briefly ..and i think bottomed

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1 hr 43 min ago

[BRIEFING.COM] Stocks picked up where they left off over the last two weeks -- failing to find a bottom as concerns of accelerating inflation on a global scale continued to remove some of the excessive optimism that had recently lifted the major averages to multi-year highs.

It is worth noting, though, that a renewed wave of buying interest in the last half hour of trading did offer some reassurance that a market bottom may have been reached, as the Dow and S&P erased intraday declines of more than 1.1% after briefly turning positive. Nevertheless, sellers won out again as broad-based selling in the wake of the market's worst two-week decline in more than three years continued.

Turning in an even more disappointing performance was the Nasdaq, which hit a six-month low amid weakness throughout Technology. In particular was a 4.2% drubbing on the PHLX Semiconductor Index which erased all of Friday's 3.2% advance and sent the SOX back into the red for the year leaving investors concerned as to where industry leadership is going to come from over the second half of the year. Among all 19 components on the SOX that lost ground, KLA-Tencor (KLAC 40.54 -4.70) was the biggest drag after it became the latest company alleged to have engaged in backdating option grants. Such a concern questions the reliability of financial statements and, even though it appears as if there are only a small number of companies under the microscope, it has created yet another layer of uncertainty weighing on investor confidence.

Also, while the market typically opens up on Mondays, fueled in part by M&A news, NYSE Group's (NYX 62.85 -1.65) $10.2 bln bid for pan-European exchange operator Euronext gained little traction as most European exchanges posted losses of more than 2.0%. Broad-based selling in overseas markets began with the Nikkei and Hang Seng closing down 1.8% and 3.1%, respectively, accompanied by a sell-off on India's Sensex Index, which was down 10% before trading was halted and authorities were put on high alert for suicides before it eventually pared huge declines to finish off 4.2%.

Adding to the day's struggles were the major indices inability to find support near key technical levels, above average volume providing even more conviction behind another pullback and a 1.9% surge in oil prices to $69.85 a barrel. While the latter briefly helped Energy provide some upside leadership and lifted the S&P's most influential component -- ExxonMobil (XOM 60.78 +0.33) -- and the Dow into positive territory, concerns of prices increasing at the pump, especially heading into the crucial summer driving season this weekend, eventually took a toll on sentiment.

On a positive note, the VIX (CBOE Volatility Index), which flirted with two-year highs earlier (+14%) and suggested investors were cautiously buying options to hedge against further declines in equities, relinquished much of its gains to suggest some of the ongoing fears among investors may be waning. Another positive that went relatively unnoticed was a sharp decline in the costs of borrowing, as the yield on the 10-yr note broke through the psychologically significant 5.00% barrier to hit 4.986% -- the lowest level since late April. Be that as it may, one of the main catalysts restoring the safe-haven appeal of U.S. Treasuries was a flight-to-quality bid into bonds at the expense of the sell-off in stocks and commodities. Unfortunately for equity investors, the sell-off in commodity prices that had helped lower inflation expectations moderated late in the day to close bonds near session lows and the yield on the 10-yr note (+06/32) climbed back to 5.03%.

On the earnings front, S&P 500 constituents Lowes (LOW 59.82 -2.82) and Campbell Soup (CPB 33.76 +1.11) both beat forecasts and issued upside FY06 EPS guidance; but both reports were overshadowed by the realization that slower economic growth in the second half of the year will lead to slower profits and prompt analysts to adjust their forecasts accordingly.
NYSE Adv/Dec 1100/2167...Nasdaq Adv/Dec 950/2111