by Sam Collins 03/18/08
Before yesterday's opening, JPMorgan Chase's (JPM) takeover (bailout, or whatever you want to call it) of Bear Stearns (BSC) for $2 a share, sponsored by the U.S. Treasury, had investors very nervous.
This was the first time in recent history -- and, in fact, since the Great Depression -- that anything like this has occurred. According to the Wall Street Journal, the Fed used a Depression-era provision of the Federal Reserve Act to quickly approve a 28-day loan.
The deal took a major Wall Street investment banking house from $30 a share on Friday to an astounding $2 per share take-it-or-leave-it deal on Monday. Investors wondered who would be the next victim of the subprime debacle.
Such once-rock-solid icons, like Merrill Lynch (MER), fell 5.4%, and even Goldman Sachs (GS) fell 3.7%. But the focus of concern was on Lehman Brothers (LEH), which lost more than 19%, despite reassurance from its CEO that the company was not in trouble, but who also said that the Fed's decision last week to loan to brokerage firms improves its liquidity.
Yet, despite the angst over Wall Street's liquidity, the Dow Industrials (DJI) overcame a 193-point deficit to close with a small gain. And the Fed's announcement Sunday that it reduced the discount rate that it charges to banks from 3.50% to 3.25% was nearly overlooked because of the focus on the big firms.
After a wild day of back-and-forth, the Dow Jones Industrials closed at 11,972, up 21 points. The S&P 500 (SPX) fell 12 points to 1,277 and the Nasdaq (NASD) retreated by 35 points to close at 2,177.
The New York Stock Exchange traded almost 2 billion shares and on the Nasdaq, more than 1.1 billion shares traded. Breadth was a negative 5-to-1 on the Big Board and a negative 3-to-1 on Nasdaq.
April crude oil futures fell to $105.68 a barrel, down $4.53, the biggest decline in 17 years, and the Amex Energy Index (XLE) dropped $2.61 to $72.15. April Gold finished higher by $3.10, closing at $1,002.60 an ounce, and the PHLX Gold/Silver Index (XAU) fell $6.14 to close at $200.23.
What the Markets Are Saying
Immediately after yesterday's close, some analysts were quick to jump on the rebound made by stocks following a very shaky opening under extreme international selling.
It is true that the Dow Industrials (DJI) rebounded nicely from their intraday low of 11,757 to end up at 11,972, a gain of 21 points versus Friday's close. But two other broader-based indices -- S&P 500 (SPX) and the Nasdaq (NASD) closed in the negative and just above their closing lows.
Meanwhile, the NYSE Composite (NYA) set a new closing low and the S&P set a new intraday low, giving it a fresh sell signal on traders' point and figure charts. This is hardly the stuff of a major sold-out reversal and, in fact, simply confirms that the overall downtrend is still in force.
The result: With the immediate pressure seemingly off, it is likely that we may see a sharp reaction rally. But with no change in the major trend we remain on the defense. Remember -- bears are well known for their jumping ability. Today watch for the bouncing bear.
Today's Trading Landscape
Earnings reports expected today include: Factset Research (FDS), GameStop (GME), Lehman Brothers (LEH), Goldman Sachs (GS), Darden Restaurants (DRI), Healthways (HWAY) and Adobe Systems (ADBE) .
The following economic data are due: February Producer Price Index (the consensus expects 0.3%, 6.8% year-over-year; core 0.2%, 2.1% year-over-year), housing starts (the consensus expects 995,000) and building permits (the consensus expects 1.02 million).
Today, investors will focus on the earnings of Goldman Sachs and Lehman. But the big story will no doubt be the results of the FOMC meeting and the Fed's next move on interest rates. Many think the Fed will again cut rates by as much as a full 100-basis points -- but anything under 75 basis points could result in another round of selling.
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QCOM is gearing up to return to its old highs.
Tech Deals Topping the Headlines
Massive overhead on the SPX, NASD may slow advances. Remain long, with emphasis on tech stocks and quality blue chips.
The response to the Fed's interest rate cut led to key reversals in the DJI and the SPX.
The response to the Fed's interest rate cut led to key reversals in the DJI and the SPX.
In the long term, CSCO could run to new highs.
