Stock Market Commentary for Monday, March 21, 2005

Nasdaq drifted downwards modestly on Friday (by 8.63 points) and did indeed set a new intra-day low for 2005 of 1,999.98. Momentum had weakened noticeably recently, so it's not much of a surprise. No panic ensued, and Nasdaq even recovered modestly (by almost 8 points), suggesting that there really wasn't any conviction to the sell-off and that it was probably more technical in nature rather than based on economic or business fundamentals and it wasn't based on mutual fund money flows since we've had modest inflows for seven consecutive weeks now.

Traders and short-term speculators can artificially push the market up or down by 100 to 200 points on a whim, so we need to accept this level of volatility as simply a part of the way the market works.

Despite the chatter, oil prices are not really a big factor for the market. The price of oil is a significantly less significant factor for most companies than in past decades. The really good news is that fuel prices may finally force the hands of the airlines so that we finally see some more dramatic progress on the restructuring front. We need to see two or three of the major air carriers completely eliminated. The car companies will be impacted as well, and they need to hasten their restructuring efforts as well.

Nasdaq trading volume was very heavy (2.26 billion shares), and breadth was moderately negative, with 1.54 losers for each gainer. This wasn't a heavy sell-off, but the very heavy volume was a bit disturbing. A modest decline on heavy volume with only moderately negative breadth suggests a somewhat rip-tide market with quite a few people buying on the dip even as a modestly greater number of people were bailing out.

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-- Jack Krupansky