Option Investor
Market Wrap

The market quickly turned its attention from war to profits.

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        3-25-99           High     Low    Volume  Advances Decline
DOW     9836.39 +169.55  9841.94  9664.90  782,714k  1,887   1,048
Nasdaq  2434.89 + 69.61  2434.89  2399.72  936,856k  2,362   1,543 
S&P-100  647.53 + 12.03   647.57   635.50   Totals   4,249   2,591
S&P-500 1289.99 + 21.40  1290.01  1268.59            62.1%   37.9%
$RUT     392.99 +  8.59   392.99   384.40
$TRAN   3289.70 + 83.05  3298.26  3208.47
VIX       25.44 -   .87    27.17    25.44
Put/Call Ratio      .52

The market quickly turned its attention from war to profits.

The market quickly turned its attention from war to profits.

Very strong earnings from Morgan Stanley riveted the market focus back on the coming earnings season and away from the Kosovo war. The worries that a bigger country, Russia, would raise the stakes by siding with Yugoslavia and adding their firepower, have calmed. Russia said they would not resort to force to resolve the dispute but would attempt to influence the outcome diplomatically. The sigh of relief was registered in dollar signs on Wall Street. The market does not like uncertainty or war. The feeling that we have now settled into a another "remote control" war of attrition, put traders back into a buying mood.

Morgan Stanley announced that profits surged +81% in the first quarter. The $1.76 earnings beat analyst's estimates of $1.34 easily. They said they plan to hire 1,000 new agents to handle the new business. This powered the brokerage sector as traders raced to position themselves in other stocks they expect to beat estimates also.

Internet stocks caught fire again as NationsBank Montgomery initiated coverage of AOL, LCOS, ATHM, YHOO, AMZN, VRIO, XOOM, XCIT and SEEK with "buy" ratings. Also AOL and EBAY inked a joint marketing deal. Analysts liked the deal and both were up strong. AOL +9.38 and EBAY +14. Although not mentioned directly the upgrades propelled CMGI to a +11.06 gain. Now up +23.44 since we added the play on Tuesday night!

Microsoft blasted off with hopes that they could reach a settlement with the Justice Department and their coming split. Up +8.69 today even though both parties say they are far apart.

EMC set another new all time high today at $124.06 adding +5.19 today on top of the +$5.00 yesterday. Now in breakout mode again! Watch for profit taking here.

Just like the Dow was due to correct after the +750 point run two weeks ago, the Dow and Nasdaq were also due to snap back after the recent -500 point drop. Everything runs in cycles and this is a clear example. Even though we are back to within 163 points of the D10K hoopla again it does not mean everything is fine. 38 of the last 44 days the daily new lows have beat the new highs. The advance/decline line set a new low yesterday. This indicator was strongly positive today by a 6 to 4 margin but one day does not make a trend!

We are now sitting on a big one day gain in the Dow but an even bigger two day gain on the Nasdaq. With a war in progress the odds of profit taking Friday afternoon are very strong. Fear of weekend darkness is enhanced by global unrest. Set your sell stops and lock in the profit from the past two days.

On Tuesday I commented on how nice it was to be in cash and that I had made money in the down market Monday/Tuesday. I was accosted by several emails asking how I made money in a down market when "I" was recommending calls on MSFT, EMC and others on Sunday. This is a recurring nightmare and if you have heard this before please skip to the next section.

If I could convince readers of any one thing, it would be...


The plays we list are stocks that have a better than 75% chance of making a big move in the next five days, "MARKET PERMITTING". The market does not run on the same Sun/Tue/Thr cycle as the newsletter. If you bet against the market YOU WILL LOSE. If you have been a subscriber for long, you know we preach "trend trading". We feel that stocks move in cycles with the market. 3, 5, 8 days up, 1, 3, 5 days down, repeat. It is up to you as an informed, intelligent investor to wait for an entry point before making a trade. Entry point would be defined as a pullback from a previous upward move. For example EMC would not be a good play for tomorrow. Up over +$10 in the last two days it is now a good candidate for a pullback on profit taking. EMC is a great stock, making great moves, BUT you can still lose money every week if you buy at the top and get stopped out when profit taking occurs. I had an email from a reader last week who was losing money on EMC every week, asking what he was doing wrong. The same time we got dozens of emails telling about how much money they made in EMC. What is the difference? TIMING !!! Patience, patience, patience. Successful investors wait for and entry point and sell too soon. Then they wait for the next entry point to repeat the process. If your trading plan is "to trade only when profitable" then you need to practice this technique.

For instance, I opened a position in OEX PUTS after the failed rally last Friday. I closed it Tuesday, (too soon) for a 60% profit. Wednesday I opened a position in CMGI CALLS when the market appeared to turn around and closed it today (too soon) for a 50% profit. Two plays, five days, 110% profit. I am back in cash and waiting for the next entry point for several plays I am following. The gap open this morning killed three plays I wanted to open today. (EMC, EBAY, AOL) After the big starts I passed on the plays for today. Better a missed play than a bad play. The point of course is wait, watch, plan. If it goes according to your plan then execute. Otherwise, wait, watch, and plan.

Good Luck,

Jim Brown

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