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Market Wrap

When Santa Claus comes to Town...

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        12-23-98         High     Low     Volume   Advances Decline
DOW     9202.03 +157.57 9211.04  9043.17  695,115k  1,887   1,094
Nasdaq  2172.50 + 51.60 2144.61  2105.54  969,867k  2,215   1,931
S&P-100  610.48 + 14.26  611.04   596.22   Totals   4,102   3,025
S&P-500 1228.54 + 24.97 1229.89  1203.57            54.0%   63.8%
$RUT     404.79 +  4.55  404.79   400.24
$TRAN   3054.59 + 18.43 3065.75  3035.12 
VIX       19.34 -  3.01   22.22    19.34 
Put/Call Ratio      .55

When Santa Claus comes to Town...

Like a child rushing for the presents on Christmas morning, investors made their own mad dash for the tree and pushed the Dow to its 5th straight gain in a row. Wrapping up over 157 points, the Dow took off. Doing its best to keep up, the S&P 500 was also up for its 3rd session in a row. However, not to be outdone by the Dow, the Nasdaq fired up those sleigh bells and flew to a new all time high of 2172. With a jump on the day of 51.50 (that's over 255 Dow points) the Nasdaq lead the day with several key stocks making new highs. The core four (MSFT, DELL, INTC, and CSCO) were all up 3% to 5%. Intel lead the group with almost a 6 point gain. The infamous Merrill Lynch analyst, Tom Kurlak, must have been hitting the eggnog a little early this year. He raised his rating on Intel from a neutral to an accumulate and raised his earnings estimates. Its not that we disagree, but Tom is usually more pessimistic about Intel and the chip sector and likes to keep a strangle hold on their share prices. Score one for the holiday spirit.

Analysts are still pointing to the high number of companies that are sending out earnings warning for next year. Already 8 of the Dow 30 components have issued earnings warnings and a growing number of the S&P are doing the same. Why is the market up? It is the U.S. economy. More importantly, the U.S. consumer. As the American consumer continues their spending binge, retailers are reporting a 4% rise for the quarter. Its nice to know that while we are fighting traffic, register lines, and indigestion from all the bad holiday food, we are also doing our part to keep the economy going.

The market was full of news on individual stocks, which is usual. When is there ever a truly quiet day in the market? The Internets continue to take center stage. Yesterday Jim highlighted AOL. They have been chosen to replace Venator, the old Woolworths stores, in the S&P 500. As Jim pointed out, this creates a tremendous amount of buying pressure on the stock. Unfortunately, in the excitement surrounding the news, several quote services failed to catch AOL's closing price yesterday (+5.75), but instead quoted the afterhours market action of +21. That means when AOL opened this morning, instead of gapping open +16, they showed the previous close as $138 and AOL actually traded down most of the day. This is still a great play and today's intraday dip may be all the pullback we get. The addition to the S&P 500 doesn't take affect until after the market closes on 12/31/98. Not only do we think that index fund buying pressure will continue to drive the price up, but as Jim pointed out they are also a split candidate. With 1.8 bln shares authorized and 458 mln shares outstanding, a 3:1 stock split is not out of the question. That is not a prediction but merely a possibility. For those patient traders that felt the AOL/NSCP buyout offered a profitable trade on Netscape, AOL's new prestige brought a nice gift in the form of an $8.25 move today. I'm sure Marc Andreessen is going to have a great holiday (he is one of the founders of NSCP).

Among other notables was Micron Technology (MU), one of the semi- conductors. They reported earnings today and beat estimates of -$0.28 with a loss of -$0.19. MU said that the average selling price for their most popular memory chip actually rose 8% for the quarter versus the 60% drop it suffered previously. Also on traders radar screens is the online auctioneer uBid (UBID). They started trading on 12/4 at $15.00, a couple of weeks ago you could have bought them for around $45. Today they closed up +53.50 to $188. This is only 12/23! And they say fundamental analysis is dead. Anybody interested in some tulips? We do feel that while the Internets are extremely volatile and should be traded with the utmost care, a few of them should survive any net stock armageddon and those will most likely be the top tier stocks like AOL, AMZN, YHOO [AOL is seen as the most stable]. There is a large host of analysts that predict a wave of consolidation and acquisition in the next couple of years.

As we close on the eve of Christmas eve, we want to caution traders about volatility. The internals turned positive today with advances beating declines in both the NYSE and the Nasdaq but volume was suspiciously light on the NYSE. Most of the investors are going home to be with their families. With a half day tomorrow (the markets close at 1:00 pm EDT), volume should be very light and in truth it could go either way. We would rather wait for the Santa Claus rally that is expected to occur after Christmas.

We here at the Option Investor would like to wish each and every one of you a happy and safe holiday. Smile, laugh, give thanks, and enjoy those that are close to you.

Merry Christmas,

Asst. Editor

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