Option Investor
Market Wrap

If a war and an impeachment cannot rock this market, what will?

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        12-17-98         High     Low     Volume   Advances Decline
DOW     8875.82 + 85.22 8879.94  8785.75  742,247k  1,716   1,287
Nasdaq  2043.88 + 34.52 2043.89  2014.78  794,653k  2,161   1,887
S&P-100  583.61 +  8.49  583.69   575.12   Totals   3,877   3,174
S&P-500 1179.96 + 18.02 1180.03  1161.94            55.0%   45.0%
$RUT     393.78 +  3.93  393.78   389.85
$TRAN   2970.64 +100.82 2974.01  2866.19 
VIX       28.07 -  1.54   30.76    27.91
Put/Call Ratio      .65

If a war and an impeachment cannot rock this market, what will?

The market just keeps on moving up. Come hell (Iraq tonight) or Whitewater (I know, I know) the buyers just keep on buying. It is completely without comprehension. War is not good for markets but is what we are doing to Iraq a war or just a two day, poll raising, bully beating? As for the impeachment, that horse is dead as a market mover.

It seems that analysts now feel the current political distress will go on for several more months and contribute to further gvmt gridlock. More gridlock equals less changes equals business as usual. Business as usual means corporate profits can continue to grow unfettered.

Chase started today's rally with a pre-warning of expected record profits. The race back to banks and brokerages was on!

Oil dropped -$1.20 today, giving back more than it gained on war news yesterday. Reports that Iraq oil was still flowing and would probably continue to flow slammed the oil supply community again.

The Nasdaq struggled midday but rallied strongly to close only six points from a new all time high. MSFT did not take part in the rally and managed only a +.63 today.

The Internets soared again with CMGI announcing their 2:1 split right on schedule as we forecasted. After climbing over +$20 during the day, gravity reasserted itself and it closed at +10.88.

Amazing Amazon gapped down -$25 after that incredible day Wednesday but recovered to positive territory by midday. Again gravity took hold and it finished at -12.25. The big debate all day was the valuation of Amazon compared to other stocks. Amazon has a $14 billion market cap at the current price of $276. The retail value of every book sold in America in 1997 was $12.7 billion. It there something wrong with this picture? Analysts say that they have to sell $4 billion a year to gross a 5% margin. That means they have to sell one-third of all books sold. Not going to happen, no sir. I checked into puts on AMZN today. January $270 puts are $32.75. $260 puts are $28.00. Kind of makes you think they may go down. So puts are too expensive, lets short it ! WRONG !! Shorting AMZN is a fatal mistake. That is one reason it is over $275 now. Every person who shorted AMZN for the past year had to take out a second mortgage to cover his brokerage account. How would you like to have been short at the open yesterday? $50 gains in one day would drive you to the nearest open window. So we will watch the show and just wish we could play. You could always take up a less hazardous sport like Russian Roulette.

As I sit here typing this the video war game is active on CNBC. The only thing we are missing is a joy stick and a fire button. I have a son in the Marines and I hope this is over in two days as expected. Live video war...what has the world come to? When the market ignores the war as if it is only a live fire exercise and minute by minute impeachment reports are ignored also, I have a hard time projecting market direction.

When you take into account the triple witch options expiration Friday tomorrow and traders wanting to establish positions for the new year before their vacation starts next week, it only looks like an up market. Next week the volume will be weak to non-existent. Any major buy/sell programs will drive the market to extremes. We are still urging caution until after Christmas. The impeachment vote on Fri/Sat looks like it will be ignored but there is still the an investor sector that is in denial and may react violently when it happens. The war is being strongly protested by China, Russia and France. China and Russia are saying things like "world peace will be threatened if we don't stop immediately." These guys are not the schoolyard bully like Saddam. If they start throwing punches at us we will have to take them serious.

So, I am going to sit tight, in cash, and wait for the war, impeachment and Christmas to pass. Should take a week by my calendar. Options are too expensive on the first day of the cycle (Monday) anyway. I suggest you do the same.

I apologize for not putting out a market wrap yesterday. I was in a business conference all day that lasted until 10:PM ET and we barely even knew the war had started until we broke. Much less what the market did. After a quick review of the news and the lack of market response, I did not think a midnight update was necessary. Judging by your emails some of you felt otherwise.

Have a great weekend! Shop till you drop.

Good Luck

Jim Brown
Editor

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