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Market Wrap

Santa Clause Rally ! Ho - Ho - Ho !!

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        12-29-98        High     Low     Volume   Advances Decline
DOW     9320.98 + 94.23 9334.88  9187.61  588,036k  1,752   1,233
Nasdaq  2187.77 +  1.47 2186.15  2161.83  918,249k  2,171   2,007 
S&P-100  613.79 +  5.78  614.48   604.48   Totals   3,923   3,240
S&P-500 1241.81 + 16.32 1241.86  1220.78            54.7%   45.2%
$RUT     410.41 +  2.13  410.41   406.37
$TRAN   3066.39 + 25.56 3075.61  3032.53 
VIX       21.93 -  0.88   24.19    21.83
Put/Call Ratio      .51  

Santa Clause Rally ! Ho - Ho - Ho !!

The Santa Claus rally caught fire today and the Dow soared to within 50 points of a new all time high. The Dow opened lower again today but waiting buyers bought the dip again and it never lloked back.

The Nasdaq suffered from the Internet stock busy signal today as the normal big gainers gave back some of the gains from yesterday. When AMZN, YHOO and AOL were all up between $20-30 dollars on Monday did anybody really not expect a pullback today? Yahoo gave back the least with only -5.50 from the +28.38 on Monday. AMZN dropped -19.63 from the +27.13 yesterday. AOL (not a Nasdaq) only lost -2.63 from the +20.63 gain. In spite of the poor showing by the Nasdaq today, +1.47, the advancers squeaked by decliners 2181 to 2018. By closing positive the Nasdaq squeeked out a fifth record close in the last seven trading sessions.

The S&P-500 notched another record close at 1241.81. The technicals on all the major averages are amazing year over year but even more incredible if you measure them from the October 8th lows. The Dow is the laggard here with a +26% gain compared with the S&P and RUT both gaining +33% since October.

The biggest gainers today were the drugs and retailers. Pfizer (PFE) and Bristol Meyers (BMY) lead the drugs with +5.19 and +4.94 followed by MRK +3.06, WLA +2.19, SGP +2.38, LLY +2.88, JNJ +3.19.

Retailers Gap (GPS) +5.13, Dayton Hudson +2.69, PSS +2.88, WMT +2.06, JCP +1.19, were up strong on news of stronger consumer spending.

Oil service stocks took yet another hit after Haliburton (HAL) issued a profit warning. HAL dropped -2.56 on the news. These stocks are so low the PE is now single digits and "value" investors are starting to move in slowly. RIG PE=9, DO 9, RON 8, ESV 4, TDW 4, HP 9.

Adding to the overall bullishness today was Ralph Acomporaspan on CNBC saying things like Dow 11,500 is possible by 1999 year end. Of course there were enough caveats in the interview to allow a close anywhere between 8600 and 11,500 to be possible. His current "reasonable" target is between 9800-9900.

The market is very bullish. In fact it is definitely overly bullish. The Vix closed at 21.93 and that is the low end of the normal range. The hig of 60 in October is the other end of the spectrum. If you look at a chart on the Vix you will see an exact pattern repeating from Dec/Jan of 1997. If the pattern holds true we could have an incredible Jan/Feb. In Jan/Feb/Mar 1998 the Dow went from 7500 to over 9000 in less than three months. The Vix pattern appears to be pointing to a repeat. Yes, I know, many other factors actually move the market and the Vix is only a reflection of the conditions but it is a reliable indicator.

The reason for the bullishness is simply the inflow of cash from baby boomers and the gen-xers. The long running bull market has created a wealth effect from investors getting back to back 25% or better returns each year. This ripple down investing along with a constantly growing economy just keeps the money flowing. For the last 4 weeks a net inflow of $12 billion to mutual funds has powered the current rally. The 401k and IRA contributions hit high gear next month and the market is sure to profit from it.

S&P futures have been down almost -1.00 since the close but this is normal after the big day. They are currently trending up and are now up almost +1.00. The outlook for Friday is good.

With falling volume expected the next two days any moves will be exaggerated. The current eight day streak for the Dow is the longest string of consecutive positive days in two years. This means we are due for a serious profit taking day soon. The Dow is now up almost +550 points in eight sessions so be careful!

Good Luck

Jim Brown

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