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Market Wrap

DOW 11,000 ? Thank you Mr. Blue !!

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        4-22-99           High     Low    Volume  Advances Decline
DOW    10727.18 +145.76 10753.81 10580.05  915,793k  1,688   1,292
Nasdaq  2561.61 + 72.53  2561.79  2525.26 1053,200k  2,199   1,807 
S&P-100  690.01 + 13.33   690.21   676.68   Totals   3,887   3,099
S&P-500 1358.83 + 22.71  1358.96  1336.12            55.6%   44.4%
$RUT     428.85 +  2.28   432.13   426.35
$TRAN   3609.92 + 53.46  3620.04  3556.72
VIX       23.98 -   .57    24.74    23.74
Put/Call Ratio      .50  

DOW 11,000 ? Thank you Mr. Blue !!

Another day, another record, yawn.... Not hardly !! The buying opportunity from Monday just kept getting better. With IBM going against expectations and posting blowout earnings the market got a profit boost. With every analyst cringing as they got the earnings news from IBM the surprise was complete. The jump you saw today was not on excitement from buyers but another huge short covering rally. The shorts and puts had loaded up in front of the computer giants earnings, fully expecting another troubled quarter. Not so said IBM. The lack of a significant Y2K warning broke a recent trend and the strong showing by the services business and even a jump in mainframe business, turned the market around on a dime. With techs still wandering since the -138 point slaughter on Monday the race was on to buy again. The staple stocks suffered again and proved they could get no respect. Consumer goods were down strongly even though Proctor & Gamble beat estimates. You just can't beat a tech stock with a +30% growth rate.

After the close today Gateway also announced but it was not the same blowout that IBM delivered. Gateway announced $.62 vs estimates of $.60, beating the estimates but only matching the whisper number. The conference call was right on the money with Gateway bragging that business was better than ever. The majority of Gateway's sales are in the U.S. but they also scored big gains overseas as well. Sales in Asia were up +97%, Japan +93%. Business sales were up +31% and educational sales up +21%. Good earnings, good sales, good company but no blowout. It did provide another confirmation that PC sales and growth are alive and well and the Compaq problem is unique to Compaq. The mandatory warning was repeated that Q2 sales would be a seasonal challenge requiring them to move deeper into the sub $1000 category. Analysts were questioning whether further price cutting would enable them to maintain their current margins. The unit price this quarter was down but margins were up. How long can this trend continue? The other two major PC manufacturers HWP and Dell do not announce until next month and both have said sales were strong.

Piper Jaffray, today predicted that Dell's first quarter PC shipments would easily surpass the brokerage house's expectations and last years levels. Analysts Ashok Kumar and Paul Mansky forecast that Dell is on track to ship 2.5 million units this qtr, up +15% from the recently ended fourth qtr and +50% above the year-ago level. The analysts also said this should translate into $5.7 bln in revenue for Dell for the qtr up +45% from the year-ago period. I bought Dell Monday on the dip and sold for a nice profit today just in case Gateway missed earnings and tanked the PC sector. Now I am suffering from sellers remorse and hoping for some Nasdaq profit taking on Friday to give me a new entry point.

The earnings season is now half over with more than 50% of the S&P-500 companies already reported. Of these 50% the statistics are very encouraging. The vast majority of the companies have beaten the estimates and fewer than half of the normal number of companies missed estimates.

          Current  Historical
Beat Est.   64%       56%
Met Est.    23%       19% 
Missed Est. 12%       26%

Profit growth is still heavily weighted in favor of techs:

Techs           +46%
Cyclicals       +18%
Financials      +15%
Energy          -48%
Basic Materials -43%

Seemingly a day does not go by without a market moving event. The market loves mergers, buyouts and bidding wars and tonight AT&T announced an offer to buy MediaOne Group with a much stronger offer than Comcast had on the table. AT&T offered $87.38 per share and would lock up another major block of cable viewers in areas they are not strong. AT&T is simply going to be "the cable guy" soon. This could be a positive impact to the market on Friday.

Speaking of the market, in the last 15 days the Dow is up an astounding +941 points. There have only been three down days for a total of -138 points included in that total. We have had several days of the Dow lingering in negative territory before finally moving upward to positive territory in the afternoon. This rolling correction has helped maintain the run but the total lack of any major Dow profit taking is still a major concern. The advance/decline line has been positive nine of the last ten days on the NYSE but the margin was narrowing until the last hour today. Eventually we will have to pay the piper but it is conceivable that 11,000 could be touched before then.

The Nasdaq has now added +216 points since the massive -138 point black hole on Monday. Again, nothing moves in a straight line and we could also see the Nasdaq waffle again soon. It is amazing how much fear came out in the market on Monday only to completely disappear by Thursday. Remember, the Nasdaq was unable to close over 2600 when we were here last week. Three days we traded over 2600 only to fall back quickly. Only 39 points away from 2600 now we could encounter resistance here at any time.

I continue to urge caution when entering a market that is making a non-stop move. Know your entrance AND exit points before you start a new position. Be prepared for the market to turn on you at any moment. You can still trade a stampeding market, and make a lot of money, but you need to watch it every moment. You would not turn your back on a snarling dog and the dog is much less dangerous than a runaway market. You saw how fast the Nasdaq dropped on Monday. Profit leaves much faster than it comes. We lost several subscribers on Monday that did not have stop losses on their trades. Don't let this happen to you. You can be aggressive and careful at the same time. Futures are down -3.10 at 8:15 so it is possible we will get another buying opportunity Friday.

Entry Points: AOL gave us a great entry point on Monday and it is up +$33 since. Should you buy AOL now? NO! You should not buy any stock that has made this kind of move until it pulls back again. It is frustrating to watch them continue on upward but not as frustrating as watching your money disappear after you enter a play at the high point.

Wait for an entry point, sell too soon.

Jim Brown

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