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Market Wrap

If you went to lunch excited about the rally, you got indigestion when you returned

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        01-04-99        High     Low     Volume   Advances Decline
DOW     9184.27 +  2.84 9350.33  9122.47  882,666k  1,723   1,433
Nasdaq  2208.05 + 15.36 2233.57  2193.13  938,004k  2,275   1,992 
S&P-100  604.93 +  0.90  616.86   600.42   Totals   3,998   3,425
S&P-500 1228.10 -  1.13 1248.81  1219.10            56.9%   43.1%
$RUT     421.26 -  0.70  424.72   421.02
$TRAN   3117.65 - 31.66 3158.39  3104.67 
VIX       25.70 + 0.29    27.61    23.85

If you went to lunch excited about the rally, you got indigestion when you returned

After blowing a +168.90 gain early in the day the market slowly sold off to a low of -58.96 but then rebounded to finish the first day of the new year positive at +2.84. A whopping 228 point trading range. After the sell off on profit taking analysts were scratching their heads wondering where the volatility came from.

The old adage (several) that "where January goes, so goes the year" and the other "the direction for the first five days is the direction for the year" has got many worried.

Where everyone was positively gushing with good things to say about the market direction for the first quarter there is now the rush of bears to the microphone forecasting gloom and doom again. Did I miss something here? Did the market trade for two weeks between Christmas and New Years while I was on vacation? I only saw one and in spite of the negative Dow week the rest of the market looked pretty good. AH!! The catch. The Dow swung 228 points today! Not the market. If you only look at the numbers on the headlines and the talking heads on TV then you probably think we had a bad day and the future is bleak.

Remember the Dow is made up of only 30 stocks. The Nasdaq set a new closing high at 2,208 +15.40. No weakness here. The Russell was only down -.70 after an incredible week last week. No weakness there either. The S&P-500 was only down -1.13 after setting records last week. No weakness here!

So where is all the gloom and doom? Only on CNBC!

News, as we all know, gets better rating when it is contrary to what the public wants to hear. It is like rubbing a cats hair the wrong way. You definitely get its attention.

The lead story after the market closed today was "the demise of the high flying Internet stocks." Why? Spyglass (SPYG) issued a severe earnings warning for the fourth quarter. You would have thought the world had come to an end. Every analyst repeated the mantra that the SPYG warning would have no impact on the other major players but the talking heads on CNBC seemed intent on trumpeting the internet demise. They have been trying to talk these stocks down for months. Why? Because it is sensational news. Sensational news gets your attention.

Now take a close look at the facts. AMZN is widely rumored to be planning a pre-earnings announcement. A positive announcement. AOL said over one million new users bought over $1 bln of goods and services on AOL alone. And remember they are snagging one third of all new Internet users. 23,000 per day. Ten million new users expected on AOL this year alone. Yahoo is adding new pages and new advertisers on a daily basis. Several Internet stocks have announced splits in the last two weeks and several more are expected soon. Internet brokers are booming. Schwab is now the largest U.S. broker simply because of their huge Internet trading presence. E*trade, our favorite here, announced a split today after soaring the last three weeks. They just passed 500,000 new users to their financial services website and are looking for several million soon.

After the bell today Earthlink announced that they had passed the one million subscriber mark several months ahead of schedule and were expecting revenues to double.

I bored you with all the Internet trivia above only to fortify my outlook on the economy. With the Internet alive and booming the many sectors that feed it, telecom, networking, computers, brokerages, etc, continue to explode. Ecommerce in the U.S. is alive and well and now accounts for more GDP than most small couintries. It would take a huge hiccup in the direction of the Internet to torpedo the impact on the entire economy.

So, yes I am still bullish and I see no reason for alarm. Some point to the mixed performance of the S&P as a signal that all is not rosy in the broader market. Of the 500 S&P companies last year 289 were up and 206 were down. The up average was +13.1% but in reality the top 50 stocks carried the entire average. The top-50 companies were up an average of +47%. The top-10 were up over +60%. Techs were up +19%. MSFT, the largest company in the S&P, 3.2% of the index, was up over +100%, from $129 to $282 (pre 2:1 split last Feb). I see it as a normal rise of the fittest and survival of the strongest. Some companies fail to adapt and drop out. Others innovate and get added. (AOL)

The Euro introduction overseas last night was a huge success and caused a widespread sigh of relief. Over here it was a non-event. It could have been the catalyst for the morning bump and also the reason for the sell off. The rest of the week could still be rocky until the settlements from today's trades are concluded.

While I am personally still bullish long term (1-3mo) there can still be bumps in the road. I would look at any dip this week as a buying opportunity. Look at Sunday's commentary to understand how to buy the dips but I do look at it as an opportunity.

Don't buy until the market starts back up. Trying to pick a bottom is financial suicide. Patience is golden. S&P Futures have been down over $2 since the close so anything is possible tomorrow.

Good Luck

Jim Brown
Editor

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