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Index Wrap

Rumors Of His Death Are Greatly Exaggerated

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        11-19-2001        High      Low     Volume Advance/Decline
DJIA     9976.50 +109.50  9976.50  9870.40 1.30 bln   1955/1166	
NASDAQ   1934.40 + 35.90  1934.70  1905.36 1.88 bln   2234/1427
S&P 100   595.07 +  7.00   595.08   588.07   totals   4189/2593
S&P 500  1151.06 + 12.41  1151.06  1138.65           
RUS 2000  457.71 +  6.40   457.71   451.31
DJ TRANS 2532.52 + 35.15  2541.13  2499.76
VIX        25.72 -  1.45    27.21    25.46
Put/Call Ratio      0.43

Rumors Of His Death Are Greatly Exaggerated
Buzz Lynn

But it sure makes a convenient excuse to rally! We are of course referring to reports that Osama Bin Laden is close to capture (or swift execution) as U.S. commandos using high tech equipment ferret him out of hiding into their crosshairs. When that actually happens, the markets will likely see a positive boost. However, it has not happened yet, and until then bulls await with scratching hooves.

Adding to the sentiment was positive economic news in the form of new housing starts - positive because it was not as negative as many suspected. 1.515 mln housing starts were estimated to commence in October. But imagine the euphoria when 1.52 mln were reported. That's only a 1.3% decline instead of an expected 5% decline. Things must not be as bad as we thought! In shear numbers, that is certainly a welcome relief. Still, a decline is a decline, and much of this report is due 17% decline in the west despite a flat to up market through out the rest of the country.

On a not so bright note, which went largely unnoted in the mainstream press was the decline in new building permits. That says that builders are not anticipating a rebound soon. While the housing market has so far provided the resiliency to the economy with low mortgage rates providing the foundation, the drop in consumer confidence, the loss of equity values, declines in building permits, declines in residential construction spending now the economic contraction make a strong argument for further weakening.

Speaking of further weakening, an ironic twist came out of left field today from Goldman Sachs, the home of perma-bull Abbey Joseph Cohen. Briefing.com noted the following from GS with regards to semiconductor equipment: "Goldman Sachs cautious, says group is poised for a selloff as sentiment seems to be getting ahead of fundamentals. They cite: managements getting more cautious (especially AMAT and KLAC) as purchases are slowing due to buyer's cash flow and balance sheet concerns, expected INTC capex cut in January and worsening economic conditions leading to negative sentiment shift. October book-to-bill out tomorrow night, GS estimates 0.73-- higher than last month's reported 0.65- - but driven by lower shipments rather than higher orders."

Deutsche Banc Alex. Brown sees had similar comments. Again from briefing.com, "Fundamentals for group will likely remain weak, and downward surprises to CY02 capex plans will likely trigger more estimated cuts for 1H02. Most companies guiding to flat quarter over quarter in Q4, as several orders pushed from Q4 to 1H02; TER could post larger than expected cancellation number this quarter ($50+ mln). Positively, believes INTC may be moving up build out of Fab 24 (300mm Fab planned for Ireland) from CY03 to early CY02, followed by equip orders in mid-CY02. Likes LTXX, BRKS, and AMAT at lower prices.

Despite the positive sentiment toward INTC, this is not the stuff of which sustained recoveries are made. This leads me to another thought I had read last week by perma-bear, Bill Fleckenstein of Fleckenstein Capital. I'm paraphrasing here, but I know our readers will get the point. Fleck observed that stock prices were rising. Why? Well, because the market anticipates that profits will be going up sometime in 2002. And why is that? Because equities are rising in value now and everyone knows that the market anticipates economics from 6-9 months in advance. So we have a market rising on the belief that profits are rising, and a belief that profits are rising because rising equity prices are projecting it. He noted that if you think the market sounds like a cat chasing its tail, you are right!

In my own words, the market is exhibiting some pretty twisted logic as justification for the price gains over the last 60 days. But again as noted in the past by the quite capable Austin Passamonte, "The market can remain irrational much longer than I can stay solvent". That said, I am not looking for much action this week despite today's rather hefty volume uncharacteristic of a short trading week. The holiday should keep volume trailing off as the week goes by making it difficult to get any meaningful gauge on the market. Volatility is possible and likely, but not meaningful moves.

Many traders will likely bug out early on Wednesday for the Thanksgiving holiday, though a full day of trading is scheduled. Of course Thursday the major exchanges will be closed. Friday will see limited action too, as many traders will take Friday as a holiday. Diehards wanting a full day of swashbuckling on Friday will have to complete their pillaging by 1:00 p.m. ET as all equity exchanges and the CBOE will close trading then.

Now as for the charts, ahem. . .

Dow industrial chart (INDU):

NASDAQ-100 chart (NDX):

S&P 500 chart (SPX):

From "The more things change, the more they remain the same" department, we bring you the major indexes, the Dow, NASDAQ-100, and SPX. All patterns are fairly similar. Candles have all broken over resistance on the weekly/daily charts while support was found today at Friday's highs. Bulls feel like they are in charge. Despite oscillators in overbought and subject to rolling at any time, all are still pointing up suggesting more bullish trend to come.

Aside from the general stair-step up, all indexes broke through their 50% retracement levels last week and appear headed to their 63% levels, which mostly coincides with their respective 200- dma's. That is a whole lotta resistance with not much to stop the moves between here and there. Watch those 200-dma's for a point of major weakness. It is only my gut talking, but that is a possible point to look for some good (not MOPO) position trade put plays.

Yes, these things are topped out and can't possibly move much higher in my opinion, which means they probably WILL go higher before they reverse. The capture/execution of Osama, capture of the remaining cities in Afghanistan by the Northern Alliance, or any other host of reasons yet unknown could provide the spark to get us there. But once that "crowning event" takes place, the market's reaction will be, "Now what?", which may precipitate a selloff. Again, no guarantees - just my gut.

In reality, it not just my gut either. The falling VIX, currently at 26.35, also bares that out. The point at which I expected support was from 28-30. Having failed there, the door is now open for optimism to rise and for the VIX to fall to say the 20-22 range over the next week. The Thanksgiving week after all has typically caused market leanings to the bullish side.

It is impossible to say where we go tomorrow as volume should thin out and steady supply of news will keep the remaining traders calling the direction - major price swings are possible with little input. Still, under current sentiment, dips will likely remain buyable for quick scalps while gap opens could produce a scalping opportunity. Notice that none of these are a "buy and hold" strategy. If you are going to trade, get in fast, set price targets/stops, and get out fast. The odds of home runs in the next few days are slim and base hits from scalping will better serve the trading account.

Be on the lookout tomorrow for the trade deficit figures, which will be released at 8:30 a.m. ET, and Index Of Leading Economic Indicators to be released a half hour after the market opens. I personally will not be entering any trades until after the latter is released.

See you at the bell.

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