Option Investor
Market Wrap

The Teflon market impeached bearish forecasts as the Nasdaq attacked old record highs.

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 MARKET WRAP

         12-18-98         High     Low     Volume   Advances Decline
DOW     8906.72 + 30.90 8928.60  8858.57  839,875k  1,604   1,422
Nasdaq  2085.76 + 41.88 2086.06  2055.83  905,900k  2,204   1,893
S&P-100  589.68 +  6.05  589.79   583.19   Totals   3,808   3,315
S&P-500 1187.83 +  7.85 1188.89  1178.27            53.5%   46.5%
$RUT     397.41 +  3.63  394.49   393.78
$TRAN   3009.82 + 39.18 3016.44  2969.34 
VIX       24.66 -  3.41   28.02    24.53 
Put/Call Ratio      .65
 

The Teflon market impeached bearish forecasts as the Nasdaq attacked old record highs.

The Nasdaq rose to a new record high today in spite of political turmoil. Analysts raised their forecasts of fourth quarter PC sales and follow on first quarter as well. Intel was upgraded by two different brokerage firms and soared +3.13. Cisco was also tagged with upgrades as analysts raised estimates for Internet use and new user growth. CSCO rose +5.56.

IBM, although not a Nasdaq stock also was upgraded after it said it's PC sales were growing. Analysts said the growth was at the expense of Compaq. IBM tacked on +5.56 and set an all time high.

The triple witching options expiration Friday was very calm as the markets traded in a narrow range all day. The bias was up but there was not any of the recent volatility. Just steady buying as traders established positions prior to leaving for the holidays.

Airlines flew again as oil prices continued to drop. News that the Iraq oil terminal at Basra had been bombed to stop the oil smuggling that had been occurring there had no impact on oil prices.

Fedex reported better than expected earnings based on higher shipment volume and much reduced jet fuel prices. The transport section is on a run and appears to be confirming the Dow move.

Internet stocks continued to soar without the benefit of any fundamentals. The "journalists" on CNBC continue to try and beat up the sector with article after article on the fallacy of Internet investing. Highlighting items like Ebay's astronomical PE of 1,612 they attempt to compare them to more realistic stocks like CSCO with a PE of 90 or Intel at 36 or Dell at 71. It was not long ago that they were complaining of the high PE for each of these stocks. Now they use them as benchmarks. This makes Ford with a PE of 10 look like it is a blue light special!

Drug stocks took a downer today on news of a bill introduced which would further deepen the discount for Medicare prescriptions. Fears of shrinking bottom lines on reduced payments from uncle sam convinced traders to profit take while they could.

The reason for the market rise in the face of the impending impeachment is considered basic consumer confidence. Consumers are still spending more and saving less. This shows no fear of the future and faith in Greenspan and company to control the direction of the economy.

Actually Greenspan and Rubin are considered to be much more important to the market and consumer health than Clinton. The Clinton problem is now old news and it appears the vote is already factored into the market. We will see for sure on Monday, the first trading day after the actual vote.

I forgot to mention one of the reasons I am out of the market in my commentary last night. I said I was waiting for the impeachment vote, the war to end and Christmas. I forgot to mention the Fed meeting on Tuesday. While it is generally expected that the Fed heads will go into the conference room, shut the door and take a nap for four hours, there is still an outside chance they will make another rate cut based on the global recession not the U.S. economy. I think this is less than a 20% chance at this point and we would be VERY surprised if something happened. Still there will be caution in the market surrounding the meeting.

Remember the plan now is to position yourself for the Santa Claus rally after Christmas. Of the last 45 years, 35 times we had the rally. The only times we did not experience this rally was years we were in the middle of a bear market or a directionless period. This could not be classed as either. We are in a bull market rally and should continue through the end of the year.

Have a great weekend !

Jim Brown
Editor

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