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CLOSING WRAP-UP, May 10
By Jody Osborne, Optionetics.com
5/10/2004 5:00:00 PM

http://www.optionetics.com/articles/article_full.asp?idNo=10361

Stocks see another large decline Monday, taking the Dow ($INDU) below 10K. The Dow fell 127.32 points, or 1.26 percent, to close at 9,990.02. The S&P 500 ($SPX) also fell sharply, giving up 1.05 percent to 1,087.12. The Nasdaq ($COMPQ) came well off its intraday low near 1,880, but still lost 1.14 percent Monday to finish the session at 1,896.07. Volume was fairly strong, with the NYSE trading 1.90 billion shares and the Naz turning over 1.88 billion. Market breadth was sharply negative by a 3-to-26 and 7-to-24 margin on the Big Board and Naz respectively.

Fears about rising interest rates continued to haunt stocks Monday, following Friday’s better than expected employment report. However, geopolitical concerns are also on traders’ minds, with the problem in Iraq seeming to worsen. With a Presidential election going on, things tend to get even more attention and this too could be hurting the stock market. Nonetheless, there is no denying that earnings were extremely strong in the first quarter and the jobs market is definitely on the mend.

Ironically, Monday did have good news, with SunTrust Banks (STI) announcing over the weekend that it would buy National Commerce Financial (NCF) for nearly $7 billion. Both stocks fell on the news, with NCF shares getting a boost last Friday when the rumor hit the street. Overall, the PHLX Banking Index ($BKX) fell 1.64 percent to 91.71.

The Philly Semiconductor Index ($SOX) bucked the downtrend Monday, rising 0.41 percent. The sector benefited from an upgrade of Applied Materials (AMAT) at JP Morgan to “Overweight” from ‘Neutral.” AMAT shares gained 2.24 percent on the session to $19.09. Ironically, the SOX has gained ground for five straight sessions now, which is in stark contrast to the broader market. This could be a sign that the selling in the broader market is soon to end.

It’s no coincidence that the stock market started to fall when the fear indices traded down to support. Though everything looked rosy and traders were optimistic, the fear indices were telling us that stocks were in jeopardy of falling and this is what has occurred. The basic idea is that when everyone is bullish there is no one left to buy stocks and this creates selling pressure. We’ll have to see if rate fears subside now that rate hikes are imperative or whether further selling will occur before the bulls can regroup and take stocks higher.

Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site