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Technical bounce anyone?

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        4-20-99          High     Low     Volume   Advances Decline
DOW    10448.55 +  8.02 10496.37 10333.15  980,349k  1,369   1,670
Nasdaq  2409.64 + 64.03  2409.78  2329.87 1149,400k  2,057   1,943 
S&P-100  662.08 +  9.19   662.82   651.41   Totals   3,426   3,613
S&P-500 1306.17 + 16.69  1306.25  1288.28            48.7%   51.3%
$RUT     415.34 +  2.93   416.25   410.44
$TRAN   3493.92 - 72.79  3605.25  3488.99
VIX       26.93 +  1.45    28.33    26.51
Put/Call Ratio      .50  

Technical bounce anyone?

You know where I am going from here... Any major market move, up or down, is normally followed by a move in the opposite direction. The tremendous oversold condition of the Nasdaq just begged for an upside bounce. Monday was the second worst day ever on the Nasdaq and it only makes sense to see it recover some the next day. It will take several days to see if it can hold these gains. If you took advantage of the Monday entry point to start new plays, don't start counting your profits unless you already closed the trade. We could easily go down again before we continue up.

The hot cyclical stocks cycled out of favor again today. Their 15 minutes of fame were fleeting at best. The market was without a leadership group today although financials and drugs did ok after some of the majors announced earnings that beat the street.

Citigroup, announced earnings yesterday but followed up today with a 3:2 stock split. C was +2.19 today. Chase announced today and their profit jumped +62% but Merrill immediately downgraded them due to the internals behind the numbers. Investments were up strongly and were viewed as a one time event. CMB finished -2.00.

Oil prices retreated and the oil stocks and oil service stocks took a quick hit. No loyalty there. Dow component Chevron was downgraded by Schroder and DLJ on price and promptly gave back -$5 of its recent gains and took the Dow and the other major oil stocks down also.

After the close today the 800 pound gorilla, Microsoft, announced earnings. They beat the street by three cents with a $.35 vs estimates of $.32. However they only matched the whisper number. The normal conservative forecast was for a guarded outlook and possible reduced revenue due to Y2K concerns. Are you seeing a pattern here? Microsoft is known for being cautious but the Y2K warning is being repeated almost daily now and we are still eight months away. Another cause for concern was the larger than usual investment returns. $720 million, up from $190 million last year. This larger than normal return held up the declining revenue from weak Office97 sales. Analysts are not excited by investment returns but by increasing sales. Some analysts were expecting $4.5 bln in revenue and MSFT only managed $4.33 bln. MSFT did trade down -1.50 in after hours trading. While the results were respectable they were not in the category of the blowout from last quarter. Traders may be disappointed tomorrow. Microsoft failed to acknowledge the coming flood of Linux sales and what impact it would have on MSFT. The big four computer manufacturers have all begun offering Linux along with the Windows NT/2000 operating system. IBM said Linux is very stable, robust and powerful for networking and webserving applications. Linux is free and Windows NT is expensive and plagued with many technical problems. We view Linux as a problem that Microsoft had better react to quickly or we will have some not so pretty quarterly results soon.

The Fidelity and Strong funds continue to sell tech and move into other sectors. The large block sales are responsible for some of the huge moves we saw in some stocks. Several stocks have posted record daily volume as the funds left quickly. Other tech funds went on record calling this a buying opportunity. Several tech stocks were down as much as -30% from their recent highs. Remember the "window dressing buying rally" we had three weeks ago? This is the liquidation of those positions and the move back into cash now that earnings expectations are over.

Another possible negative for tomorrow was the pronouncement from Abbey Cohen that the S&P was currently "fairly valued". This is a departure from the previous claims that the S&P stocks were undervalued and good buys. Even though she thinks the S&P is fairly valued she did not think investors should be worried or rushing to sell at this point. We all know that no one wants to be the last person holding a stock so the S&P could start leaking soon.

The NYSE announced after the close today that they would push the expected date for night trading up to match the Nasdaq. Richard Grasso said it did not make sense for the Nasdaq to be open for business from 5:PM to 11:PM daily without the NYSE being open also. There are still several levels of approvals required before either can actually open for business but there is no reason for it to be withheld. Get your NoDoz ready.

Web broker E*Trade beat estimates today with a loss of -$.12 instead of estimates of -$.17. The broker energized the entire group after reporting record account growth. They added 233,000 accounts last qtr which was more than they added in all of 1998. Revenue more than doubled to $127 mln. DLJ immediately upgraded EGRP to a buy and sent the entire sector soaring. We will patiently wait and see if it holds for the rest of the week.

Earnings tomorrow could be a problem. IBM is expected to post $1.41 vs $1.06 last year. IBM has been having trouble recently in making their numbers and without massive share buybacks they would have missed several quarters. We know they have been losing money on PC sales and they could also be impacted by the slowing of Y2K sales. If they miss the estimates, we could see another tech massacre. Coke also reports but they have already warned of a -15% drop in earnings. AMR reports and we could see an -80% drop due to strikes and sick outs. Exxon will report something in the range of $.46 vs $.76 last year. This string of weak earnings from major companies may drown out any positive results from smaller firms.

As I reported Sunday the trend to sell just before earnings and immediately after could be a strong selling factor this week. Traders sold into the strong Dow rally on Monday knocking the index down over -300 points from the high. The -100 point drop today and then a recovery back to positive territory was encouraging. This could have been prompted by the Nasdaq bounce. Futures are down -2.00 at present and I would consider the markets tomorrow to be very fragile. If you have a chance to lock in profits I would do so. You can always buy back in again if the market continues upward. A good way to accomplish this is with trailing stops. This means setting a stop loss and raising it incrementally if the stock moves upward. A falling stock price will take you out of the play while you still get the benefits of any increase. In any event, sell too soon.

Good Luck

Jim Brown
Editor

Editorial:

RE: Littleton CO.

If you don't live in a closet you have probably heard of the school shooting tragedy here in Littleton today. Two misguided students stormed the school killing 25 students and wounding 20 others before taking their own lives. The stories coming to us from friends are very traumatic. They took pleasure in the shootings and actually shot some students multiple times just to hear them scream each time they were hit. While no one connected with OIN had any family member injured in any way, many of us have kids who knew kids that were killed. It is very unfortunate and I am sure somebody will pass another law to try and prevent future incidents. Last I checked it was already illegal for minors to have guns, to carry guns in school and to shoot another person. Further laws will impact only law abiding people and have no impact on people planning this type of act. This is a family problem not a gun problem. You will undoubtedly hear lawmakers everywhere blame the event on guns. It is simply another failure of the family unit and lack of parents to take responsibility to impart morals and values to their children. We have had many calls and emails asking if any of our family and friends were injured and offering their prayers. We deeply appreciate your thoughts and we strongly ask for your prayers for the injured and the families of the dead. One family lost twin daughters. The perpetrators will face eternal judgement but their relatives will have to experience hell on earth. I ask that you pray for them as well. They need our prayers as much as the families of the victims. The next time you see your kids do me a favor, hug them and tell them you love them and give them the chance to see that somebody cares for them. Who knows, it may be a turning point in the life of a teenager you love.

Jim Brown

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