Option Investor
Market Wrap

Greenspan tried very hard not to Greenspam the markets today but did not succeed.

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        1-20-99         High     Low     Volume   Advances Decline
DOW     9335.91 - 19.31 9555.01  9230.35  772,793k  1,441   1,584
Nasdaq  2415.49 +  7.32 2474.38  2414.81 ----,-ua   1,684   1,623 
S&P-100  626.01 +  2.69  635.34   623.32   Totals   3,125   3,207
S&P-500 1256.62 +  4.62 1274.08  1251.10            49.3%   50.7%
$RUT     430.62 -   .27  435.30   430.18
$TRAN   3111.42 - 66.43 3186.93  3094.55
VIX       29.43 -   .37   29.80    27.25
Put/Call Ratio      .42

Greenspan tried very hard not to Greenspam the markets today but did not succeed.

Alan Greenspan testified for what seemed like forever this morning and even though he said some negative things he did soft peddle the delivery. The market did sell off to -60 as the text of his speech was made public but as he started speaking the bull got a second breath.

He commented in several different ways that he thought the market was over valued but also said the Fed was not going to do anything to change it. He said that if the market gets into trouble again the Fed may not step in to bail it out with an interest rate cut. Conversely he said they have no plans to raise rates to cool it off. While they plan to remain vigilant the risk is plainly on the investor.

The market liked the speech at first but as the day wore on the content seemed to sink in and take some of the joy out of Wall and Main. The bears started coming out in force to stretch and yawn their unconvincing mantra.

Greenspan warned that the luster may dull in the US markets as turmoil abroad and falling exports may cause weaker corporate profits. This is falling on deaf ears since almost every major earnings announcement this week has beat estimates and in most cases beat the whisper as well. The exception today was AMR and US Air. The tech arena however just continues to pound out exceptional results. Brokerages and banks also added fuel to the fire and tomorrows announcements by IBM, SUNW and LU (all split candidates) are almost guaranteed to please the street.

The real culprit today was a rumor that the Lower House in Brazil was not going to pass an austerity measure critical to reforms in that country. As this rumor picked up speed the market did likewise to the downside.

After the market closed the Lower House completed one of two key tests of its anti-crisis austerity drive by approving a fast track motion allowing a vote later in the evening on a crucial pension reform bill. 352 members voted for the measure, 95 more than needed. The bill only needs a simple majority when the vote comes up later tonight. The measure is intended to help narrow Brazil's huge budget deficit by $2.5 bln a year. The proposal has been defeated four times before but now seems sure to pass. This bill is crucial to restoring confidence in the Brazilian government and their currency.

***News just in, the Lower House did approve the pension bill.

S&P Futures which had been down as much as -3.00 turned around on the news and now are only down -1.00 and climbing. Remember, they can change again on a moments notice. Just an unofficial sentiment indicator for the morning open.

The Microsoft announcement of a +74% increase in earnings boosted the stock up +$11 in early trading. Those that played the runup made a good profit and those that took a chance that they would announce a split and held over were rewarded with a huge bonus this morning. Even though MSFT did not announce the split they still did very well. We caution readers that this is a very risky tactic. MSFT could have only matched earnings estimates and gapped down the same amount. Dropping on earnings is far more likely than rising on a good report.

The three split candidates that announce tomorrow, SUNW, IBM and LU may prove this point if the earnings are not as great and no split is announced. Watch the results of these three and the stock price on Friday morning.

The market movement on Thursday is still a toss up. There are still some overbought indications that could give way to more profit taking but there is still a lot of buyers in the wings. Every dip is met with quick rebounds as the funds try to get in cheaper. According to TrimTabs, a fund tracking firm, almost $9 bln flowed into mutual funds on Tuesday. This was a record amount and will be have to be put to work soon. This liquidity should continue to power the market to new highs but not always in a straight line. Look for the next dip and buy on the rebound - not before! Individual stocks dip as well so if you see a previous winner pull back a day or so then a resumption of upward motion is a strong buy signal.

Good Luck

Jim Brown

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