Hopefully, traders had their Dramamine at hand, because today's session could have given even the most seasoned pro motion sickness. After briefly lifting at the open, major averages plummeted soon thereafter, then rallied furiously before settling into a tight range near break-even from late morning until early afternoon. Stocks mounted another rally effort around 1 p.m. EST, but it too proved fleeting, and major averages ended slightly lower. Once as high as 9773.72 and as low as 9603.99, the Dow Jones Industrial Average closed down 0.02% to 9685.43. The S&P 500 finished off 0.4% to 1090.02 after trading as high as 1100.96 and as low as 1082.58. Similarly, the Nasdaq Composite fell 0.9% to 1838.52 after trading as high as 1867.94 and as low as 1828.67. Given the corporate (save for General Electric's ( GE) affirmation), political and economic news, the stock market's relatively modest losses -- certainly relative to yesterday -- could be considered something of a victory for bulls. The market's early morning weakness was largely attributed to a steep
profit warning by Ciena ( CIEN) and a wider-than-expected loss by Sprint PCS ( PCS), which also said it is reducing its capital expenditures for 2002 by $100 million. Ciena's news weighed on other optical networking plays such as Juniper Networks ( JNPR) and Tellium ( TELM), while Sprint PCS dragged down wireless names such as Nextel Communications ( NXTL) and Western Wireless ( WWCA). In the wake of Ciena's warning, Ike Iossif, president of Aegean Capital in Chino Hills, Calif., emailed that he's planning to cover short positions on Ciena, Juniper and JDS Uniphase ( JDSU) discussed here previously. "Ciena's earnings shortfall announcement does prove that if the buyers of networking gear are cutting down on buying, then the fortunes of the suppliers of that gear can't improve," he wrote. "That's common sense; it does not take a rocket scientist to figure it out. The only people who constantly seem unable to figure it out are Wall Street analysts." The hedge fund manager said he is covering the shorts because the networking sector's woes should now be obvious. Until the final swoon, Iosiff's decision to cover Ciena, JDSU and Juniper seemed to be a microcosm for developments in the broader market. What turned the major averages around midday isn't clear, but the $16 billion auction of five-year Treasury notes provided hints it was going to occur, according to Anthony Crescenzi, chief bond market strategist at Miller Tabak. At 1.47, the auction's bid-to-cover ratio (the volume of securities bid divided by the volume offered for sale) was the lowest in at least 15 years, Crescenzi reported. That, in turn, was an indication that bond market participants were less concerned about accounting issues and other anxieties plaguing equities. "If bond investors truly believed that the equity market would continue to be subject to volatility ... they'd be buying Treasuries with greater enthusiasm," he wrote at midday. "The equity market's behavior therefore now looks even more wrought with irrational cautiousness than it seemed before." Then came word that Senate Majority Leader Tom Daschle is going to shelve plans for a vote on a fiscal stimulus package, and this contributed to the stock market's late-day retreat and the bond market's advance. The benchmark 10-year note closed up 1/32 to 25/32, its yield falling to 4.89%. While stocks and bonds waffled throughout the day, gold and related shares continued their recent advance. Gold rose 3.1% to $299.10 an ounce while the Philadelphia Stock Exchange Gold and Silver Index climbed nearly 4%. First, companies see little sign of improvement, and pessimistic managers might curb capital spending or hiring. (See the above news from Ciena, Sprint PCS and Challenger Gray). Second, while there are signs of global bottoming, the global economy is still weak. (Japan's Nikkei fell to an 18-year low overnight Monday, helping push the yen down sharply vs. the dollar in New York trading. Glenn Hubbard, chairman of the White House Council of Economic Advisers, expressed concern about Japan's near-term economic outlook and is expecting "only very modest growth" in the eurozone.) Third, many are concerned that opaque accounting will raise risk premiums and the cost of capital, stifling spending. (Tyco (TYC) shares fell another 22.7% today after a Standard & Poor's downgrade and the company's decision to tap a bank credit line.) "Challenges to recovery are the norm at turning points, and this time is no exception," Berner wrote. "For now, however, it's hardly surprising that investors, analysts and corporate executives are jittery. The outlook is still murky, valuations remain high, and equity markets are by and large pricing in good news." Recall that Berner, who plays ying to Stephen "Double Dip" Roach's yang, is the optimistic one at Morgan Stanley.