Option Investor
Market Wrap

This really was a down day - trust me !

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MARKET WRAP
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        10-22-98         High     Low     Volume   Advances Decline
DOW     8533.14 + 13.91 8559.79  8422.17  746,751k  1,821   1,218
Nasdaq  1702.64 + 27.89 1702.64  1663.22  896,647k  2,481   1,673 
S&P-100  530.91 +  5.13  531.87   521.37   Totals   4,302   2,891
S&P-500 1078.48 +  8.56 1080.43  1061.47            59.8%   40.2%
$RUT     366.40 +  6.46  366.40   359.74
$TRAN   2794.85 + 27.73 2812.34  2753.62
VIX       30.76 -   .95   33.97    30.18
Put/Call Ratio      .63
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This really was a down day - trust me !


I was very glad to see the significant drop today and that it lasted
all day. The drop yesterday morning was just not strong enough to 
convince the traders that the market had done the rest and test thing.

The deep foray into negative territory for most of the day came on
the backs of Chevron, Exxon and 3M. All had terrible earnings days.
Those three stocks accounted for over -55 Dow points. On the positive
side, Proctor & Gamble and Sears beat the street and offset the big
losses with decent gains or it would have been much worse.

FYI - During the last two weeks of strong Dow gains, eight of the
Dow 30 stocks accounted for over +58% of the 800 points rise. The
generals were leading again but this time the troops were following.

During the down periods today the advances/decline line stayed 
positive and only for a brief time did the NYSE ticks go negative. 
Even with the Dow dropping the S&P and Nasdaq were climbing. 

The Russell-2000 also had a good day, closing at the absolute high
of the day. Same with the Nasdaq. After losing ground at the open
the big tech names MSFT, DELL and CSCO powered ahead to lift the
average.

Believe it or not, we are 60% through the earnings cycle. More than
half way. According to First Call we may not close the cycle positive.
If we end up with negative earnings then it will be the first time 
since 1991. On the bright side the fourth quarter may end up stronger
than most of the bears predict due to the strong tech sector. This
is helping the current rally.

The transports, which had been beaten bad yesterday, turned around
a -14 point deficit early and took off to close up +27. While not 
a sterling performance it was positive. We need the transports to
stay positive in order to keep the Dow on track. Many Dow technicians
claim a rise in the Dow MUST be accompanied by a rise in the transports.

Gateway Computer reported earnings after the close and beat estimates
with a record quarter. They posted $.51 vs est $.47. They shipped
887,000 units in 1998 vs 622,000 in 1997. Sales increased +21%. Their 
market share increased to a record 8.5%, up +1.8 points from last
year. I repeat this here only to illustrate a point. Everybody has 
been hearing that the PC demand is down and IT spending is slowing.
BULL! You hear that because HWP, CPQ, IBM and company all are losing
share to Gateway and Dell. Dell has repeatedly said they were growing
at a multiple of PC sales in general. PC sales are estimated at +15%
and Dell has mentioned 60% as their growth rate. If GTW increased
+21% you can imagine what number Dell is going to pull out of the
hat on Nov-12th. With Dell the only major computer maker that has
not announced, you can bet the "flight to quality" for the next
earnings play will begin tomorrow. (market permitting)

The market analysts are falling over themselves to describe how
strong the market is this week, internally. We agree. However, it
always bother us when the bears seem to slip into the background.
It takes both sides to have a strong rally. It does not make sense
but it does. When everybody starts lining up on the same side I
just want to make sure we are not on a cliff.

The Fearless Friday Forecast: I wish I could say I was very bullish
about tomorrow but we have come very far very fast. The profit taking
from the +700 points in the last two weeks may not have concluded
today. I think we can still see some choppiness (up and down) until
next week. I would not hesitate to take a position tomorrow but
would watch for market direction before making any play. Look for 
the mandatory bump/drop at the open and then see where we go from 
there. Japan opened down Friday morning but that is to be expected
after the strong week they have had. 

The futures are -1.50 at 9:30. Even though Greenspan is up in his
tower playing lifeguard it does not mean there are not sharks in the
water. Caution is still the keyword. We expect next week to be a
good week. You can always wait until Monday.

I know from my email that many of you have some killer trades going.
This has been a great week. Just keep your fingers crossed it stays
that way.

Good Luck

Jim



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