Market Wrap, Sunday, 10/04/1998
Meetings, elections, statements, contradictions, refusals...Just another normal weekend?
by Jim Brown
HAVING TROUBLE PRINTING?
MARKET STATS FOR LAST WEEK AND PRIOR WEEKS
WE 10-2 WE 9-25 WE 9-18 WE 9-13
DOW 7784.68 -244.08 8028.77 +133.21 7895.66 +100.16 +155.25
Nasdaq 1614.98 -128.61 1743.59 + 79.85 1663.77 + 22.12 + 75.12
S&P-100 486.49 - 19.78 506.27 + 11.21 495.25 + 2.26 + 15.55
S&P-500 1002.60 - 42.11 1044.75 + 24.82 1020.09 + 11.02 + 35.17
RUT 349.71 - 19.31 369.02 + 5.76 363.26 + 9.64 + 6.55
VIX 42.36 35.60 40.49
Put/Call .85 .80 .96
Meetings, elections, statements, contradictions, refusals...Just
another normal weekend?
The is no shortage of news this weekend to impact our markets on
Monday. In fact we have so much news that we are in overload mode.
Close to home, the G7 finance ministers and central bankers met
Saturday to discuss the world problems. Clinton wanted them to
come up with a plan to solve some of the more pressing problems
at the meeting. What happens when you get a group of politicians
together in one place???....nothing. That is exactly what happened.
They cussed and discussed but in the end there was no agreement.
In fact there was disagreement on the proper way to move forward
with controlling the world economic disaster. About the only thing
they did agree on was to "explore" the proposal put forth by Clinton
last week for quick financial aid for ailing nations. "Explore", a
nice word for "no way in hell" but we don't want to say that out
loud. The only other things they did agree on were worse.
They published a joint statement saying "Financial market conditions
have deteriorated in many parts of the world, leading to a further
weakening of growth prospects, especially in most emerging market
countries ... In this context, we reaffirmed our view that the
balance of risks on a global basis has shifted". The phrase the
markets may focus on Monday is this: Noting that inflation is
conspicuously low, the group said lack of economic vitality in Asia
and elsewhere "poses increasing downside risks to economic activity."
Lets cut through the chaff. "Risks have shifted" (read- it is getting
worse) and "increasing downside risks to economic activity" politely
means "global meltdown eminent, sell stocks quick."
The G7 also said the U.S., Canada and Britain should take "appropriate
action" to sustain growth. That means, we have the bucks and they
want us to fix it. If we are not growing they can't sell us anything
and then they will collapse. If this oasis of prosperity turns into
a desert of recession then the world economy will die of thirst.
Enough gloom and doom ? Sorry but in the dozens of news alerts
I have read from the G7 meeting there is no bright spot. The roar
you just heard was probably the market crashing on Monday. After
Clinton AND Rubin went out of their way to try and soothe the
markets on Thursday/Friday with "suggestions" that the G7 was
going to come up with a plan on Saturday, the lack of a plan is
not going to set well next week.
The French Finance Minster even suggested that the only way out
was for the U.S. to use its current budget surplus to shore up
other countries. (fat chance)
The "coordinated rate cut" was a no show with excuses all around
from the European nations. So much for that slim hope. The only
rate cut from that area would only come as a result of the Euro
conversion at year end which will provide one currency and one
interest rate for the 11 nation group. The cut would come as a
result of some higher rate countries being forced into the one
rate plan. Estimates are for one half a point or less in reality.
Japan continued to be the topic of heated discussion. They still
want to float a $30 billion aid package to other Asian nations but
the IMF has blocked it for having no strict controls and being
no more than just a handout. Japan has made no real progress on
banking reform and the markets continue in free fall. The G7
called on Japan to solve their own fragile financial sector through
an infusion of a significant amount of public funds. Japan Finance
Minister Kiichi Miyazawa told Rubin that the financial bills for
bank liquidations were passed in the Japanese lower house on
Friday but the remaining bills to boost the capital base were still
unresolved. (some good news among the bad) The upper house still
has to take up discussion and vote on the bills before they can
become law. On Friday the Nikkei slid below the 13,000 level for the
first time since 1986 and intensified worries of a global equity slide.
Brazil was also a major topic but no details (read-no plan) were
available. Rubin declined to comment on the discussion which means
there was no good news. All agreed that Brazil was vulnerable to
the spreading crisis but the only thing Rubin would say was that
the G7 agreed to do "everything sensible" to address the crisis.
(read - as long as the U.S. puts up the money we will agree,
otherwise let them burn)
Brundesbank President Hans Tietmeyer rejected outright the concept
of a revamp in the current financial order as presented by Clinton
last week. Oops !
There really is some good news. Brazil is expected to reelect their
first president to a second term on Sunday since becoming a
democracy in 1960. Cardoso has a 20% poll majority going into the
election. He is the only one who has a chance to push through the
drastic cost-cutting measures that are seen as the only chance of
keeping the Brazil economy alive. The next problem here is the
possibility of numerous allies in the house facing very close
elections. If they do not win OR do not win outright
then the runoff elections would not be held for 30 days. Many
think Brazil can not last another 30 days and would be forced to
devalue. Sundays elections will be critical to our market on Monday.
I wish I had some good news AND I hope all this blows over before
Monday but several analysts I have talked/listened to in the last
two days are very bearish about our chances.
The rally Friday was mostly blue chips and considering the -500
point drop the rally strength was uninspiring. Did you know that
Wed/Thr was the first time we had back to back -200 points drops
on the Dow? I told you Thursday night that regardless of world
events the market was due for a technical bounce of 100 points
on Friday. It managed only slightly better.
The Russell-2000 was down all five days last week for -19.31 points
to end a promising rally. The Nasdaq was down four of five days
and only finished up +2.65 on Friday when the Dow was up +152.
The advances only beat the decliners by an 18 to 17 margin or
virtually even. New highs at 88 were beaten by new lows again at
Europe/Asia was hammered last week and suffered steep losses. What
most people don't know was the Hong Kong market was closed Thursday
and Friday and therefore did not participate in the sell off. As one
of the first markets to open on Monday (Sunday night) the sure
drop to catch up with the rest of Europe/Asia along with any drop
from world events this weekend is going to look huge and may scare
the rest of Europe and Asia in to panic mode as well.
The G7 met and agreed to disagree and do nothing.
Definitely no coordinated rate cut.
Hong Kong markets are expected to be down hard Monday.
No plan for Brazil was announced as expected.
Brazil has elections Sunday and Cardoso MUST carry his supporters
as well or face months of indecision.
The Dow had a weak technical bounce on weak internals Friday.
Advance/decline was flat.
The Russell-2000 was down all week.
More hedge fund rumors are out this weekend.
More earnings warnings than I can remember have brought the S&P
expectancy to a -2% drop. The first negative quarter in years.
If you are superstitious then October is a rough month anyway.
October 1929, 1978, 1979, 1987, 1997 are seared into our collective
consciousness. But did you know that October is also known as the
bear killer month? Eight major bear markets turned around in 1946,
1957, 1960, 1962, 1966, 1974, 1987, 1990.
I hope I am wrong boys and girls. I hate being bearish. I am the
most bullish person I know when it comes to the market.
I hope I have missed something and Monday will be a continuation
of the Friday rally. Maybe this is already priced into the market.
It is now 4:am Sunday morning and unless a miracle of statesmanship
happens in several places around the world on Sunday we are not
likely to be looking for an up market on Monday. Stranger things
Pray for a landslide election win for Cardosa and his party in
Brazil. That is about the only event I can imagine that would help
I will post an update Sunday night after we see how the futures
open up on Globex.
Wait, watch, learn. Plan your trades and when the time
is right, execute your plan !
PS: We always get many emails asking why we "recommend" calls when
our outlook for the market is negative. It is our job to find stocks
that will go up in price. We have no control over the market. If
the market/sector is down we expect our readers to wait for the
market/sector to turnaround before playing calls. Likewise if the
market/sector is up we expect readers to wait before playing our
"put" candidates. We simply try to highlight the stocks that will
move the best under normal market conditions. Lately we have not
had any "normal" conditions. You are the final judge on when/if
you play a specific pick. You are responsible for establishing the
market direction and deciding to play a call or a put. 90% of our
readers would never play a put. Even if we were in a strong bear
market. These readers want call picks in every newsletter so when
the market does turn they are ready to play. Good luck requires
good planning and lots of patience!