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Market Wrap

The Nightmare on Wall Street, Starring China, Brazil, Argentina and others.

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        01-13-98         High     Low     Volume   Advances Decline
DOW     9349.56 -125.12 9471.34  9213.10  934,809k  1,021   2,090
Nasdaq  2317.30 -  3.40 2353.87  2206.19 1195,400k  1,628   2,504 
S&P-100  612.83 -  3.66  620.45   598.01   Totals   2,649   4,594
S&P-500 1234.40 -  5.11 1247.66  1206.59            36.6%   63.4%
$RUT     424.86 -  2.50  427.36   412.64
$TRAN   3169.42 - 37.23 3202.50  3085.21
VIX       31.26 +  4.88   35.48    29.55
Put/Call Ratio      .48

The Nightmare on Wall Street, Starring China, Brazil, Argentina and others.

I woke up with a terrible nightmare this morning. I dreamed that the S&P Futures were limit down -27 and the Dow futures were down -300. The bad news - it was not a nightmare, it was real life.

If you don't live in a closet you know by now that the Brazil counterpart to Alan Greenspan resigned and Brazil devalued its currency. The worst possible of all global scenarios. But wait! Is that another dip to buy?

After opening down -266 on the Dow and -113 on the Nasdaq, the worst was over before it started. The CNBC hype undoubtedly contributed to the massive sell off because as soon as buyers could get into the market we moved immediately off the panic lows.

I am not saying this is not a problem but as I said last night I thought Brazil had already been discounted in the market. The rapid bounce back has proven this to some extent. Several analysts said several months ago that we could expect -500 to -600 if Brazil devalued. Since it did not happen it shows the strength of the current bull market.

I went on record last night that I did not think we were starting a correction and the bull was just resting. Was I worried this morning? You bet! But I was also greatly relieved when I saw the buyers come back to work. Think about it. What else can happen that could be worse than this? Nothing I can imagine. Sure the Asian connection to Brazil will be tested tonight and we are still faced with the domino theory in South America, but again, I think the worst is already discounted. As soon as investors realize that Latin America did not sink beneath the ocean and the IMF is not going to let the eighth largest economy in the world sink, then they will be putting that cash back to work.

The volume this morning was not bad. The volume on the recovery this afternoon was great. The Nasdaq did almost 1.2 billion shares again and the NYSE over 900 mil. The market is expecting earnings by the dozens next week and appears ready to rumble.

Intel broke with the pack early and starred in the recovery adding +3.44 for the day. Microsoft, SunMicro and almost anything tech shook off the news and powered forward. SunMicro was up over $10 at one point on takeover rumors by IBM. IBM announced they were raising over $4 bil in new cash today which was earmarked in part for acquisitions. Microsoft and Dell were up strongly at midday but caved in at the close.

Traders fear of darkness was apparent as the Dow backslid from -35 to -125 and the Nasdaq turned slightly negative at the close. The fear of course comes from going to bed with profits and waking up the next day to surprises from Asia like we had from Brazil this morning. Tonight will tell the tale. If Asia does not melt and the politicians in Brazil work their magic and say the words analysts want to hear then it is off to the races again.

At the risk of repeating myself too much, there just seems to be nothing that can derail this market. I took a bloodbath this morning but when I saw it was not going to get worse I jumped back in and got some bargains at really good prices. As evidenced by the quick bounce there were other blue light shoppers there as well.

The VIX settled at 31 after being as high as 35.48 and appears to confirm the worst to be over.

Apple Computer easily beat the street estimates today after the close and more strong earnings are due out soon from MSFT, IBM, SUNW, SLR, etc. All are expected to do well. No skeletons in the U.S. economy so look for continued movement upward barring any sympathy crashes overseas tonight.

Good Luck

Jim Brown

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