If there's one thing you can count on, it's that rallies will be met by selling and the selling will encourage some to proclaim a "bottom" has arrived.
So it was again today as investors rethought the wisdom of yesterday's
-inspired rally amid a Merrill Lynch downgrade of
, lackluster retail sales data and a
After the close of trading, but ahead of its conference call scheduled for 5:30 p.m. EDT, Intel announced it was lowering its second-quarter guidance on revenues to a range of $6.2 billion to $6.5 billion from $6.4 billion to $7 billion previously. The chip giant also cut its expected gross margin guidance to 49% from 53%, previously.
Dow Jones Industrial Average
, which had violated its May lows on
Monday, fell 1.8% to 9624.64, its lowest close since Jan. 29. The
fell 2% to 1029.15, leaving the index down 10.4% year to date and at its lowest close since Sept. 27, 2001. The Russell 2000 Index shed 2.1% to 465.29, its lowest close since Feb. 22.
A late day swoon left the
below technical levels deemed significant by chart readers. The Comp fell 2.5% to 1554.88, marking its second close below its May 7 intraday low of 1560.29. The NDX fell 3.2% to 1157.61, marking its first close below 1160, which had proven to be a support level on May 6 and 7.
Intel, which fell 4.2%, paced a 3.1% decline for the Philadelphia Stock Exchange Semiconductor Index, which closed below its May intraday low of 455.27, ending at 453.56. The AMEX Biotech Index shed 5% to a 52-week low of 366.46, its first close below its May 7 intraday low of 375.24.
The sell-off was widespread, although orderly according to market participants. In
New York Stock Exchange
trading, down volume totaled more than 80% of the 1.6 billion shares traded while declining stocks bested advancers 11 to 5 and new 52-lows outpaced new highs 94 to 59. Down volume was also over 80% of the 1.4 billion shares exchange in over-the-counter trading, where losers led 5 to 2 and new 52-week lows swamped new highs 195 to 43.
As hinted above, the depth of the selling had some market participants claiming a near-term bottom was being established.
"If Intel says anything positive, there will be a huge
short squeeze," emailed Frank Iryami, a vice president of investments for Salomon Smith Barney, who admitted he had no fundamental reason to believe Intel would be upbeat. "
Merrill analyst Joe Osha's downgrade wreaks of capitulation
and I just think the negatives are priced in."
Although with a tight stop, Iraymi recommended buying the
Nasdaq 100 Trust
when it was trading at $28.90 intraday. It closed at $28.85.
Obviously that exchange occurred before Intel's
post-close announcement but even afterward, Iraymi wrote: "I still believe there will be a rally soon and this price
for the QQQs will prove to be good. There was real fear in the markets today."
The one-day Arms Index did rise 177% to 2.47, a notably high level. But, like everything else, the "fear" claim is subject to debate. The CBOE's equity put/call ratio peaked at 1.03 today, which is high but not extraordinarily so. Similarly, the VIX rose 11% to $27.46, not an extreme level relative to recent history.
The point is Iraymi (who I know isn't a household name, save in his own household, one hopes), certainly wasn't alone in looking for a bottom today amid the morass. As I write this, there's a discussion going on at
Columnist Conversation about whether today's session will mark some sort of tradeable low.
Perhaps it will, depending on how tomorrow's jobs report comes out. But as anyone who's followed the market in recent years knows, this is far from the first time some harsh selling has prompted some observers to cry "bottom." Someday they'll be right -- at least short-term. But it strikes me, among many others, that the market isn't likely to really bottom when so many are trying to call the bottom (and this isn't the first time I've written that).
To reiterate what I wrote
midday: When the "real" capitulation occurs, few will be cheering.
Despite the pain for most participants, there's little evidence of any "give up" yet among either retail investors, judging by recent mutual fund inflows, or institutional participants, judging by comments from various commentators.
Jeffrey Kleintop, chief investment strategist at PNC Advisors in Philadelphia, which has more than $60 billion under management, is no wide-eyed bull. In a recent report he wrote: "We do not recommend overweighting the stock market" at this juncture. But he did argue the fundamentals are "attractive" and dubbed the S&P's recent retracement of 50% of its gains from the Sept. closing lows around 965 to its January closing high near 1173 as being a "bullish sign." (After today, the S&P has now retraced 69% of its Sept. to Jan. gains.)
In an interview today, Kleintop reiterated a view that the stock market is being dogged more by a "confidence issue" vs. a fundamental one.
"The data this week on the economic front are encouraging," he said. But "investors aren't going to get over this concern
about corporate and Wall Street malfeasance until cash flow comes in the door. The only cure for malaise is a turnaround in cash flow, which won't happen until the third-quarter."
Nevertheless, PNC Advisors remains overweight in tech and bullish on small-cap stocks (the S&P SmallCap 600 fell 3.9% today), industrials and non-pharma healthcare and is still underweight energy, utilities, and consumer staples, areas "where we think investors will be turning from when they see this cash flow," Kleintop said.
Among the names he favors, and which PNC is long, are
Only a pullback in industrial production and corresponding evidence of a reduction in company's spending plans would change his outlook, Kleintop said. Of course, the absence of robust capital expenditures is precisely what's causing much of the troubles for companies such as Intel.
But Kleintop counted that the "financing gap" -- the difference between corporate expenditures and cash flow -- returned to equilibrium in the first quarter, as corporate profits rose, according to the GDP report. In every downturn since the 1950s, the closure of the financing gap has marked the point where corporate spending picked back up, he said, suggesting other measures of capital spending have also started to turn.
Since IT spending is 50% of capital expenditures, tech and industrials will run when spending really starts to turn, the strategist forecast. "Establishing positions now makes sense as long as the outlook for the fuel for spending remains on track," assuming you can take the pain until it becomes more evident.
Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to
Aaron L. Task.