Option Investor
Market Wrap

Looked like an entry point to me!

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 MARKET WRAP  (view in courier font for table alignment)
        3-01-99         High     Low     Volume   Advances Decline
DOW     9324.78 + 18.20 9355.21  9222.63  694,238k  1,398   1,573
Nasdaq  2295.18 +  7.15 2300.82  2264.32  771,535k  1,850   2,206 
S&P-100  618.06 -   .36  619.82   610.72   Totals   3,248   3,779
S&P-500 1236.16 -  2.17 1238.70  1221.88            46.2%   53.8%
$RUT     394.39 +  2.13  394.39   391.36
$TRAN   3225.86 + 18.43 3255.44  3201.21
VIX       28.84 -   .68   31.16    28.29
Put/Call Ratio      .68

Looked like an entry point to me!

The market opened down this morning but was not able to touch 9200. The rebound off the low of 9222 looks like a successful bounce of the bottom of the current range. As I said in Sunday's commentary, any bounce from the 9200 range was buyable.

The lack of buyers in today's market was also met with a lack of sellers. The morning economic report, the NAPM index, posted its first rise in eight months and again showed the strength in the current economic expansion. The bond market was hammered again on the news as investors cashed in bonds in preparation for buying stock.

The build up of cash on the sidelines is reaching monumental proportions. Retail investors are receiving record tax refunds, funds are receiving stronger cash flows on a daily basis and the money is not moving into the market. It is only a matter of time until the dam breaks.

The prelude to a market rally may have appeared today. The Russell-2000 was up when the S&P-100 and 500 were both down. The transports were up. The techs, although hammered again by multiple downgrades, did not lose big dollars. There appears to be a tech bottom forming here. Even with forecasts of soft PC sales the rally cry is softer that what! Instead of +30-50% sales gains we may only see +25-40% gains? Still better than any average non-tech stock.

The keyword for the day was "sector rotation". The blue chips picked up some ground as did the biotechs and the Internets. Money is changing hands as investors decide who the new leaders of the next rally will be.

The futures are strongly positive at 7:pm and if the trend holds we could see a strong open. The market has taken many strong hits in the last few weeks and nothing has been able to cause a serious downturn. This continued "basing" here is going to give us a bigger bounce when it comes. If you missed the entry point today then you need to be careful about taking a position now in the middle of the trading range. You can still do it but you will have to be quicker on the trigger when the time comes to get out.

I have been criticized a lot for my continued bullish remarks. I certainly do not think the market is going to go up forever but I do not see anything impacting this market to the downside. Every conceivable market problem has occurred in the last 60 days. Global economic problems, multiple Greenspan comments, bond market sell off, Japan repatriation, impeachment, major gains in economic numbers, a guaranteed interest rate hike, the ultimate tech disaster (soft sales downgrades). We are still just 300 points away from the all time high. A mere two days in rally mode.

Yes, I may be overly bullish and I would still urge caution on staying in a trade for more than several days. Until we break out of this trading range we could still bounce back again from the 9500-9600 top of our range. Consider the market range bound UNTIL IT PROVES OTHERWISE. When we approach the upper end of the range you should tighten your stops and wait for direction. If it drops, you are out with a profit and ready to jump back in again at the bottom of the range. If it continues up then follow up with your stops. Be nimble, be quick and don't get burned by the candle stick.

The continued point of concern is the advance/decline line. I have mentioned this decline many times. A good analogy for the current market conditions would be "a bull walking on thin ice". Until the advances start beating the decliners we cannot have a successful sustained rally. Any current rally should be considered a "trading rally" as described above. Quick in, quick out. You don't want to be holding if the ice breaks.

Sell too soon!

Jim Brown

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