Heading into this week, the conventional wisdom was that stocks were due for a bounce, even if just of the "technically oversold" variety. Such a bounce arrived midday Monday, but only after some early selling that caused the main topic of conversation to shift from "a bounce is coming" to fears "the end is near." (And I don't mean the end of the selloff.)
Given the market's predilection for frustrating the majority of participants, it's probably not surprising that at around the time many traders began giving up on the bounce scenario, a sharp midday rally occurred. But questions about the catalysts for the bounce and memories of the outcome of recent sharp reversals weighed on buyers' enthusiasm, and major averages finished well off their best levels.
After trading as low as 9083.56 around 1 p.m. EDT and as high as 9369.95 around 90 minutes later, the
Dow Jones Industrial Average
closed up 0.3% to 9281.82. The
finished up 0.4% to 992.72 after trading as low as 970.85 and as high as 1002.11. The
closed up 1.3% to 1460.34 after trading as low as 1414.69 and as high as its intraday best of 1476.56.
Some factors cited for today's bounce included quarter-end "window dressing" by mutual funds, short-covering ahead of this week's Federal Open Market Committee meeting, and a rebalancing into equities by pension funds that had become overweight in bonds. There's also a general sense that stocks have become attractive vs. bonds on the basis of earnings yield, which is a ratio of the S&P's 52-week forward earnings estimate divided by its price. Regardless of the quality of those earnings estimates, money flowed out of Treasuries today as the benchmark 10-year note fell 19/32 to 100 8/32, its yield rising to 4.84%.
Trading volumes of 1.6 billion shares on the
and 1.8 billion in over-the-counter trading were solid for a Monday in the summer. But as is often the case in day-to-day and intraday stock movements, technical indicators and unsubstantiated rumors played at least as big a role as macro fundamental issues.
On a technical note, the S&P 500's intraday low of 970.85 was its low for the year and within five points of its Sept. 21 closing low of 965.80. The Comp, meanwhile, traded below its Sept. 21 closing low of 1423.19. When selling didn't accelerate when the S&P and Comp were trading at their intraday lows (as some were fearing), speculation arose that a successful "retest" had occurred. That, in turn, sparked a rally that prompted short-sellers to cover their bets, and that helped further fuel the midday advance.
Other catalysts for the midday move included positive comments about
by Lehman Brothers' Dan Niles. "When Micron reports tomorrow, though earnings estimates could be cut further, a combination of valuation and recent trends will likely be viewed positively," the analyst wrote.
Given that Niles has become associated with a generally bearish posture, his comments carried some weight with investors. Conversely, Goldman Sachs' estimate cuts on
were seen as a classic case of the sell side closing the barn door after the horses had escaped. Micron closed up 4.3%, while Siebel closed up 3.2% to $13.90 after trading as low as $12.13, and IBM gained 1.4% to $69.70 after trading as low as $67.25.
Additionally, rumors circulated midday that
would issue an upside preannouncement. Microsoft did announce it will release earnings on July 18, but as of 5 p.m. EDT, no such preannouncement was forthcoming. Perhaps traders were reacting to reports, as cited by Doug Kass on
, that Goldman's Rick Sherlund had checked in with Microsoft's management, which indicated it is "comfortable" with Goldman's estimates, and that those numbers might even be conservative.
Interestingly, the rumors of a 'Soft upside surprise seemed eerily similar to those circulated on
One reader observed that the Nasdaq 100 traded below its September low on June 12. Today, the Comp pulled the trick. If and when the S&P breaks its September lows, expect some positive rumors about Microsoft to filter through trading floors, he quipped. Theoretically, the same would hold true for the Dow, although it remained about 1,000 points above its September intraday low at today's nadir.
Whatever you think of such theories, the main point is the one I tried to make
last week: As Microsoft goes, so goes the market. To wit, Microsoft shares tumbled late last week, so did the major averages; today, Microsoft bounced (by 3.9% to $54.30), and so did the major averages.
Meanwhile, it strikes me that once again, much of the market's focus today was on tech stocks, although
Martha Stewart Living
(among others) were certainly in the news.
But while that nontech trio declined sharply, the fact the NDX closed up 2.1% and the SOX gained 4% generated cries of "bottom" from some members of the chattering class. Certainly it's not a stretch to think stocks could produce a tradeable rally, But recent history -- actually just history -- suggests those bottom-callers are likely to be proven wrong once more.
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.