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Market Wrap

The fuse is lit. The powder keg is ready to blow. We need another apology quick!

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        WE 12-11         WE 12-04         WE 11-27         WE 11-20
DOW     8821.76 -194.38  9016.14 -318.94  9333.08 +173.53  +239.96  
Nasdaq  2029.31 + 26.15  2003.16 - 13.29  2016.44 + 87.99  + 68.96  
S&P-100  574.68 -  5.47   580.15 - 10.97   590.77 + 15.81  + 71.82  
S&P-500 1166.46 - 10.28  1176.74 - 15.87  1192.29 + 28.72  + 17.49  
RUT      395.37 -  3.96   398.37 -  3.72   402.09 +  7.81  +  5.80  
TRAN    2929.51 -119.89  3052.25 - 25.56  3077.81 + 19.20  + 39.00
VIX       28.46            24.95            21.58            21.22
Put/Call    .66              .65              .40              .49

The fuse is lit. The powder keg is ready to blow. We need another apology quick!

The lack of a substantial, real, heartfelt, admission of guilt, apology failed to snuff out the smoldering impeachment fuse. Some say it would not have made any difference. Some still think he has a chance with a real apology. The facts are there. There is no escaping the truth. The house has already voted for impeachment and the next hurdle is the vote by the full house next week. It is looking grim. The market is sure to react negatively the closer we get to the vote. Passage requires 218 votes and many democrats have already said they have no choice but to vote for impeachment based on the clear evidence. The only out at this time would be a slim chance vote for a censure instead of impeachment. Don't hold your breath. I only keep mentioning this because of the serious market impact potential. Whether you are for him or against him, the market sentiment is still the scoreboard we all live by and it will be impacted. In the end the Senate will not have enough votes to impeach so it is meaningless but we may still a market nightmare.

The tech rally appears to be alive and well. The strong showing Friday by the tech blue chips, after two days of profit taking, was encouraging. PC sales are up. 67,000 new users login to the Internet every hour. Retail PC sales are soaring for the holidays. Dell is actually weeks behind on some models due to high demand. The chip sector shows no signs of sell off from their recent rally. Without an impeachment vote we would be having a blowout week. IBM, MSFT, SUNW, JBL, CSCO have been great plays and could keep on rocking.

Amazing Amazon just keeps on climbing. The Internet Siamese twins, Yahoo and Amazon, have been trading dollar for dollar for weeks. Every time one gained a dollar the other did also. Constantly closing with $1-2 of each other in price. Last week the air became too thin for Yahoo as Amazon broke out and Yahoo failed to keep up. Amazon soared +9.88 on Friday to $223 and Yahoo closed out the week with a +2.94 at $195.69. Who knows where this will end but the trading profits are incredible while it lasts.

The on again, off again December rate cut was dealt another blow Friday with the stronger than expected retail sales report. Analysts were expecting a negative number for November but the report showed a +.6% gain. With consumers spending money in near record amounts the "wealth" factor will weigh heavily on the Fed board. Recessions are not accompanied by increasing consumption. We put the chances of another cut on December 21st at about 30%.

With the market teetering on the cliff it might be good to time to remind you that it is always advisable to close positions in times of uncertanity. Sure, the market might shrug off the impeachment news but couple that with all the earnings warnings, tax selling and window dressing that will happen next week and there is no way to guess what direction the market may go. Working in our favor is the triple witching Friday. Historically this provides an upward bias to the markets but I don't think we can count on it this time. There is just too much portfolio shifting that will occur. Fund managers, smelling a chance to buy cheaper if the worst happens will be bailing out of their least favorite holdings to raise cash for the opportunity. We should do the same. If you have a position that is not performing then don't wait for disaster to strike. Sell it now and take a deep breath of relief. If you have some winning positions then tighten up your stops and be prepared to sell. December is a tough month before Christmas. After Christmas we historically have a year end rally. Prepare for it!

Some analysts have continually said that the market will drop over 1,000 points if the full house votes for impeachment. This could be an over reaction but do you want to be long if that occurs? Maybe it will only be 500 points but still, do you want to be long? Sure, we may have a Houdini type last minute escape and the market will soar in relief. If that happens you can always buy back in. Your trading capital is your investment life blood. Protect it. There will always be another opportunity.

Just for your information, on Friday, a noted bear, Jerry Favors, actually predicted a rally into December 22nd. Then after the first of the year he forecasted a 19% jump in the Dow based on a Gant chart analysis for the last 100 years. I won't go into the details but the high side of his estimate for March was 11,500 for the Dow. Now for Jerry to say this on CNBC is a marked turnaround for him. Of course he still believes the market will crash after March and drop below 7,000. Not that I believe either scenario but based on the indicators we watch I could see 10,000 plus in Jan/Feb easy. Unfortunately Jerry is a chart technician and does not factor in things like political news or global events. Now, if we can just get past Christmas without self destructing, even the bears will be on our side.

Yes, we are listing some new call plays because many of our readers refuse to sit on cash. They must be long in the market at all times. Personally, I am going to liquidate all my long positions on any market bump and wait for the smoke to clear. I may sell some more out of the money puts on Monday. I want time decay to be on my side. We had a nice bump at the close Friday, based on apology speculation, but we may wake up Monday to reality.

Good Luck, Be Careful!

Jim Brown
Editor

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