Rev Shark:
Check Your Google-Inspired Enthusiasm
2/2/05 8:33 AM ET
"The most successful men in the end are those whose success is the result of steady accretion. It is the man who carefully advances step by step, with his mind becoming wider and wider -- and progressively better able to grasp any theme or situation -- persevering in what he knows to be practical, and concentrating his thought upon it, who is bound to succeed in the greatest degree."
-- Alexander Graham Bell
Market action has been slowly and steadily improving since hitting a low two weeks ago. The buying has not been overly aggressive but it has come on good breadth and decent volume at times. As we have inched upward, investors' mood has improved. Some big mergers, the success of the election in Iraq and oversold technical conditions have aided in the steady push upward. The question now is whether the bulls can continue to build on this slowly improving market environment.
Google (GOOG:Nasdaq) is definitely helping matters with a strong earnings report and a plethora of positive comments and target increases from analysts. The stock is trading up over $20 a share. There is likely to be some strong sympathetic action in other Internet stocks, particularly those involved in search and Internet advertising.
Google is going to do some heavy lifting but does it have enough help elsewhere to keep this rally rolling? The news flow is generally good overall and the fear that was gripping the market two weeks ago has eased, but we aren't out of the woods by any means.
The first hurdle the market has to deal with is the FOMC interest rate decision this afternoon. A quarter-point hike is almost a foregone conclusion but the accompanying policy statement always holds the potential of affecting the market, especially when it hints at the pace of future interest rate hikes. Although the FOMC decision isn't always surprising, it often does serve as a catalyst for a change in the market mood. It is an event that is used as a trigger for asset allocations and moves by large institutions.
We also have the State of the Union address tonight, which can have some impact on the generally market mood. The market likes decisiveness, certainty and optimism and presidential addresses can provide a dose of that.
However, the biggest event of the week is likely to be the jobs report Friday. This has the potential to have the biggest effect on the market. Market participants are very aware of that and are likely to be focusing on that event rather than the Fed or the president.
Technically the indices look increasingly vulnerable to some sort of pullback. We have a lower-volume V-shaped bounce off the lows, and sooner or later that will run into resistance and invite profit-taking. Some of the bulls who were trapped in the ugly downtrend to start the year will be happy to escape positions now that losses aren't so bad.
I'm a little concerned that the strong open on the Google news may invite profit-taking, especially with the looming FOMC decision and jobs report. The prudent move is to reduce long exposure to some extent.
We have a strong open on the way. Overseas markets were mildly higher overnight but the tone was cautious. Oil is steady to slightly down and we'll have to keep one eye on the action there.
Internet stocks will be the key today. If they fade quickly after a strong open be prepared to do some selling.
Gary B. Smith:
