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Entry point? Is it over yet?

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        4-27-99          High     Low     Volume   Advances Decline
DOW    10831.71 +113.12 10847.74 10719.16  893,149k  1,758   1,236
Nasdaq  2602.41 - 49.64  2677.76  2602.13 1136,400k  2,049   1,966 
S&P-100  689.36 -  0.62   695.34   685.67   Totals   3,807   3,202
S&P-500 1362.80 +  2.76  1371.67  1356.61            54.3%   45.7%
$RUT     435.16 +   .19   437.69   433.84
$TRAN   3597.46 - 13.11  3630.16  3582.67
VIX       24.19 +   .28    24.82    23.45
Put/Call Ratio      .46    

Entry point? Is it over yet?

I will take a -49 after a +330 any time. The normal profit taking cycle took its toll on the Nasdaq today as many techs gave back some of the huge gains since last Mondays big drop. Many stocks had soared since the drop, some as much as 40%. RNWK for instance had climbed from $130 to over $200 and only gave back -13.69 today. QCOM rose from $125 to $214 and only gave back -6.44 today. Yes, there was some selling today but that is what we have been trying to warn you about since Sunday. Now the real question, "is it over?"

The Nasdaq actually traded in a very narrow range all afternoon and failed to break the 2600 level in three tries. Our previous upward resistance level, 2600, is now our support level, we hope! In my book today's sell off was rather mild and actually could have given us a new entry point on some of the high flyers. We will not know for sure until tomorrow but I bought the dip in anticipation of a continued rally. I would definitely vote for another five days of records in a row. One of the possible drags on the Nasdaq tomorrow comes from a NYSE Internet stock. AOL announced stellar earnings after the close but only hit the whisper number. After several examples of blowout earnings lately (IBM) the street is just not happy with meeting the whisper numbers. AOL traded down -$9 in after hours. Another example of why you should not hold over earnings.

Nasdaq Intraday Chart:

Another drag on the Nasdaq today was Microsoft at -$4.00. The drop was due to news about the resumption of the antitrust trial just around the corner on May 10th. Another drag for tomorrow could be the earnings release from Amazon due out Wednesday. Internet stocks could be weak from AOL fallout or from worry about possible Amazon problems.

The DOW did it's part and surged on ahead in spite of the lagging Nasdaq and OEX. The big Dow winners were the cyclicals again along with the financials. AXP +4.44, JPM +3.31, UTX +4.69, KO +2.31, AA +2.13, S +2.06. Believe it or not IBM was up again +2.13 after shareholders approved the 2:1 split and increased the dividend. The law of gravity has not been repealed but IBM is proving the exception to the rule.

DOW Intraday Chart:

Contrary to the Nasdaq the Dow continues to set new records and after gapping up strongly at the open bounced several times off apparently new support at 10,760 only to close near the high of the day. It appears nothing may stop the blue chips until they break the 11,000 level soon. We are now up over +1500 points since March 1st, without a meaningful pause to consolidate. By all means continue to trade this rally, but keep looking over your shoulder at all times. Traders on the NYSE said the volatility was increasing daily and traders are becoming less comfortable in holding profits over night on a daily basis.

The positive news continues to be earnings results from the S&P-500 companies. The earnings are coming in at a clip not seen since 1997. One of the major problems in the August- October crash last year was the drop in earnings performance due to the global slowdown. This quarter it appears the global problem is rapidly disappearing and more and more companies are reporting positive earnings surprises. This is keeping the liquidity in the market and as long as the positive news continues so will the rally.

The next big hurdle this week is the Employment Cost Index on Thursday. Investors will be hesitant to make large bets in advance of the report even though the report is expected to be market positive. With the Dow and S&P setting new records the report would have to be highly negative to knock the legs out from under this bull.

The advance/decline line continues to be positive. Even on the Nasdaq today the advances nudged the decliners. On the NYSE the margin was 17:12 and was never in doubt during the day. Another positive sign is the up volume/down volume ratios. Today there was almost twice as much up volume than down. The Russell-2000 managed to close over 435 and took out the recent high set back in the January rally. These three indicators, RUT, A/D and up volume all point to a continued upward movement of the market. The Dow may falter soon as the leaders tire and rotate out of favor but as long as these three indicators remain positive we will continue to gain ground.

The plays tonight all showed remarkable strength today in the face of huge recent gains. All put in strong intraday bottoms and failed to drop or even rallied at the close when the Nasdaq was dropping. These are bullish factors but we caution you that no amount of bullish factors will matter if the overall market decides to crater on some external factor tomorrow. Look for an entry point before playing and expect some strong swings at the open. We could see another drop at the open as sellers react to some unseen need to be out of tech stocks. Wait until amateur hour is over (10:30) and then see which direction the market is moving.

Wait for an entry point then sell too soon!

Jim Brown

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