Stocks and bonds continued their sideways motion Tuesday as traders begged for something-even a significant selloff-to break the stalemate. The dollar slipped as another round of U.S. trade talks with Japan neared.
The Dow Jones industrial average lost 6.16 points to 3735.68 in slow New York Stock Exchange trading. Earnings disappointments from Eastman Kodak, Boeing and Chevron, all of which are among the 30 Dow industrials, contributed to the drop.
Broader market indicators also edged lower. The Nasdaq composite index dropped 1.22 points to 715.66.
Gregory Nie, technical market analyst for Kemper Securities, said he’s not predicting a market slide like the “correction” that began in February. But he said some concerted selling might be just what the market needs to set the stage for a sustainable rally.
“The market is stuck in neutral until we find the wherewithal and the gumption to get volume back up,” he said. A mild selloff, if it creates trading volume, might be just the ticket, he said.
The levels of cash in pension funds and mutual funds-a useful indicator of latent buying demand-are building but haven’t reached a point Nie would call bullish. The pessimism of institutional investors, which Nie regards as a contrary indicator, also is climbing but isn’t flashing a “buy” signal yet.
Investors and analysts counting on generally upbeat second-quarter earnings to spark some bullish momentum have been disappointed.
A case in point is recreational equipment-maker Brunswick of Lake Forest, which showed more evidence of its recent turnaround by posting a 27 percent gain in second-quarter sales and quarterly earnings from operations of 58 cents a share, up 140 percent from year-earlier results.
The consensus of Wall Street analysts who follow the company was for earnings of 48 cents a share, according to the Institutional Brokers Estimate System. Yet Brunswick stock dropped 12 cents a share Tuesday to $24.37 on the New York Stock Exchange.
On the Nasdaq market, analysts read between the lines of Powersoft’s apparently upbeat earnings report and knocked the stock down nearly 15 percent, or $7.50, to $43 in heavy trading. Despite earnings that matched the consensus Wall Street estimate and a sharp gain in sales, the Massachusetts-based software developer showed signs of eroding profit margins.
In the bond market, the Treasury’s auction of two-year notes brought a yield of 6.17 percent, with fairly strong demand from individual investors. On Wednesday the Treasury will auction off $11 billion in five-year notes, a considerably longer maturity for investors worried about higher interest rates.
The Japanese yen gained against other major currencies, including the dollar. Tom O’Malley, foreign-exchange analyst at Technical Data in Boston, reported that much of the action was between the yen and the British pound.
In New York trading, the dollar slipped to 98.28 yen from 98.75 Monday. Against the German mark, the dollar dropped to 1.5840 marks from 1.5895 Monday.
Currency traders are wondering whether U.S. trade negotiators will play “good cop” or “bad cop” when talks with their Japanese counterparts resume this week. The yen tends to rise when the U.S. hints of sanctions or other reprisals against Japanese trade barriers.
The long and short
Short interest among Nasdaq stocks climbed again in the latest monthly reporting period, reaching 835.3 million shares, up from 799.5 million shares, according to the National Association of Securities Dealers. The latest figure represents 3.21 days worth of average Nasdaq trading volume, up from 2.87 days a month ago.
What does that mean, and why should you care? Short interest represents shares of stock that an investor or market professional has borrowed and sold. A short-sale strategy is rewarded if the price of the stock drops, but selling short is a common maneuver among professional traders that doesn’t necessarily indicate negative sentiment toward a stock.
Comparing the volume of short-sale shares with average Nasdaq trading volume is a way of indicating how long it would take short sellers to buy back their positions to cover their loans.
Larger short-sale positions and higher multiples of average daily volume represented by short positions sound bearish. But the numbers are interpreted by some analysts as bullish indicators, because short-sellers eventually must buy shares to close out their positions.
According to Bloomberg Business News, the five largest short-interest positions in the latest monthly report were in Snapple Beverage, American Power Conversion, Cott, Aura Systems and Apple Computer.
The five biggest increases in short interest occurred in Novell, American Power Conversion, Creative Technology, Read-Rite and Seagate Technology.
Dumb questions
After a two-week vacation, this column’s “Dumb question” feature is back in business. Write or call with those nagging questions about the financial markets that you were afraid to ask for fear of being drummed out of your investment club. At least one question will be addressed in each Monday’s column. My address is Room 400, 435 N. Michigan Ave., Chicago, Ill. 60611. My phone number is 312-222-3599.
