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Market Wrap

Position Wanted: Global Finance Manager,Qualifications:Able to rock world markets with a single word.

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        WE 2-26          WE 2-19          WE 2-12          WE 2-5
DOW     9306.58 - 33.37  9339.95 + 65.06  9274.89 - 29.35  - 54.59  
Nasdaq  2288.03 +  4.43  2283.60 - 38.29  2321.89 - 51.73  -132.27  
S&P-100  618.42 -  1.85   620.27 +  4.13   616.14 -  1.53  - 22.77  
S&P-500 1238.33 -   .86  1239.19 +  9.06  1230.13 -  9.27  - 40.20  
RUT      392.26 -   .04   392.30 -  6.14   398.44 - 14.28  - 14.50  
TRAN    3207.43 + 72.92  3134.51 + 37.62  3096.89 -150.77  + 45.29  
VIX       29.52            30.23            31.35            30.47
Put/Call    .67              .70              .85              .64

Position Wanted: Global Finance Manager, Qualifications: Able to rock world markets with a single word.

The economic numbers out Friday were much stronger than anyone expected. Despite the global financial crisis the U.S. economy grew at its fastest pace in nearly 15 years last quarter. This closed out a year in which Americans enjoyed the best combination of rapid growth, low employment and low inflation in at least three decades.

The nations gross domestic product (GDP), the total output of goods and services, shot up at a sizzling annual rate of 6.1% from October through December. This was even better than the +5.6% rate the government originally reported a month ago. Trade strength and consumer spending were much stronger than the previous forecast.

Even with the rapid growth inflation was nowhere to be seen. The inflation tied to the GDP was only up +1% for all of last year. This was the smallest increase in 49 years. For all of 1998 the economy grew at +3.9%, the third straight year of above 3% growth.

This is even more remarkable given the impact of the many global meltdowns during the year. China, Japan, Russia, Brazil, nothing really hurt in the long run. The oasis of prosperity is still thriving. Sure the Fed had to vaccinate us with three rate cuts but we survived.

This news should be good, right? It is good long term but now there is no doubt that the Fed will raise rates again soon. Seems they got carried away and gave us too much candy and now we have to go on a diet soon.

The big news on Friday as far as we are concerned was the trashing of the PC sector by Compaq and the analysts who quickly piled on to try and make a name for themselves. The Compaq warning of soft sales sent ripples across the entire PC sector. The simultaneous removal of Micron from the Goldman Sachs recommended list nuked the chip sector also. After the smoke cleared from the double whammy the carnage looked like this:

CPQ -5.63, DELL -1.63 (split?), IBM -3.88, GTW -7.44, HWP -4.75 INTC -7.81, MU -9.19, AMAT -8.13, PRIA -5.25, NVLS -6.0, TXN -7.06 AMD was imune with the announcement that they delivered more K6 chips than Intel sold Pentiums, knocking Intel out of the top spot on high performance processors.

With the flood of tech downgrades I think it is incredible that the Nasdaq did not finish down -100 points! Minus 39 was bad enough but this was an opportunity to really demolish the entire tech sector and drag the Dow down with it. Even with the tech disaster the Dow did not even retest the lower end of the range at 9200. The closest we got was a bounce off 9250 and two bounces off 9280! We were real close (-5) to closing positive when fear of the weekend took over in the last 10 minutes and knocked off -60 points.

If you look at the results for the week, DOW -33, Nasdaq +4, OEX -2, SPX -1, RUT -.04, it looks like a really boring week. In reality we covered a range of almost 400 points only to end even for the week. This is a good finish in my book.

When you consider Greenspan talked twice and let it be known in English that the Fed would not hesitate to raise rates and he thought a 10% to 20% correction would be healthy and not a problem, we still did not break support. When the techs got the worst possible downgrades on "soft sales" we still held support. When the economic reports were much stronger than all considered, we still held support. When the bond market sold off strongly for three days we still held support. Now before you start getting a mortgage on the kids to buy calls let me remind you that we may still see rough times ahead. I can't imagine what could shake the market worse than we had this week but rest assured there is always something waiting around the corner.

I should probably also warn you that Barrons is predicting the demise of Alan Greenspan in their weekend edition. Now I wrote about this possibility last week and the impact on the markets. However, Barrons has a slightly larger readership than OIN so the impact could be worse. I wonder if they got the Greenspan idea from us? (joke, lest some of you take me serious)

The week ahead is sure to be filled with 100 point swings and there is no shortage of economic reports to further cloud the picture. The main focal point for us as traders should be the advance/decline line. Until the advances beat decliners on a regular basis we cannot expect a rally to hold. Continued deterioration of this indicator is simply like crawling farther and farther out on a limb every day. Eventually it will break.

Seminar attendees last week had the term "entry point" drilled into them. The current whipsaw of the range bound market makes it imperative that you wait for an entry point in the low end of the trading range and then PLAN to sell at the high end of the range. You cannot successfully buy and hold options in this choppy market. You also do not have to trade in this market. You can wait patiently on the sidelines until a direction is established. I know this is heresy but the result of trying to trade a choppy market without a strict plan could be spending your retirement living with your kids for lack of funds.

The market did hold the psychologically important 9300 level on Friday. I would not be a buyer here. We could get a bounce to 9400-9500 or we could also test 9100-9200 again on the Greenspan article or any of the economic reports this week. I suggest any rebound under 9200 would be buyable. If we do not break under 9200 then 9200 or close would be buyable. At the current 9300 we are sitting right in the middle of the range and we have no clear direction.

Patience is king but patience with cash is better.

Wait for an entry point!

Jim Brown

PS. I erred on Thursday when listing the seminar attendees from far away places. The farthest was a young lady from Sydney Austrailia, Anastasia Iatridou. She won a free subscription for traveling the farthest. Some more seminar trivia, the youngest investor was 21,(trading for two years already) Sergio Chavez from Monterey Mexico and the oldest was 72, Virendra Goel from Colorado.

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JIM'S PLAYS
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No trades due to seminar.

Current positions:

GADZ - takeover rumor

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