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Market Wrap

The tech stocks won another battle but the decliners are winning the war

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        1-11-98         High     Low     Volume   Advances Decline
DOW     9619.89 - 23.43 9637.92  9532.61  815,949k  1,102   1,957
Nasdaq  2384.50 + 40.18 2384.72  2348.24 1145,400k  2,145   2,021 
S&P-100  629.42 -  6.60  636.94   624.48   Totals   3,247   3,978
S&P-500 1263.88 - 11.21 1276.22  1253.43            44.9%   55.1%
$RUT     433.13 +  1.90  433.24   429.95
$TRAN   3286.32 - 73.96 3361.58  3283.73
VIX       26.38 +  2.50   28.19    24.34
Put/Call Ratio      .48

The tech stocks won another battle but the decliners are winning the war

The Nasdaq streaked to a resounding seventh record in a row. The Internet stocks may have finally reached complete absurdity but that is another story. The tech heavy Nasdaq was buoyed by an Intel upgrade and a pre-earnings run on both Intel and Dell. The other two Nasdaq heavyweights CSCO and MSFT both were dealt blows and lost ground.

CSCO was down on news that rival Lucent was going to acquire Ascend Communications and Kenan Software. Lucent is finally on the buying spree that analysts have been expecting for sometime. Lucent is seeking to broaden it's product line to allow it to compete with CSCO in all areas. CSCO dropped -2.00 on the news. We do not expect CSCO to suffer any time soon. This is simply a knee jerk reaction.

Microsoft suffered from trial worries again as the prosecutors tried to get MSFT to disclose their pricing arrangements. The judge finally closed the courtroom for this portion of the testimony after several associates like Dell Computer complained that their negoiations with MSFT were private and their competitive edge would be harmed by disclosure. MSFT lost -2.38.

The market got off to another rocky start after Asian markets turned down overnight. The only factor that kept the Dow from a serious loss was an upgrade on GM. One analyst upgraded their price target to $95 and said $145 was not impossible. GM closed up +6.25. Alcoa continued to soar as commodity prices are showing some strength. AA added +3.06. Disney +2.69, EK +2.94, IBM +1.69, MMM +1.44, CAT +2.00 rounded out the Dow winners list. AXP -1.81, GE -2.69, HWP -1.06, JNJ -3.06, KO -1.94, MCD -2.63, MRK -3.13, PG -1.94, UTX -2.50, WMT -1.88 and XON -3.06 joined forces to tank the Dow. Most of these were simply victims of profit taking.

As I mentioned on Sunday the advance/decline line was deteriorating and I was expecting a sell off soon. Today was yet another in the continuing pattern. The declines beat advances on the NYSE again 1957 to 1102 and even though the Nasdaq hit another record the advances only barely beat the decliners 2,145 to 2,021. Market breadth is still shrinking. The S&P-500 which is more representative than the Dow, lost -11.21. A normal loss for a -23 Dow day would have been around -4.00.

The positive side of the day was the third repeat in a row of the strong buy the dip afternoon performance. The Dow has been down around -100 points and the afternoon buying spree has propelled us back to positive or near positive territory every time. The buyers are here. It is simply a matter of price.

What we are experiencing now has been called a "rolling correction". Instead of the entire market dropping for several days and then moving up again, we are seeing profit taking by sector or "sector rotation". Drugs are getting hammered. Airlines, which have been up for days, gave up ground today. Some Internet stocks, which have been up huge numbers recently, actually lost ground today. The rolling correction is actually accomplishing the same thing as a sell off but is less painfull. This type of correction is normally punctuated by a sharp drop as a final dying gasp before the buyers are convinced to move off the sidelines.

Futures are down about -2.50 as I write this and I expect another like day tomorrow. I would consider any dip below 9550 as buyable on the rebound. WAIT FOR THE REBOUND or you could be buying early.

This is shaping up as a great trading week. With so many of our plays announcing earnings and possible splits this week or next it is hard not to want to play them all.

AOL was upgraded again today and the price targets raised. The upgrade shook the already hyper sector and the rockets took off again. I was at my PC at the open today ready to buy YHOO, AMZN and AOL when the news broke. YHOO opened up +25 or so and the options I wanted moved from a close of $31 to an open of $48. I immediately said to myself, "no way is this going to last, I will wait for the mid-morning pullback" Guess what? It never pulled back. Close today at $90.25. Should I have bought at $48? Hindsight is 20-20 but it could have gone to $8 just as easy.

Yahoo announces earnings after the bell tomorrow and is widely expected to announce a split. Unfortunately, we have run out of symbols that anyone can afford. The best case scenario is blowout earnings and a 3:1 split. This should propel the sector the rest of the week but the hangover when the sector sobers up is going to be a killer. I have no problems day trading these stocks but I would not leave a position open overnight on a bet.

Look at some of these numbers. AOL +18.63 (glad you took our advice and waited for the buyers to comeback!) CMGI +71.75 !!! YHOO +71.75, AMAZON +24.38 (not a typo, only +24) XCIT +23, LCOS +36, but BRCM -22, UBID -4.50, EBAY -.88. Is the crack in the Internet armor starting to form? Does anybody actually expect there will not be a bloodbath when the last shoe drops? Nothing can go up +100 points a WEEK and not suffer from profit taking eventually. I am going to continue to trade them but buyer beware! It is going to be short city when the slide starts.

Good Luck

Jim Brown

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