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Market Wrap

AtHome dialed Excite's number and Compaq is on hold....

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        1-19-98         High     Low     Volume   Advances Decline
DOW     9355.22 + 14.67 9399.25  9210.01  786,785k  1,507   1,499
Nasdaq  2408.17 + 59.97 2408.43  2364.52 1061,400k  2,258   1,892 
S&P-100  623.32 +  6.86  623.32   612.84   Totals   3,765   3,391
S&P-500 1252.00 +  8.74 1253.27  1234.91            52.6%   47.4%
$RUT     430.89 +  3.84  431.08   427.05
$TRAN   3177.85 + 29.32 3189.79  3142.30
VIX       29.80 +   .05   31.72    29.40
Put/Call Ratio      .42

AtHome dialed Excite's number and Compaq is on hold....

AtHome agreed to purchase XCIT today for $7 billion. This was a significant premium over the current stock price but when you are an Internet stock this could be a one day move.

Rumors are flying that Compaq is preparing to make a major Internet purchase maybe as early as tomorrow. Lycos is the most mentioned possible target.

This Internet mania helped power the Nasdaq to another record close and is credited with pulling the Dow out of another valuation worry induced profit taking session. How can you be bearish about the market in general when the tech stocks are continuing to beat earnings estimates and blow away whisper numbers.

Microsoft announced after the close and showed just how big the $5 bln gorilla really is. The $5 bln was sales for last quarter. MSFT announced $.73 vs estimates of $.59 and blew away the whisper number of $.62. Microsoft was trading up +5.00 after the close. There was no split announcement and this could be attributed to the trial publicity. They don't want to appear too prosperous for the penalty phase. The conference call was typically pessimistic as they tried to keep a lid on analyst's estimates for the future. I would expect MSFT to gap open on Wednesday.

The futures are up +6.50 at 7:10 ET and we give the credit to MSFT and several other announcements after the bell. The fly in the ointment could be the Alan Greenspan testimony tomorrow in Washington. He is sure to be asked some "irrational exuberance" type questions and the answers could be earth shaking. Some analysts say Mr. G. has been criticized so severely by congress for his previous market moving performances that future comments will likely be constrained. Don't bet the farm on this. Alan is tasked with many insurmountable projects one of which is keeping the U.S. markets under control. The recent Internet "froth" is something that other Fed governors have pointed at in the past as a sign of a speculative bubble. So even though the futures are up now, we may see some weakness before the testimony. If we get by without any earthquake comments then the week could continue up strongly. The Brazil problem could even be a muzzle for Mr. G. Better to be quiet than roil the markets and have to lower rates again next month to rescue them again.

Clinton gets a major play tonight with the televised State of the Union speech. He is under a strong spotlight as people look for signs of cracks in the presidential armor. What should he do? Pull out some heavy firepower! He is planning just that. Clinton will unveil his support for a plan to take some Social Security funds and put them into the market in a retirement savings account program. Estimates in the $500-700 bln range are being tossed about. This is not a new concept but his support for this popular plan is new and timely given the other problems he is facing. Maybe we should keep his feet to the fire longer if he is going to do us favors like this. Not only would I rather my Social Security was gaining ground in an account of this style but can you imagine the market impact of a $700 bln inflow of cash? Don't count your chickens yet but stay tuned for plan details if it is ever approved. Opponents claim losses could occur if a long term bear market were to appear.

I got considerable email about the 10% plan in Sunday's commentary. Some good and some bad. Most of the good came from traders that started putting this type of plan into action several months ago when I wrote about it last. Most of them have multiplied their accounts by several hundred percent. The negative mail seemed to come from readers that were new to the newsletter and had small accounts and were adamant that you should only settle for 200-300% returns on every trade. We will see what kind of mail I get several weeks from now when we start publishing the results from the readers who are going to implement the plan. I had many readers email that they were going to faithfully try it and report back. Good Luck! The first ten who can show ten trades will win a years subscription. Anybody can still play. Just send a recap of your completed plays after 1/17/99 using the 10-20% plan from Sundays newsletter.

This is going to be an interesting week. Keep your options open and make those trades. With the put/call ratio at .42 and the advances only barely beating the declines 1506/1492, we are not out of the woods yet. Tommorrow could be another record breaker for the Nasdaq but the broader market internals are still weak. Just three stocks in the Dow accounted for over +60 points today. T +7.75, IBM +7.06, GM +4.69. The odds are real good that these stocks will not be the leaders tomorrow and new leaders are hard to find. Without these huge gains today we would have been very negative. -46 without accounting for the positive impact they had on other Dow components. Keep your fingers crossed.

Good Luck

Jim Brown

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