What if they opened for trading and nobody came?
That was the case Friday. The NYSE only traded 256 million shares for the entire day. The Nasdaq did stir back to life with 516 million and set a new record high again with a +31.20 gain. The Internet stocks were again the winners and helped power the big gain.
The market did just what we expected on Wednesday and Friday - nothing! There was just no reason for investors to move off the sidelines before the long weekend and every reason to be cautious after the recent big runs.
If it had not been for the news that Mobil and Exxon were in merger talks the Dow would have finished very negative. The news propelled Chevron to a +5.25 gain which equated to over 25 Dow points. Exxon also jumped ahead +1.69 on the news. The only other Dow component with a big gain was IBM (a current play). As you can see by the table below there were only four Dow stocks up over $1.00. Even though the market was positive you can see the rise was not broad based. You can't make any generic arguments from the list do to the very light volume. Two thirds of the Dow stocks traded less than one million shares!!
Friday Dow stocks sorted by the days change.
Change Stock Price Volume 5.25 CHV 85.63 2,318,300 3.25 IBM 170.00 1,337,000 1.69 XON 74.38 5,184,500 1.13 S 48.13 543,600 0.94 DIS 31.88 4,346,800 0.81 WMT 76.56 1,439,500 0.50 CCI 52.88 4,462,900 0.38 MRK 158.88 664,900 0.38 UTX 111.75 396,400 0.25 UK 45.94 159,500 0.19 AA 78.19 228,600 0.19 ALD 44.81 609,700 0.19 EK 74.75 358,700 0.13 DD 60.00 577,100 0.06 GT 57.81 190,900 0.06 IP 43.13 727,400 0.00 MCD 72.19 605,400 0.00 MO 58.13 2,249,600 -0.13 AXP 103.44 412,200 -0.13 T 63.06 969,600 -0.31 CAT 49.63 306,200 -0.44 HWP 62.19 937,100 -0.50 GM 71.44 581,800 -0.56 JNJ 82.25 1,828,900 -0.88 GE 92.31 1,715,800 -1.13 PG 89.31 444,300 -1.31 BA 41.44 1,660,000 -1.31 JPM 111.44 350,600 -1.44 KO 71.69 1,236,600 -1.44 MMM 82.44 234,500
The good news from above is also the lack of serious profit taking. There is still a very positive sentiment base and we still expect to go up from here. There is no reason for the market to drop at this time except for some brief profit taking. There is not a single bit of major market moving negative news.
Clinton released his 24 pages of "I did not do it" and "I don't remember" testimony. No revelations here. No smoking gun. (what did you expect?) The market was still cautious before the release.
Russia did finally agree to the tough rules the IMF had laid out as precursors to getting any more funds. But then they said they would print more money to cover current expenses. This is something that the IMF strongly opposes. A classic case of double speak here. The market would have reacted positively to the terms agreement but the double talk is sure to nullify any market benefits.
Japan reported on Friday that industrial output fell a smaller than expected -1.2%. This does not point to a rebound yet but any slowing of the negative GDP is a welcome sign.
Without any negative news the market should move toward the 9500 level where we may get some resistance but the current wave of merger and acquisition activity should continue to promote investor interest. Earthlink (ELNK) was up strong last week, almost +$20 on Friday, on speculation that Sprint would buy the 70% of the company that it does not already own. One analyst speculated that ELNK could be worth $120 a share. Considering that the closing price on Friday was $71.88 there is still room to move.
OnSale (ONSL) went from $27 to $97 last week. Up +$37 on Friday. The rash of record price increases is due strictly to hype that online retailers MAY post record profits this Christmas season. $27 to $97 ?? As I said before I don't think gravity has been repealed and there is sure to be a correction soon. Sure they have great prospects but what fundamentals do investors see now that they did not see the week before?
Another factor which may fuel the U.S. economy in the short term is the ramping up of intensity on the Y2K problem. A recent report indicated that only one-third of the existing corporate computer systems is ready for Year-2000. As companies race the clock the easiest solution is to buy new hardware/software and bite the bullet. All major computer suppliers indicate increased Y2K buying. The tech companies will reap the rewards now but the post Y2K let down is sure to be enormous.
The plan for next week should be to watch the market for signs of continued upward momentum. Traders should wait at least an hour after the market opens on Monday before starting a play. We could get an opening market bump and then falter as the market looks for direction. Don't get suckered in at the open. Wait for confirmation. This is the hardest part. All of us want to jump in at the first sign of market movement. Only the very experienced investors understand the pitfalls and have the patience and control to wait. There is always another chance to make a play.
Be selective and only play one or two positions. Add to these positions as the week progresses and we continue to see upward momentum. If the market stumbles then you have less at risk.
You are probably wondering why I am so cautious today in the face of a bullish market. You have to remember that we are up almost +2000 points from our October low. That is a +27% gain from the 7400 low. This happened in only seven weeks! Don't get me wrong but that is a lot of profit for the traders that bought the dips over and over. Yes, the Fed cut rates three times and waved their magic wand over the market to produce this euphoric market BUT the Fed meets again in December and nobody expects a rate cut this time. I still plan to play this bull rush aggressively but when every one starts thinking that things are too good to be true - they usually are. A famous trader once said he got rich by selling too soon. Don't look now but "too soon" may be approaching for some. There are only three trading weeks before Christmas week so make money while you can. The last ten days of 1998 could be traumatic. (of course 1998 will be a cake walk compared to 1999, but that is another story)
PS: We are moving to a larger office on Monday and everything has to be packed and boxed after the newsletter goes out by email on Sunday. We fully plan to be up and running by newsletter time on Tuesday. Only about a million things have to go perfectly but you know I am an eternal optimist. The only impact you might feel would be a permanent voice mail message on Monday instead of a live person during the phone cut over but that is the price of progress. We are adding space and people to increase the quality of picks and information we can provide. Next week we are going to start a new format which we think should greatly increase your reading pleasure. The planned daily updates will be the answer to many of your requests. Please bear with us.
No plays. I did not get hit on any bids since Tuesday so I am still in cash.