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Index Wrap

Short week, Big Volatility

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      12-26-2001          High     Low     Volume Advance/Decline
DJIA    10088.14 + 52.80 10169.09 10034.93  801 K     2066/1074	
NASDAQ   1960.70 + 16.22  1983.84  1948.77 1.11 bln   2183/1494
S&P 100   587.50 +  2.31   592.84   585.19   Totals   4249/2568
S&P 500  1149.37 +  4.72  1159.18  1144.65             
RUS 2000  490.19 +  4.38   490.60   485.76
DJ TRANS 2630.22 + 24.65  2632.24  2602.44
VIX        22.93 -  0.28    24.56    22.38 
VXN        49.06 -  0.38    49.61    48.79
TRIN        0.93 
Put/Call    0.54

Short week, Big Volatility
Buzz Lynn

Short Wrap. With economic news scarce as hens' teeth and many traders out for the week, it's no surprise that volume on the major exchanges is significantly lower than usual. There just are not as many shares that will trade because there are fewer people around to trade them, including the likes of you and me.

But fund managers are the wild card in the equation prior to New Years Eve. While volume was quiet today at 802 mln shares on the NYSE and 1.12 bln on the NASAQ, I'm sure "The Pro's" have some losers to dump, profits to take, and/or some window dressing to place appropriately around the portfolio. Contrary to popular belief that would have volume slowing down going into Friday, funds and professional money managers may pick up the pace a bit to where we actually see volume rising through the Friday's close. Accordingly, that may create some huge volatility with potential for profit when/if a few large orders cause substantial price moves with a relatively quiet market. Stay tuned on that.

Quickly to the economic news before we move in . . .there was none today, and despite the major news services that have initial claims listed for 8:30 a.m. ET tomorrow, Bloomberg is stating that the release will be postponed until Friday morning. If that is true, then nothing except the "Help Wanted" index will be released tomorrow, which makes Friday a huge economic news day with initial claims, durable orders, consumer confidence, Chicago PMI, new home sales, and existing home sales on the docket for Friday morning. That could be a particularly volatile and thus profitable session for those keeping an active watch on their screens.

Keep in mind too as we see the initial claims released that many of the seasonally employed still have jobs, thus the numbers are apt to look positive. Rightly or wrongly, market bulls will point and say, "See? The economy is on the rebound because there are fewer new claims. The market is definitely at the bottom". More meaningful will be the post New Years figures where we see Christmas workers again being furloughed (layed off) and initial claims potentially on the rise. Don't be fooled by bubblespeak. Just know it can move markets and we can trade it despite deceptive twists of logic.

On a related subject, for those wondering about how the Holidays (which are not completely over yet) turned out for retailers, take heed of the statistical evidence that saw YHOO Web site sales increase 86% over last year. Adding anecdotally, Wal-Mart (TGT) and Target (TGT) both issues statements today that this shopping season was "above plan", though they declined any forward statements (guidance). No surprise for the discounters, but again, the real test comes when we see how department and upper- end stores fared in comparison. While discounts of up to 75% in some cases brought the customers in the store, which makes gross revenue (sales) look strong, the margins and thus profits are reduced below zero in those situations. Unless expectations have been reduced to reflect a discount-based loss, don't look for many retailers to hit their earnings numbers. Hmmm. . .sounds like deflation to me.

With sparse news and little upon which to trade except a newly released bin Laden video, which was vague and inconclusive (contrary to CNBC's report stating that it was made on December 11th), let's turn to the charts.

Dow Industrial index chart (INDU):

Once again we see a weekly chart in favor of the bears that has stochastics rolling over for a long-term fall or at least flatness ahead. The 5-period stochastic looks weak too as it has entered overbought then bearishly crossed out of it today while the 200- dma of 10,095 was pierced but failed to maintain support. But the 10-period lookback is still bullish. (Q-chart difficulties have deleted the final daily candle.) 60/30 charts rolled over late in today's session and thus have stochastics taking a fall. 10,000 appears to be a trading level of support. Resistance once through the 200-dma would be 10,168, today's high.

NASDAQ-100 chart (NDX):

Here is an interesting contrast on the NDX. While the weekly chart is decidedly bearish, the daily charts are nearing a bottom as support at 1550 remains intact, despite today's hanging man candle formation, the result of hitting the 200-dma and falling back substantially from its high. This is a very mixed picture. Even with a weakened candle chart, perhaps a bullish flag is under formation biding time for a spring to the upside, which stochastics suggest. On the other hand, this may be merely another bounce down from a lower high in a descending channel. With the 60/30 charts out of synch, there is no clear direction here either.

S&P 500 chart (SPX):

Label the SPX as another bearish weekly chart. The daily however is not quite as weak despite the stochastic rollover in all time frames except the daily 10-period lookback. Still there is plenty of weakness in today's candle as it failed to break over and hold above ascending resistance let alone fall short of the 200-dma of 1167. Swing trade support comes in 5-point increments at 1145 and 1140 while resistance is at 1158. With some stochastic cooperation leading the 60/30 charts to oversold, perhaps a call play well emerge at simultaneous stochastic and candle support.

The VIX offers us no reason to be inspired either as it nears the tired bull end of the spectrum at 22.93. Lots of complacency with plenty of danger obviously ignored. While a rally over resistance may temporarily ensue above resistance levels, it is hard to see that it will last that long. I have my doubts.

But I do know this. This is not a time to be shopping for "bargains" thinking that stocks or indexes are cheap based on the seemingly foregone but unproven prospect of 2H02 recovery. If that is the bet, as most analysts would like us to conclude, profits must skyrocket from here. Not going to happen in my opinion. I might add here too that Oracle Japan, roughly 85% owned by Oracle (ORCL) quietly cut sales estimate early this morning by 13% and reduced its profit outlook 14.5% to boot. World economic recovery by May? I doubt it, at least not in Japan, which does not speak well for our prospects in the U.S. as well.

For tomorrow, as noted above, this is not the time to become a long-term investor. Daytrading only with risk capital using your best gun-slinging skill seems about the only way to make a buck in this market. As the year unwinds, volumes may creep up a bit from the volatilities of institutional trading, but I would not take that as conclusive evidence that now is the time to be long. Personally, I'll stick to short single hits instead of home runs and cut losses short when I'm wrong.

Life is too short to squander precious capital in the wrong direction then crossing our fingers in hopes that we'll eventually be right. In a theme I have not uttered in a while, "If it isn't going with us, it's going against us".

See you at the bell!

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