Option Investor
Market Wrap

Plus 100, minus 100, just a normal day in the market.

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        2-18-99         High     Low     Volume   Advances Decline
DOW     9298.63 +103.16 9308.76  9190.94  743,324k  1,764   1,213
Nasdaq  2260.55 + 11.64 2273.08  2224.21  860,797k  1,922   2,050
S&P-100  618.18 +  5.53  619.56   610.41   Totals   3,686   3,263
S&P-500 1237.28 + 13.25 1239.07  1220.53            53.1%   46.9%
$RUT     391.09 +  1.55  391.93   388.58
$TRAN   3123.87 - 28.29 3156.31  3104.67
VIX       32.76 +   .25   34.18    32.04
Put/Call Ratio      .86

Plus 100, minus 100, just a normal day in the market.

The DOW recovered almost exactly what it lost yesterday but the Nasdaq barely finished positive. The big news on the DOW was the bounce off the previous support at 9200. This level has provided a bottom in the recent range bound trading.

Every time we bounce off this number, the support gets stronger. We are still range bound between 9200 and 9400 and until the market gets over the mediocre advance/decline sickness it will probably stay there.

Since December 28th the Dow has penetrated 9200 only five times and each time rebounded sharply to well over 9300 promptly. This bottom in the current market provides us a relatively safe buying signal. Every time we reach this point and start a rebound it is a pretty good bet that the next day or two will be up. It is imperative that you wait for the bounce. It is entirely possible that we will eventually break out of this pattern and continue down to the 9000 level or below. I still do not see any reason to expect that type of down turn but we need to be prepared for the worst.

Conversely the current upper level of 9375 should give us a reasonable warning of an impending down cycle. Astute traders can use this type of info to trade into and out of a specific stock routinely until the trend breaks.

The Dell disaster appears to have been a one day downer. Do not be deceived! Even though Dell finished up +1.44 today the carnage may not be over. Look at the other stocks in the Nasdaq. CSCO was barely positive at +1.06, MSFT was down -4.25, INTC was up strong +3.50 but only due to an upgrade and the Pentium III announcement. Internets are still shrinking and most of the Nasdaq stocks we looked at today are still trending down. With the Nasdaq up so strong since the Oct 8th low, it is entirely possible we could see some further deterioration. I feel the techs are still where the action will be but we need to wait until we see a new trend developing.

Sectors are rotating finally but investors are being picky about which stocks to buy. Transports are going against the trend again due to firming oil prices. We are entering a period where stock picking will be of prime importance. You will not be able to just pick a sector and buy something and have it go up.

Another term for the current range trading could be basing. After the move from 8700 to over 9600 in late December and early January the market just doesn't have the momentum to break out. We could be stuck here for several more weeks or even until the next earnings cycle in April. This is ok with us because every day we stay here provides a stronger base to catapult us over 10,000 when the next move comes. During a basing period investors rotate stocks in their portfolios. They sell stocks which they feel have peaked and move into stocks they feel are poised to breakout on the next rally. Until this rotation is over the market will not have the strength to hold any new gains.

The stocks in the S&P-500 provide a better indicator than the Dow for general market health. Only the top 40 of these stocks are up strong for the year. The other 460 are flat to down. This is not a good trend and continues to worry analysts.

After the Dell disaster and the concern over the market outlook I reported last Tuesday night, the market has shown the hidden strength again that I have always felt was there. I told you when I finally started leaning toward the possibility of a correction then the market always took that as the signal to bounce. I rest my case. We were on the cliff again on Wednesday but the "buy the dip" traders did the right thing.

Although we recovered everything we lost on the Dow yesterday, it was not convincing. Volume was still weak. Advancers only barely edged out decliners again 3,686 to 3,263. Until the volume peaks again at 900 mln on the NYSE and back into the 1.2 bln plus range on the Nasdaq, we will not have any conviction. No conviction equals no staying power. This emphasizes the need for quick plays. Get in, get out. Take a $1 here another $1 someplace else. Do not try to buy and hold in this environment. I have had many emails this week from traders who have been killed attempting that strategy.

Friday is options expirations day and that could have been the hidden reason behind the bounce today. Recently the impact from options expirations has been spread over the entire week and not all lumped into Friday. If you are still holding February options I would suggest selling into any bump at the open.

Good Luck

Jim Brown

SEMINAR UPDATE

The schedule, listing the events for the February seminar next week, will be mailed out tomorrow to all the registered attendees. You are going to be drinking from a fire hose but we guarantee you will be better prepared to profit from the market after listening to the ten different presenters.

If you are not registered for the February seminar we still have several spots available in the March 8/9th seminar here in Denver. This will be the last seminar put on by the Option Investor staff. It features a day and a half of direct and intense instruction from all the OIN editors as well as Ross Jardine and Chris Verhaegh from Online Investor Advantage and Austin Tanner from Pinnacle Capital. The focus of the seminar is on "Trend Trading" and the strategies required to recognize and profit from it.

If you have interest in attending the March seminar you need to email Dana at Contact Support immediately to confirm a seat. We guarantee you will not be disappointed.

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