Option Investor
Market Wrap

8600, 8700, 8800, 8900 Four century marks in four days!

HAVING TROUBLE PRINTING?
Printer friendly version


        11-05-98         High     Low     Volume   Advances Decline
DOW     8915.47 +132.33 8917.27  8714.91  767,667k  1,787   1,265
Nasdaq  1837.10 + 13.53 1838.16  1809.13  922,059k  2,406   1,772 
S&P-100  544.96 +  7.91  554.96   543.11   Totals   4,193   3,037
S&P-500 1133.85 + 15.18 1133.88  1109.55            58.0%   42.0%
$RUT     396.79 +  3.83  396.80   390.63
$TRAN   2960.52 + 46.54 2967.27  2904.33
VIX       24.80 -  1.08   27.81    24.40
Put/Call Ratio      .68

8600, 8700, 8800, 8900 Four century marks in four days! 9000 on Friday?

Mr. Greenspan did it again today. After the market sold off this morning on profit taking and pre-G apprehension, Greenspan set the market Fed watchers minds at ease with his calming remarks. Greenspan's speech was cut off in mid sentence 15 minutes early by a network problem so we may never know what damage the closing remarks might have done but we are not complaining.

In midpoint of the speech the Dow was down over 40 points. With just a few sentences that seemed to say "things are better but we still are not there yet" the market turned on a dime and rocketed up to cross two century marks and close over 8900 for the first time since July.

The tone of the market is so strongly bullish it appears that nothing can restrain it. Abbey Cohen again came out with her strongly bullish forecast of Dow and S&P targets. Ralph Acomporaspan stuck his finger up to see which way the sentiment was blowing and then appeared on CNBC to proclaim "my DOW 6500 was too pessimistic and it looks like the worst is over." He did cover his bets by saying again the market could still trade down from here but he has capitulated. (can't decide which coat to wear to the office these days Ralph?, It is leather, not fur, Ralph)

With the election firmly in the pockets of the Democrats, the Republicans wasted no time in cutting back on the Clinton impeachment proceedings. OOPS! The public did not buy the Republican lynch mob attitude and the backpedaling has begun. (Have you ever met a Republican with backbone?) (I can criticize these guys because I am one but dogone it the big guy is going to get away with murder) With the impeachment off for now the market is celebrating.

The one fear left in the market is the FOMC meeting on Nov 17th. Will they or won't they cut the rate again. Greenspan seemed to indicate that it was still a go today. After the speech some analysts began to float the notion that they did not need to cut the rate again in Nov and the market would not fall if they didn't. Now, I am not in that camp but they can sing that song all they want. Maybe if the masses hear it enough it will soften the blow it it happens.

We still expect them to cut at the November meeting and are mixed on a December cut. The total nonfarm payrolls came in a day early at +116,000 and presented the Fed with all the reason they need to justify the November cut. Payrolls were down from the three month average of 198,000 and the six month average of 205,000 and twelve month of 241,000. Any way you cut it the economy as measured by jobs is down. As far as the market is concerned the November cut is a given and is already priced into the rally. We feel a no-cut would rattle the market confidence and provoke a serious sell off. You might think I am stressing this too often but the meeting is only seven days away. You need to start planning your strategy for each alternative.

Fearless Friday Forecast: Dow 9000? Maybe but don't plan to spend much time there. The market is up over 1100 points in the last three weeks without any serious profit taking. The Dow is up +420 in just the last five days. Can you spell P-R-O-F-I-T T-A-K-I-N-G S-O-O-N? The most likely scenario would be a continuation of the closing run today at the open tomorrow. We could hit 9000 on momentum alone. A solid bounce off 9000 to the down side would not surprise us at all. A negative close on Friday would be entirely possible and could start several days of range trading until we find a new bottom at this level. OEX-540 has strong support and DOW 8700-8750 as well. Traders with the capability to sell calls should do so on any opening bounce in the morning. Traders with open call positions should consider selling when the bounce looses steam in the morning and waiting for another opportunity to open a new position next week. We have had several 100 point swings the last two Fridays but finished strong in the last 30 min of the day. This strong finish may or may not happen tomorrow but there is no harm in waiting until Monday to start a new play. Many of the sectors are severely extended and due for a sell off. Waiting for a pullback instead of chasing a stock is not only wise but recommended at these levels.

If you have not read the NFL challenge in the Hedge section, you should do so. It is a very well written piece and a great analogy between the NFL and option trading. The game puts option trading into terms everyone can understand. You don't have to play the game to take advantage of the analogy but if you would like to play you still have time. The deadline for entries is Midnight Saturday.

Good Luck, Have a great weekend!

Jim

Market Wrap Archives