Schizophrenic Market

We've had another volatile day in the stock market. Cisco's earnings outlook and some more weak economic data got us off to a slow start, but Cisco recovered and the market posted a 100 point gain this afternoon. Now we've sold off again into the close, down about 8 points right now at around 3:30. Volatility like this is wearying but pretty typical of a market at a turning point. There is a tug of war right now between those who are finding bargains and those who are afraid. Fear and greed. It's what always drives the market.

Cisco is a great example. They reported earnings last night in line with expectations and up 15% from the same quarter last year. Their revenue forecast for this quarter however was less than expected and they complained about orders during January. On the other hand the stock trades for just 14 times earnings and has $22 billion in cash. That's value investor territory for one of the great growth stocks of our time. And bargain hunters bought the stock from the traders who were betting on a good quarter and hoped to make a quick buck.

The economic data this morning was not very good. Jobless claims came in at 356,000, down from last week but still too high. Last week's numbers were a little suspect but this week confirms that jobless claims are trending higher. That is not good news for future employment reports. Pending home sales were down again dropping 1.5% from November. That of course shouldn't surprise to anyone.

It appears though that, at least for today, the market had already discounted most of the bad news. If things get worse of course the market could make another down leg, but at least for now we are holding above the lows set on 1/22. The pullback this week is fairly normal even if we are making a bottom. Markets rarely go straight back up after a break like this. It takes time to rebuild investor confidence.