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Market Wrap

This time it stuck !

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        12-29-98         High     Low     Volume   Advances Decline
DOW     9311.20 +126.93 9338.74  9182.98  779,040k  1,698   1,352
Nasdaq  2251.20 + 43.20 2251.77  2206.49  951,227k  2,299   1,797 
S&P-100  615.38 + 10.45  616.24   604.92   Totals   3,997   3,149
S&P-500 1244.78 + 16.68 1246.11  1228.10            55.9%   44.1%
$RUT     422.09 +   .83  422.62   420.54
$TRAN   3192.38 + 74.73 3200.17  3116.61
VIX       23.53 -  2.17   25.57    23.46
Put/Call Ratio      .48

This time it stuck !

After the aborted rally fizzled on Monday analysts were crossing their fingers as the Dow crossed +100 today. Fortunately the numbers stuck and we closed over 9300 again. The Nasdaq set another new high at 2251.

All the averages were positive today as the transportation sector soared over 3200 for the first time since July. The sector was upgraded today on continued strong bookings and low fuel costs. An oil minister from Kuwait speculated that we could see $5 a bbl oil in the near future. Lower costs, higher traffic, sounds good to us. The confirmation by the transportation average of the Dow rally should give Dow technicians something to cheer about. Personally I think it is a coincidence but who am I to knock fate.

If you were a tech stock or could spell tech stock then you got a nice bump in stock price today. The leaders were MSFT +5.50 (new high) and a new price target by Lehman of $185, SUNW +2.50, IBM +6.63 (new high). The same went for Internets with the exception of AOL. AMZN soared another +6.19 (+18.57 pre-split), CMGI, on a nice split run added +6.22 and BRCM +6.38.

AOL, got your attention? The Internet blue chip that was expected to soar again on Monday after that 20 million block traded at the close last Thursday, did not. The rumor making the rounds (CNBC) is that Vangard and Fidelity, along with many other index funds, have not bought AOL yet. Vangard is rumored to only bought 30% of their needed shares. The reason, the $40 spike in the last two weeks. They are under no legal requirement to add AOL on any given day. The object of the fund is to mirror the S&P "OR" better. They feel they can possibly buy cheaper if they wait several weeks until the feeding frenzy is over. AOL traded 13 million shares today and only dropped -1.88. They also have to sell some shares of other stocks that were dropped from the S&P as well as reweight their remaining S&P stocks. For some of these funds this represents a major restructuring. They do not want to "dump" their existing holdings just to add AOL at a high price. If you owned these funds you would want them to do exactly what they are doing. Maximize your returns. The end result - we think AOL will still go up and announce a split with earnings, if not before. My email is full of rumors that it will be this week but the rumors could be from people holding AOL at last weeks prices.

The telecoms also exploded on the news that Vodaphone is trying to outbid Bell Atlantic for Airtouch. ATI added +7.13 to 75.38 and could go higher if a bidding war does erupt. Vodaphone's bid is rumored to be in the $95 range, all stock. NOKA added +6.31 and WCOM +5.06.

Semiconductor stocks were upgraded today on news that the PC rally is gaining speed. You could set your clocks by it. We added two semi stocks as puts on Sunday. MU & TXN. Can you say "quick drop"?

Cash is still flowing into markets and managers are putting the money to work. Investors are using year end bonuses and new 401K and IRA contributions to get a head start on the 1999 marrket. The tech heavy advance pushed the Nasdaq to it's seventh record close in ten sessions.

Twenty four of the Dow 30 stocks were up today. Even the depressed commodity stocks like International Paper. The reason given is the expected rebound of the Asian markets will lead to increased buying this summer. The Dow outpaced the Russell today as the Russell only added +.83. After the blue chip rest yesterday they came back in style.

Traders should be cautious tomorrow. After a big day today and the strong volatility yesterday, we still do not have a direction. Actually we are only about 5 points away from our close last Tuesday. We traded for a week and gained nothing. I do think we will continue up but the market will be unsteady after today's big gains and can swing either way. The S&P futures are down slightly tonight but are trending up at 8:PM.

Good Luck

Jim Brown

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