"The market is so uncertain and unpredictable," Petrarca said. On Tuesday, as the stock market rose sharply before giving up much of its gains in the last half hour, the professional traders relished the volatility. Petrarca did not place a single trade. He said he did not expect the Cisco news to be particularly good, or to start a lasting rally.
While the small investors back away and day traders try to exploit the volatility, market professionals zero in on their stocks. A mutual fund analyst who follows Cisco slavishly for a big firm was eager on Tuesday to see if his call on Cisco had been right and what it would portend for a broader group of stocks.
Cisco kid
The analyst, Giri Devulapally, specializes in Cisco for T. Rowe Price Associates, the mutual fund company based in Baltimore. For months, he has analyzed Cisco -- and its suppliers and customers -- hoping to give his portfolio managers an edge.
Like an expectant father, he waited on Tuesday for the end-of-the-day news. After a lunch in New York with the chief executive of Nokia, he returned to his office to join a conference call with Cisco executives. The Cisco report was generally good; the company beat the consensus earnings estimates by US$0.02 a share.
Devulapally scrambled to put together a report for his portfolio managers and to give them guidance on whether to buy or sell the stock -- decisions he said he could not disclose as a matter of company policy.
Generally speaking, Devulapally said, company-specific scrutiny can give major firms an advantage in a volatile market. When a market swings, their research shows whether a particular stock is far out of line with its relative strength in the marketplace.
To an extent, this is a matter of resources, he said. Individuals work single-handedly to understand numerous companies and then embark on trading strategies, while the big firms divide this task among specialists.
This should give them an advantage, at least in the short term, though major gaffes by analysts during and after the dot-com boom showed that it does not always work.
"I try not to think of volatility as a good thing or a bad thing, it's just a fact of life," Devulapally said. "Volatility can drive a price down more than we think it deserves, and we may add incrementally to that position. Or it can drive a price up so that we get the performance we thought we'd deserve in two or three years, and we can reduce our position."
Cisco is important, he said, because it buys a lot of chips, provides insight into the health of telecommunications providers and offers a glimpse of a broad swath of the economy. "They provide an insight into corporate spending," he said.
When the market opened on Wednesday, he said, he felt that his expectations that Cisco would move technology stocks in general were validated. The semiconductor index rose initially and then fell before rising again.
"Cisco has an impact on the market, whether it is positive or negative," said Devulapally. "And today it was both."
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