Buyers of Nasdaq stocks finally took a stand Friday. But can a one-day rally erase the negative psychology that was built up during four days of selling?
The huge comeback Friday of biotech and chip stocks suggests the Nasdaq has likely put in a short-term low, said Terry Gabriel, technical analyst at IDEAglobal.com.
Going forward, however, he believes it will be hard for the Nasdaq to establish a clear trend. Get used to more wild price swings, he warned.
The problem with many technology stocks, Gabriel continued, is that they've built in great earnings expectations for the remainder of the year. If there's any disappointment, he said, many stocks can get hit hard.
In addition, interest in tech stocks has waned during the spring and summer months over the past years and investors are concerned that the same trend will occur this year, said Ned Collins, head of trading at Daiwa Securities.
"People are shifting into other areas of the market," Collins said. And these fast rotations have produced additional volatility in the marketplace.
There will be tremendous churning in the months ahead, according to Gabriel.
Still, he thinks NYSE stocks will be able to establish an upward trend. In a way, he said, value stocks are back in favor.
The Nasdaq's 10 percent fall over four trading sessions this week washed out a lot of speculators in the market, observers say. Going forward, selectivity will be key.
"There will be a shift into higher quality names," said Louis Parks, senior managing director at Raymond James. And upcoming earnings releases, he continued, will help differentiate the the winners from the losers.
"ItÆs still a market of stocks, to coin a phrase. Old tech companies, like Dell Computer, Microsoft and Hewlett-Packard act well enough. Energy is the new leadership and a number of areas, from retail to the cyclicals, are improving," said Frank Gretz's, chief market strategist at Shields & Co.á
"It could be that the Internet and tech guys wonÆt be the only ones to make money from the Internet and tech. Maybe the market will perceive that many old-economy companies, including traditional retail, will do quite well in a new-economy world. And then, so will the stocks," Gretz said.
Upcoming events
Next week's economic calendar will present the market with an array of key releases, giving investors a first glimpse of the U.S. economy's performance in March.
Monday: National Association of Purchasing Management's March index, February construction spending. Tuesday: February leading economic indicators, February home completions. Wednesday: NAPM non-manufacturing index for March. Thursday: Weekly initial claims, February wholesale inventories. Friday: March employment report, including non-farm payrolls, the unemployment rate and average hourly earnings, February consumer credit.
Earnings watch
A very small number of companies will be reporting results next week. First Call defined it the calm before the storm as the first-quarter season kicks off in earnest the week of April 10.
Pre-announcements may roil the waters a bit, First Call said, but so far they have been running less negative than usual. In fact, the number of negative pre-announcements on first-quarter earnings currently stands at 125, well below the final total of 379 for the first-quarter of 1999.
First-quarter earnings growth for S&P 500 companies is likely to be around 22 percent, according to First Call.
"Although 1999 was a terrific year for earnings growth -- S&P 500 earnings were up 18 percent -- something even more positive is happening to earnings in 2000. And given that first-quarter 2000 earnings are being compared to a strong first-quarter of 1999, the [growth] is particularly impressive," First Call said.
Monday: No releases. Tuesday: Pepsi Bottling, Safety-Kleen. Wednesday: Yahoo, CKE Restaurants. Thursday: Circuit City, Pier 1 Imports, Delhaize America, Alcoa. Friday: No releases.
The most important analyst meetings next week will be from Dell, Oracle and Coca-Cola.
Weekly recap
Monday: Weakness in the financial sector kept the Dow Industrials under pressure while a fall in Microsoft shares contributed to a decline in the major averages. Dow drops 86.87 points to 11,025.85, Nasdaq inches down 4.47 points to 4,958.56.
Tuesday: The major averages witnessed sharp losses -- led by the technology sector -- as news that Goldman Sachs' Abby Joseph Cohen cut her stock allocation in a model portfolio by 5 percent to 65 percent hurt shares. Dow loses 89.74 points to 10,936.11, Nasdaq drops 124.56 points to 4,834.00.
Wednesday: The Nasdaq succumbed to another wave of profit-taking as nervous investors lightened up on positions for the third straight session. The Dow Industrials, on the other hand, managed to gain ground thanks to a strong showing in many of its old-economy components. Dow gains 82.61 points to 11,018.72, Nasdaq ends at session lows, falling 189.22 points to 4,644.67.
Thursday: A bloodbath in the technology sector caused the Nasdaq to fall a hefty 4 percent as investors dumped small-and large-cap stocks alike. Dow falls 38.16 points to 10,980.56, Nasdaq tumbles 186.78 points to 4,457.89 after falling as much as 289 points at its session lows.
The Dow lost 190.80 points, or 1.7 percent, this week. The blue-chip barometer has fallen 575.20 points, or 5.0 percent, since the start of the year following a 25 percent increase in 1999.
On the week, the Nasdaq fell 390.20 points, or 7.9 percent. The tech-packed index has risen by 503.52 points in 2000, or 12.4 percent, compared to an 85.6 percent surge in 1999.
Friday's trading activity
The Nasdaq staged a respectable rally Friday following four straight sessions of selling. Some traditional quarter-end window dressing, in which fund managers buy high-quality names to add luster to their portfolios, helped propel many of the tech behemoths higher, underpinning the market.
In the meantime, late day profit-taking and weakness in the retail sector pushed the Dow Industrials lower after registering handsome gains for most of the trading session.áááá
Gains in networking, chip and computer software shares pushed the Nasdaq higher while the Internet sector remained the biggest drag on the index. In the broader market, paper and biotech shares rose sharply while retail shares fell. Financial shares recovered nicely after slumping earlier in the session.
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