Thursday, January 25, 2007

Big Thursday

Market Action:
Where do we start this evening?  As the market opened (How’s that for a start?), there seemed to be ample reason to buy stocks.  With the news out of EBAY on Wednesday evening along with some others like Qualcomm and Nokia, the market was armed and dangerous.  The news out of those companies was not so much what was reported as what the future guidance indicated, which was positive.  

In the NASDAQ indexes the early pop was more pronounced with the NDX moving up about 8 points in the first half hour, about 0.5%.  From there the stock market decided to go down the rest of the day except for a little uptick right at the end of the session.  The news on existing home sales for December came out about a half hour into the session and showed a surprising drop, well, not to us.  Then the market became confused as selling started and then continued the rest of the day.

Even the media had trouble putting their finger on the “reason” for the drop.  The news centered on some inflation worries and interest rates.  It is true that the bond market has been hit the last few days as sellers are dominating trading there but with home sales weakening, we wonder how the media justified the interest rate fears.

When the market closed the regular session, the glow was pretty red with all of the major indexes the online WSJ lists in the red.  The Dow was down 119 points for its worst loss since the Monday after Thanksgiving.  The NASDAQ indexes were down about 1.3% while the RUT (Russell 2000) was down 1.24%.

After the closing bell, MSFT said that earnings were down 28% at 26 cents per share compared with last year’s 34 cents.  The market was expecting only 23 cents so in the vision of the market MSFT beat expectations by 3 cents.  Don’t forget this is the holiday session which is traditionally a strong quarter for the company.  The market knows that the long awaited VISTA will eventually save the day (these are not our word so much as our sardonic wit).  Even MSFT raised projections for the full year ending in June just because of VISTA.  

In fact, if you look at a MSFT chart you will see a steady rise in price over the past six to eight months.  From the June lows, MSFT has climbed from around 21.50 to 31.50 for nearly a 50% rise in that time.  This alone has been a significant driver in the market’s rise in general especially in the NASDAQ indexes which are market cap weighted indexes (these indexes measure the total value of the stocks in the index and MSFT is a big one so it has a lot of weight in the index).  

We are interested in MSFT because of its influence on the NDX mostly and today’s announcement seemed to be just what the doctor ordered to calm the markets after a day like Thursday.  After the news, MSFT jumped about 3% or about a dollar and the QQQQ’s rallied right along with it; but, the QQQQ’s ended down on the after hours session and MSFT pulled back to close up less than what it lost during the trading day.

Our opinion this evening is that the major indexes need to drop further in order to confirm any near term drop.  The NASDAQ indexes are close to breaking through some near term support but the Dow is well above its lows from Monday down around 12,450.  This is the area of some interest to us and we will be watching very carefully on Friday for any breaks in that level.  If the market can move down, the NASDAQ indexes could easily break their Monday lows even with MSFT being in play on Friday morning.  We can only wait to see what happens.

Dow Industrials:  12,502.56  -119.21
VIX: 11.22
HUI:  330.98
QQQQ:  43.73
RYVNX:   16.89
RYAIX:  21.37
RYCWX:  35.66
TLT:  86.98
BEGBX:  13.49

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