Making Mountains Out of Standstills
2/8/05 8:48 AM ET

Yesterday the market was essentially at a standstill. For the last week and a half, the market has been in a pretty strong uptrend. For the month or so before that, the market couldn't find a bid to save its life. And for four months before that, the market put on a ferocious rally. And finally, the market had been in a steady downtrend from late January to the middle of August. So where does that put us?

That puts us at about the same levels we were in January, April, July and November of last year. Put another way, the market hasn't really gone anywhere for more than a year. The bulls and bears have done what they always do -- slug it out and call each other mindless shills, unrigorous gamblers and blind speculators. Yet, the economy's grown steadily, despite the road bump that it hit last summer, and the markets have gone a whole lot of nowhere. Standstill indeed, no?

The bulls and bears are both likely to continue to point to the same ol' factors that they each always use. The fundie guys will talk about earnings growth, the Fed model, corporate spreads, valuations and all those types of things. The technical guys will talk about resistance and support, VIX readings, put/call ratios and all those types of things. Yet, here we are at nowhere.

Such a dissection of the price action lends credence to why an active trader can both outperform as well as underperform the market. One might have timed entry and exit points, whether prompted by fundamental analysis or technical analysis, throughout the last year -- while the market has done nothing.

Looking at the last week, the last month, the last half year or the last year tells you that things have been pretty steady (where have I heard that word before?) after all. I continue to see some pitches I like, but I'm just not thrilled about the market overall here. Steady as she goes? Nah, surely not.

No positions

Advantage (Near Term): Bulls
2/8/05 9:30 AM ET

Another flattish open to start the day. More standstill, at least initially. A lot of big tech earnings reports throughout the week, and traders will be jockeying for position in front of those. I tend to think the bulls have the near-term advantage here and will be watching to see if the market can find some legs in the early trading.

Bulls Set Up Well
2/8/05 10:13 AM ET

The bulls have the reins out of the gates, and there's a little bit of a short-covering movement this morning. In direct opposition to yesterday's trend, it's Ns over Ss today (Nasdaq stronger than S&P 500). The chips in particular have a strong bid, with the SMH up more than 1.5% as I type this.

A good number of small-cap and low-priced stocks are moving strongly higher too. It's still early, but this is a good setup for the bulls to start the day. Let's see if they can sustain it.

Big Indices Settling but There Are Hot Spots Elsewhere
2/8/05 11:20 AM ET

After a decent burst higher this morning, the broader indices have settled down and are -- get this -- flat-lining and bumbling along. A good number of new highs are being hit though and that's got some speculative juices flowing. A lot of smaller-cap stocks are ramping up 5-10%, and I see several micro-caps up double-digit percentages.

The story of the day thus far are the semis, though. As Rev Shark has pointed out many times, the market will have a hard time putting on a sustainable rally without participation from the chips. So far today, a bit of a squeeze has the Semiconductor HOLDRs (SMH:Amex) and its components up more than 1.5%.

Google (GOOG:Nasdaq) has reversed off a down open to climb up about $2.50. I haven't done any trades in that name since covering some of my short common against my calls, as cited here yesterday.

Net long GOOG

10-Year Treasury Rates Chasing Their Tail
2/8/05 12:55 PM ET

Pull up a chart of the TNX, which reflects the rate of the 10-year Treasuries. That thing has been gyrating in a range-bound pattern the last few weeks, having hit low in mid-December 4.07% or so and highs of 4.36% or so. The rate has now fallen back to about 4.02%. Talk about going nowhere -- the rate on the 10-year is back to where is was in late 2001, mid-2002, late 2002, spring 2003, winter 2003, March '04, August '04, and numerous times since even then.

The bears and bulls can each drive you crazy if you listen to their commentary about those rates. The bulls will tell you when the rates run higher that they're signaling a strong economy. But when rates drop, they tell you that those lower rates will fuel refinancing and make capital cheaper.

The bears: Lower rates signal a weak economy they say, of course! And higher rates, the bears will tell us, will undermine the housing boom/bubble and tank the financials.

Meanwhile, rates muddle along range-bound for years now. And away from the Treasury, corporate spreads are in some ways more important to the economy and market anyway. Corporate spreads remain at historical lows, which means that corporations have access to lots of cheap capital.

As detailed repeatedly by brokerage MS Howells, last week's so-called "disappointing" jobs number was actually rather strong if one were to back out for the birth/death adjustments. Ironically, despite that "strong" jobs number (in some sense anyway -- all this "strong"/"disappointing" semantics stuff is relative to some nonsensical gut-feel, economists' guesstimates anyway) -- rates have taken a dive. Corps have acted well, and the M&A boom that's been under way for the last couple months looks poised to continue.

The stock markets have cooled off a little bit during lunch here, but the high-beta and small-cap names remain strong. I'd expect to see the market ramp into the close, and I'm doing a little trading, including covering a Q-Tip (QQQQ:Nasdaq) short hedge that I've been recently trading around again.

Short QQQQ

Call Illegal Downloading What It Is: Theft
2/8/05 1:53 PM ET

I really created a firestorm of dialogue both here on the site and in my emails with my commentary about piracy yesterday. Though I think most readers followed these points, I did get several questions and comments from emailers who seemed to miss them:

1. I wouldn't even begin to think that RIAA is somehow battling for private ownership rights in some grand manner for the benefit of our economy and nation. I think they are totally, 100% wrong for going after most of the surviving P2P technology providers. I think they are totally, 100% right for going after people who are stealing their music content property. I think it's important for all content providers to be protected from thieves, just as I think it's important for shop owners, homeowners, lawnmower owners and anyone else to be protected from thieves.

2. I seriously doubt the lawsuits will have much long-term effectiveness in stopping the theft. But they have certainly had some near-term impact, as I know the kids I work with think twice and have slowed down their illegal downloading activities.

3. It's irrelevant if the RIAA did or didn't react quickly enough to the downloading phenomenon. Just because they have or haven't figured out how to offer their products in an economic manner off the Internet doesn't mean that they can now freely be looted.

4. To Barry's point about downloading music before purchasing it, one emailer asked what's wrong with that -- after all, consumers try out cars, tennis rackets and golf clubs before purchasing them. Hey, again, it's totally 100% kosher if the seller is willing to allow you to try out the music. But the sellers in this case aren't willing to do that. You don't like it? Don't buy it! If you wanted to try out a lawnmower and the dealer wouldn't let you, would that give you the right to steal it first, try it out and return it in perfect condition? Didn't think so.

5. One emailer wrote to say that correlation isn't causation. Fair point. It's possible that all this theft of music isn't what's actually keeping the music business under wraps in a strong economy. That still doesn't make it right to steal, and it doesn't mean that a mass move to piracy won't undermine all kinds of content business models, from TV and movie studios, to books, to this Web site.

6. Finally, if you're downloading this stuff illegally, you are a thief, plain and simple. Quit trying to rationalize your actions and get over it. Just stop stealing. Long before this stuff became mainstream controversial, I never did and never will download content illegally. Ain't gonna happen.

There are a couple possible ways to play this ongoing and escalating battle of piracy and content. Macrovision (MVSN:Nasdaq) is rolling out a product that will search P2P networks for any illegally traded songs and kill them. I'm doing more homework on that.

Then, of course, there's Apple (AAPL:Nasdaq) with its iTunes store, which is likely to become the largest (legal) distributor of music over the next few years. Audible (ADBL:Nasdaq), Napster (NAPS:Nasdaq) and RealNetworks (RNWK:Nasdaq) are also potential plays on the legal distribution of music over the Internet. Of course, these distributors of legal, protected music are likely to have ongoing battles with pirates too.

Net long AAPL, MVSN

Is China Really That Hot?
2/8/05 2:57 PM ET

Why do we keep calling China the "hot place" as they just did on CNBC? As Jeff Matthews pointed out on Street Insight a few weeks ago -- its market is bouncing along at 52-week low levels. It doesn't sound really hot.

How come all these permabears keep pointing to the low rates and struggling market here as forecasting a big slowdown, but ignore how trashed the Shanghai Composite Index is? So many of the stock market permabears are commodity bulls based on the supposed exploding demand in China.

Don't get me wrong -- I think China's important and will be a grower. But investors sure aren't making any money on it yet.

Food for thought.

None mentioned

Apple, F5 Kick It Up
2/8/05 4:10 PM ET

Shockingly, the markets pretty much flat-lined all day! Two of the best and fastest-growing companies in the world, Apple (AAPL:Nasdaq) and F5 Networks (FFIV:Nasdaq), which also are big favorites of the momentum funds, were the two biggest tech stocks to hit new 52-week highs.

The two companies probably had the best two fundamental reports on quarterly earnings in the last few weeks. And the Street is rewarding them. Neither one is cheap anymore, but both are growing like gangbusters, and Street estimates are simply too low for short and long term. I'll have more about Apple and the halo effect tomorrow.

All eyes, rightly or not, now turn to Cisco (CSCO:Nasdaq) tonight. And it will be a big mover of the stock and the futures, at least overnight. Tomorrow is a new day, and I'll be back here, and ready to rumble then. Be sure to stick around for some real-time commentary on the Cisco call that I'll provide in Columnist Conversation.

Net long AAPL, FFIV, CSCO