Option Investor
Market Wrap

Attention Wall Street shoppers, everything is now on sale !! Blue light specials now exist in every sector!

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MARKET WRAP
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        10-8-98         High     Low     Volume   Advances Decline
DOW     7731.91 -  9.78 7756.37  7467.49 1121,400k    586   2,671
Nasdaq  1419.12 - 43.49 1420.94  1357.09 1213,400k    845   3,657 
S&P-100  471.84 -  4.99  476.83   454.91   Totals   1,431   6,328
S&P-500  959.44 - 11.24  970.68   923.32            18.4%   81.6%
$RUT     310.28 - 11.95  322.23   303.87
$TRAN   2345.00 -102.85 2447.85  2282.18
VIX       48.56 +   .29   60.63    47.84
Put/Call Ratio     1.27
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Thank you Mr sunshine ! Ralph Acomporaspan strikes again!


Not that he did not have help this time with the American dollar
turning into monopoly money almost overnight but Ralph Makempoorer
shook a recovering market around 11:30 with a new Dow prediction.
Now the Dow 10,000 guru has predicted a bottom between 6500-7000.
While stressing that it is impossible to actually pick a bottom the
best guess number is 6735. His previous bottom prediction was 7400.
The market was trading at -100, up from a low of -155. Immediately
the market plunged to -275 and a low of 7467. 

He was helped by Bill "the bear" Fleckenstien who has been negative
on the tech stocks for some time. His negative comments on CNBC,
on top of lowered estimates by Abbey Cohen, just pounded the averages.
No sector was left out today. Bill said each sector, one by one, was
being taken out and hammered flat.

Bonds, which had been on a huge rally lately on a flight to quality,
got shredded by the rebounding yen and stronger currencies worldwide.
The recent mid 4% yields jumped to 4.96% before plunging stocks drove
it down again.

Fear! Analysts keep saying we need real fear in the markets before
we can build a bottom for a real rally back to new highs. Can I see
a show of hands. Do you have enough fear yet? Ok, the vote was
unanimous. We DO have enough fear in the market. If only it was that
simple.

The rumor of the day. At 1:PM, after several very suggestive hints
by analysts, CNBC announced that there was a strong possibility the
Fed was meeting by conference call about lowering the interests rates
again. Rumored was a -.50% cut. If that came true we would have a 
blowout and Ralph Acomporaspan would have to eat his recent prediction.

Britain, Spain, Canada have all cut rates and it has had no affect on
the market. 

So what turned the market around? Rumors, bargain hunting and the
fear that someone else would get to buy Dell and Cisco at $40 first.

Actually the brokerages and banks lead the way. After being trampled
in the rush to get out of stocks they were the first to recover. 
BT was up +5.31 and JPM +5.38, MER +4.75, MWD +3.19, DLJ +2.44, 
BSC +4.88, LEH +4.69. These were all down significantly in early
trading. Just like the techs the buyers just could not resist any 
longer and pulled the trigger on the buys.

Buy they did. After a huge amount of down volume this morning, after 
the -25 futures number at the open scared everybody enough to throw
in the towel, the buying was even stronger, but focused into specific
stocks. The volume on the NYSE was the third highest in history and
the Nasdaq was in the top five as well. Dell was the most active on
the Nasdaq with over 102 million shares traded. Almost 10% of the 
total Nasdaq trades. Dell took third place in the history of the 
Nasdaq of most shares traded in one day.

So grab a beer, kick back, its rally time, right? Don't bet the 
farm just yet. The internals suggest a different story.

Even though the Dow roared back from a -275 point drop after lunch
the 952 new lows on the NYSE compared to 28 new highs were the 5th
largest in history. The Nasdaq new lows were over 1,500, Oops! Sure 
the morning drop was catistropic but only the generals came back - 
not the troops. The transports, the Nasdaq and the Russell-2000 all
set new 52 week lows today and the Nasdaq still finished doen -43. 
Don't take me wrong. I am glad the Nasdaq came back from over -106 
down. I am holding a huge Dell position and breathing a lot easier 
now. But Dell at $40, got to buy some more if it happens again. 
Heck, if it gets below $45 I am a buyer again.

So my fearless Friday forecast looks like this. I think we will rally
again in the morning (world markets and news permitting) and then
sell off some in the afternoon as the "fear of darkness" settles in
over the traders. Holding over the weekend with the world news a
crap shoot is not going to be an option (pun) for most of these
guys. I for one am tired of waking up to a -25 futures number and
having no chance for a morning bump to sell my longs before the
afternoon crashes. This is not my idea of fun! 

The bull/bear market debate continues to drone on. Technically we
are not in a bear market until we are down -20% from the 52 week
highs. Currently we are only down -17% on the Dow and 19.2% on the
S&P-500. (we were over -20% intraday on the S&P today) So we are
not in a bear market, right? Check this out and you decide.

Down Percent of all stocks down

-50%+ 45.3%
-40% 61.7%
-30% 79.1%
-20% 91.7%

Now if 91.7% of all stocks are down over 20% then the bull/bear
market phase debate is as ridicoulus as Clinton trying to define
when sex is not sex. If your wife/husband used that definition on
you when caught doing something inappropriate would you buy it?

I don't buy the bull about this is not a bear. You can call 
it anything you want but the result is the same. I feel your pain, 
because I am right there with you. It is giving me ulcers just like
you. I hate it when analysts say on CNBC that they are going to 
sell into the next rally but if you are still holding I would 
suggest you consider that strategy for Friday. It may be the wimpy
way out but we are in the twilight zone as far as market direction.
There is always another day as long as you have capital left to
start new positions. If you are holding losing positions just
waiting for them to come back to where you bought them, then you are
losing out on some good trades every time we get one of these big
dip/rally rebounds. Consider what you could make if you were trading
instead of holding. Cash is king because of the options it gives you.

Something to watch tomorrow. If we get a strong open and the Dow
carries through to over 7881 (high for the week) and holds for 
long enough, we could get a short squeeze started and then look out
above. We could easily see another +100-150 points. That is ONLY
if we get above 7881 and hold. Watch for a failed rally at any point
prior to that.

The futures are up +9.70 at 9:15 so plan you trades tonight while
your mind is clear of the emotion of trading. Tomorrow, EXECUTE
YOUR PLAN. 

Good Luck

Jim


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