Option Investor
Market Wrap

Just when you thought it was safe to go back in the water....

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MARKET WRAP
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        10-27-98         High     Low     Volume   Advances Decline
DOW     8366.04 - 66.17 8533.14  8346.22  762,908k  1,450   1,559
Nasdaq  1717.63 -  7.35 1753.61  1717.63  969,513k  2,214   1,994 
S&P-100  522.48 -  5.32  534.14   521.40   Totals   3,664   3,505
S&P-500 1065.34 -  6.98 1087.08  1063.06            51.1%   48.8%
$RUT     371.50 -   .57  376.76   370.41
$TRAN   2765.68 + 11.34 2791.96  2756.27
VIX       31.49 +  1.17   32.37    28.58
Put/Call Ratio      .66
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Just when you thought it was safe to go back in the water....



The market was off to a fast start this morning. Up +100 points
and climbing. We broke 8500 for the fifth time in five days and
looked like we might have a chance of staying. Of course that was
before the rumor that Brazil was going to announce a devaluation
of its currency after the market closed today. At that point all
hell broke loose.

While the rumor was finally denied and did not come to pass (today)
the market was still gun shy and nobody wanted to hold overnight.

The market sold off first in the financials and then system wide.
The rumor spawned yet another bout of profit taking and shook 
investors confidence in the reason for the rally. 

Brazil has always been a greater threat to the U.S. economy than
Asia. We ship a much larger portion of our exports to Latin America
than the 12% which goes to Asia.

Although the rumored devaluation did not occur there are several
other rumors floating that they are going to wait until they get 
the $30 Billion IMF loan and then announce. If this were true it
would be a very bad day in the market. Let me restate, Brazil
says it has no plans to devalue. (what would you expect them to say?)

We had a good night overseas with many of the indexes up but the
buyers just did not have the strength to fight the rumors and carry
the rally forward.

Memories of the Asian induced -554 drop one year ago yesterday could
have kept nervous investors on the sidelines in cash. Strange, most
remember the drop but not the +337 gain the next day.

So what happens tomorrow....

I fought this all afternoon. Austin, the hedge section editor, is 
talking about shooting star reversals and failed rallies. Short Dell
CSCO, LU and any other tech!! Sorry, I am still bullish. This does not 
mean I expect the market to rocket tomorrow. I am cautious. I am also
in cash. When the rumor hit the street this morning I liquidated some
healthy positions and then fought the urge to jump back in all day 
until the power went out and took me out of the picture entirely.

I think we are at one of those "defining moments in the market" that
Austin writes about. We pierced 8500 five times in five days. Obviously
some serious resistance here. The OEX was spending more and more time
above 530 and liking it. The Russell-2000 was on a 9 day winning streak
which was only broken by a -.57 today. The longer we stay here the more
support we build below us. 

Where Austin is a chart technician I am more of a world view, news
oriented, overall sentiment player. He tried to tell me tonight that
Dell was dead but would not bet me!

So where am I going with this rambling story..  I am still bullish in
spite of all the external factors attempting to change our focus. I 
think that traders will shake off the rumor thing, assuming it does
not get any more credibility. I am a believer in "don't fight the Fed", 
and the "three cuts and a jump" rate cut theory.

I think we are going up from here. Maybe not tomorrow but soon. We
have shown tremendous staying power at this level after a huge jump
since Oct 8th. Again, every day we stay here increases our chances of
moving upward. I know you can build a case for a pullback to 8100
and then up from there. (the lower low argument) I just do not think
the market will discard the rate cut in November and pullback. If we
had some confirmation in the Russell I could believe it. Heck, the
transports even finished positive today. For Dow theorists that is
the holy grail. The Russell and the Transports both up!

My suggestion for the rest of the week is still caution. There are
some buys out there that I would love to take advantage of but I am
not until the market shows some staying power after the morning bump.
We have done the bump several times now and I don't think it is over.
DEPENDING ON THE RUMOR MILL tomorrow we could still see some softness.
Pick some stocks you want to play and watch them carefully. Very
carefully. Try to watch for a bottom. I did not say "pick" a bottom.
When they appear to rise off the bottom or firm on the bottom then
watch the market. When the market starts to move up again, then make
your play. I would still recommend only taking half of your desired
position and then another half when you get further confirmation the
next day.

For the very conservative the "sign" will be trading through 8600
with heavy volume. When this happens the next stop will be 9000.
For those of us who live on the edge we are going to play again
with a close over 8400-8450 again. Until then you are playing with
fire.


At 11:PM the futures have been flat at about -2.00 and Hong Kong
opened up +150 and Japan is down -150 so anything is still possible
for tomorrow. I think if the rumor was going to have a major impact
the futures would be down much farther but there is still a lot of
news to happen before 9:30am tomorrow.

Again, sorry for the delay but when the power goes out there is not
a lot we can do.

Good Luck

Jim



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