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Market Wrap

Nasdaq profit taking over?

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        4-15-99           High     Low    Volume  Advances Decline
DOW    10462.72 + 51.06 10500.74 10378.63 1085,400k  1,757   1,272
Nasdaq  2521.77 + 14.49  2536.34  2443.02 1235,400k  2,033   2,076 
S&P-100  669.61 +   .68   672.49   659.44   Totals   3,790   3,348
S&P-500 1322.85 -  5.59  1333.60  1308.38            53.0%   47.0%
$RUT     417.77 +   .38   419.25   411.54
$TRAN   3453.57 + 10.25  3519.09  3424.90
VIX       24.77 -  2.66    29.40    24.28
Put/Call Ratio      .67

Nasdaq profit taking over?

WOW! The selling was sharp and serious. The major Nasdaq gainers from the last two weeks gave a large percentage back in two days of very high volume trading. The Internets were especially hard hit with huge double digit loses. The good news in my mind is the apparent bottom formed between 10:30 and 2:00 today.

The Nasdaq was down -64 at 10:30 and this was on top of the -70 from yesterday. The Nasdaq had been due for some profit taking after the big gains the net stocks had turned in recently. The index turned upward at 2:20 and buying was heavy into the close at +14.49. While we had been bouncing off resistance at 2600 for several days, we bounced off strong support at 2460 today. This strong bounce bodes well for Friday and next week. This 5% correction from the 2600 level is a welcome event only if you were not long Nasdaq stocks. In my commentary last Tuesday I warned that the Nasdaq looked weak and I urged caution on Nasdaq stocks for the rest of the week. Still I got deluged with email about the "dramatic losses" and how could we make so many bad picks. Give me a break! Every major play we had the last two weeks was up $25-$75. We constantly warn on these that profit taking could occur at any time. We strongly recommend constantly that you should wait for an entry point AND set stop losses to protect your profits and capital. EVERY stock that runs up strongly WILL correct when the market cycles. If this is too hard to comprehend and handle then please invest in mutual funds.

The Nasdaq volume yesterday was the heaviest in history and the 1.24 bln today was the fourth highest in history. The Dow turned in a very heavy 1.1 bln today as well. The good news again is the positive numbers the indexes turned in on a high volume day. Advances beat decliners today and were positive even when the indexes were negative. We view this as a positive event. The strong performance of the Dow and Nasdaq today was not confirmed by the S&P-500 on the surface but the details show otherwise. Only 198 of the 500 stocks were down for the day, only 98 lost more than $1.00.

The culprits were several big market leaders that gave back huge recent gains. For instance, EMC was downgraded today and lost -9.00. COF posted record earnings of $1.18 vs $.91 last year but missed estimates by $.06. COF lost -12.00 on the news.

Schwab announced earnings of $.34 beating estimates by only $.01 and while these are record earnings traders were expecting something stronger like the recent Ameritrade results. SCH lost -14 today to $124. In reality the stock was up from $85 to over $150 in the last three weeks since we picked it. Was it a bad pick because it dropped -14 after the announcement after gaining +$70 in three weeks? Not hardly! Anybody that follows our recommendations to sell before the earnings announcements would have not suffered this drop.

Other S&P major drops were PFE which lost -14 today after announcing weak earnings. Do you see a pattern here? The rest of the big losers were PVN -$6 on the COF earnings, PKN -8, TLAB -8, AOL -7. AOL had doubled from $90 to $180 in the last five weeks since it has been a pick. The Internet profit taking took back -$15 this week. Was this a bad pick? A net of +$75, not hardly! AOL dipped as low as $135 today but was met with a huge number of buyers pushing the stock back up to close at $143. Over 40 mln shares were traded today alone. The largest volume traded in the last six months as buyers jumped at the chance to buy at a significant discount to recent prices.

My point here is that eight large S&P-500 stocks lost a combined total of 78 points while 302 of the S&P-500 stocks closed up for the day.

The Dow leaders today were not the usual suspects. The sector rotation out of techs and into cyclical stocks was dramatic. Leaders MMM, IP, UTX, CHV, BA are not the most loved stocks recently. The usual leaders MER, T, AOL, PFE were suffering from profit taking and a shift of funds from techs and financials and into economically sensitive stocks. The apparent coming recovery of global economies is pointing to improvement in these issues.

A Nasdaq stock that has been dropping like a rock this week is SUNW. Sun Micro split it's stock 2:1 last week and was under going the post split depression syndrome and pre-earnings flight. After they posted earnings today that only beat estimates by $.01 they traded down another -$3 after hours. We had a great pre-split run by SUNW and it deserves a rest. We dropped it last Thursday the day before the split at $143 after a +$25.50 pre-split pre-earnings run. In after hours trading today SUNW traded as low as $117 pre-split. Do you see why we suggest selling before splits and earnings?

I hate to keep preaching to the choir here but every time we get these price drops we get a barrage of emails complaining about the picks. Subscribers that have been reading for some time understand our position. We feel it is new readers that do not understand our position or do not understand the volatility of option trading that need this reinforcement. I know there are thousands of readers that have profited handsomely from these picks and we will continue to print some of the emails as they arrive. It helps us tremendously to get positive feedback from our efforts. We print some of these because we believe the new readers will believe your success stories and reasons for success more than they will believe us. With all the scam sites popping up daily, the positive reader email helps set us apart from the crowd. We continue to believe we have the best readers and probably some of the most successful traders in the market today.

Fearless Friday forecast: I wish it was fearless but we need to remember the Dow set another record close today and is now up +678 points in the last nine trading days. Whether you like it or not, there will be profit taking soon. The intraday dips we have been seeing are like a daily, rolling correction but the piper will eventually have to be paid. I am leaning to a positive day Friday after the big Nasdaq sell off and recovery but there could still be some weakness in individual tech stocks but hopefully the positive bounce today will carry through Friday. I would expect the normal Friday routine, up in the morning, flat to down at lunch and up at the end of the day. A positive run all day would be a nice surprise. If we get a positive Friday then my next target for profit taking would be Tuesday. The current market is being fueled by the tax contributions and that will slack off soon. Take profits when you can!

Good Luck,
Sell too soon.

Jim Brown

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