to
show enough life to even care about the ball, much less get dressed up and look
respectable. Note carefully how the old resistance around 2100 set with the
post-9/11 snapback rally is STILL acting like a magnet for this index. So,
while the other two major indices have flirted with their 52-week highs, the
NASDAQ has lowered its standards to teasing us with dances with a line that
threatens to drag it down like it did so effectively for much of 2004. The Nazz needs to take dancing lessons from the Down Jones
transports. Last week that resilient index punched convincingly through the 50
DMA on its way to joining the Dow Industrials for a potential confirmation of a
break to new highs.
An example of some
rapid-firing can be seen in the sharp breaks in stocks like CMI, DE, and NKE
where sellers fled at the smallest sign of trouble only to open the way for
bargain-hunters to walk the stocks right back up past pre-earnings levels. Then
you have a stock like CME where buyers excitedly propelled the stock right past
pre-earnings levels only to have a downgrade crush the stock back into the
earnings gap the following day. MMC has had a bumpy but steady comeback since
the latest scandals took out the stock to levels last seen in 1999 (Spitzer's
latest crusade…this time he has been dutifully cleaning up the insurance
industry). The immediate reaction to its earnings was a small, but prompt,
sell-off upon which bargain hunters and the like seized upon the opportunity to
walk it back up to highs not seen since this four-month recovery began. But,
you guessed it, the stock reversed right back to
pre-earnings levels the following day. In techland,
you have a stock like SYNA which fired on all cylinders following a stellar
earnings report only to have the doubters and haters crush the stock two weeks
later as fears surged that the good news was merely a mirage. (Come to think of
it, tech stocks have shown a strong bias to the downside lately. Traders are
definitely shooting first and asking questions later when it comes to tech.).
Finally a whole host of tech IPOs that seemed to
promise nothing but infinite riches just a while ago, have suffered nothing but
indecent exposure of their true shells. My favorite whipping boys on this point
are SHOP, INCX, and ECST. Talk about manic behavior!
Nothing is
secure and no opinion lasts longer than the time it takes to read another
article telling a tale in the exact opposite way as the day before! Of course,
these example are just sample windows looking onto the
madness, but the lessons should be heeded. If we finally get a break of
resistance and the major indices climb to new highs, I strongly suspect the
excitement will not last long. We will get one of those classic marginal
breakouts that become fake-outs and pre-cursors to much lower prices. However,
given earnings season has about another month before returning to the ball, I
also do not look for this story to play out simply and directly. Look for more
churn, froth, and "to-and-fro" as the markets do their best to
disguise their true intentions. The end result appears to be complacency at the
surface but a lack of conviction is creating a dangerous undertow.
To end the
show on a positive note, let's take a look at some bottoming action again. I featured EBAY in the past two missives.
This time, I am intrigued by the moves in PLAY and SBUX. The charts and
annotations below show compelling cases for lasting bottoms. As usual, time
will tell, but these kinds of tests can provide for dramatic theater at the
very least. (Click here to read my standard disclaimer
when it comes to talking shop about stocks).
As usual, be
careful out there!