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Market Wrap

Ok, Ralph, Tom, Barton, Dick...Did we miss the correction?

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        2-11-99         High     Low     Volume   Advances Decline
DOW     9363.46 +186.15 9363.46  9143.33  797,413k  1,777   1,178
Nasdaq  2405.55 + 96.06 2405.76  2326.19  965,686k  2,304   1,587 
S&P-100  628.27 + 15.84  628.27   611.81   Totals   4,081   2,765
S&P-500 1254.04 + 30.49 1254.05  1223.36            59.6%   40.4%
$RUT     406.16 +  8.20  406.19   397.96
$TRAN   3161.76 + 42.56 3172.14  3118.00
VIX       28.17 -  3.27   31.83    27.96
Put/Call Ratio      .52

Ok, Ralph, Tom, Barton, Dick...Did we miss the correction?

The market correction brought on by the avalanche of negative pronouncements by the four horsemen of the apocalypse, Ralph Acompora, Tom Kurlak, Barton Biggs and Dick McCabe, seems to have taken a wrong turn after the tech wreck.

The confluence of six forecasters, I don't remember the other two names, all predicting a serious correction in the same week, should have been the signal to buy in any market. The odds of something actually happening after such a public barrage of negativity is infinitesimal. The herd concept works for herds of analysts just like it does for us common people. You have heard it many times, "If the herd is thinking one way then the other direction is probably the correct one." I actually know people who look for the options with the highest open interest then open the opposite position. This has some positive points but that is for another day.

The tech rally exploded back to life in a very positive session today. The largest single day point gain in history came only three days from the third largest point drop in history. Key point here...go back and look for huge point drops on the Nasdaq or the Dow and normally you will see a similar rise within three days. Overbought to oversold to overbought, etc, etc. This is trend trading in it's simplest form. More on that later also.

The tech leaders posted some huge gains. SUNW +7.88, DELL +4.88, MSFT +2.13, INTC +4.44. The gains were not limited to Nasdaq techs but NYSE tech stocks also came to play. EMC +6.06, AOL +13.81, IBM +9.63, XRX +3.81 (after +5 yesterday). Does anybody think we could have some profit taking in these stocks tomorrow ?

The Internets exploded again on the CNET earnings and stock split as well as the successful Prodigy and Vertical Net IPOs today.

Volume was good but not great. Advancers finally beat declines after losing seven of the last eight days. The margin was not great and analysts were watching all day for signs of slippage. With only a +600 edge on the NYSE traders were thinking there was still hesitancy to jump back in until AFTER the three day weekend. Tomorrow will probably be choppy again as traders take some quick profits but the more risk averse buyers could be looking for bargains now that the "correction" appears to be over. It is funny how quickly analysts can go from predicting a retest of Nasdaq 2000 on Tuesday to predicting a retest of Nasdaq 2500 only two days later. Which way is the wind blowing today guys?? Got to be tough to be a talking head with no clue to market direction.

Something that became evident in my own trading and in the emails I received this week was the focus on loser syndrome. If you bought the dip on Monday then the dip on Tuesday put a serious crimp in your portfolio. I will be the first to admit, I broke several of the Top Ten Rules on Monday and suffered on Tuesday. With a strict interpretation you could probably say I broke all ten. Nobody's perfect !! My biggest mistake was buying too many different stocks on Monday and then more on Tuesday. A total of nine positions! With nine different positions you can't pay attention to the intraday subtleties as close as needed. When things start going south you cannot make a rational decision on each one separately and after making a decision you cannot act on it in a timely manner. The more contracts you own the bigger the problem in making a hasty exit. After the drop catches you looking the other way you are left with several losing positions.

With the big hit on Tuesday I had several big losses staring back from my screen. Here is the point. When you have losing positions you tend to focus on those positions on a minute by minute basis. The larger positions on a tick by tick basis. It is as if you are trying to "hope" them back to positive. Now if 98% of your focus is on the current losers then you can't focus on starting new plays. In a market that was so severely oversold as the Nasdaq on Tuesday/Wednesday you missed dozens of opportunities to make big bucks on today's rally. Look at all the +$3, $4, $5, $6, $10 gains today. If you had not been focused on the losers then you coulda, woulda, shoulda have made some good plays on the rebound. Anybody dropped for a loss on Tuesday knows what I am talking about. How do you prevent this? STOP LOSSES! Physical or mental. If your broker does not allow stop losses then you have to be more vigilant in placing sells when things go wrong. The key is to know your exits before you enter a play. You have all heard it before over and over. Profit from it !! Limit your plays to three positions and not more than five. I would rather you trade more contracts in just three positions than spread yourself too thin. The more positions you play the better chance of hitting a loser. Set a stop loss. Stick to it. If you get stopped out then don't whine, just start looking for a new target to play on the rebound. Above all WAIT FOR THE REBOUND. Today was the rebound! I get many emails asking how you can tell when the rebound starts. CLUE: It looks like this morning! All stocks moving up, not just certain ones.

Sorry for the quick lesson but I got a ton of email this week that needed this info repeated. Sunday we are going to answer the question "how do I know for sure it is a rising market?" I get this one a lot. I will go over the indicators I watch to decide when I want to make a play.

Friday could open down on profit taking. Remember the big move correlation above. Big moves are normally followed by moves in the opposite direction. In this cycle a move down on Friday would not be very strong due to pent up buying and buyers who missed today's move. If it is going to recover from the drop it should be quickly. We closed at the absolute highs of the day which is good. Futures are flat and no help tonight. Could be a good morning for target shooting.

Good Luck

Jim Brown

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