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Market Wrap

What? No triple digit close?

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       WE 5-28           WE 5-21         WE 5-14          WE 5-7 
DOW    10559.74 -269.54 10829.28 - 84.04 10913.32 -118.27  +242.55  
Nasdaq  2470.52 - 49.62  2520.14 -  7.72  2527.86 + 24.24  - 39.23  
S&P-100  658.66 - 13.10   671.76 -  1.81   673.57 -  8.17  +  6.09  
S&P-500 1301.84 - 28.45  1330.29 -  7.51  1337.80 -  7.30  +  9.82 
RUT      438.68 - 10.46   449.14 +  6.01   443.13 +  7.02  +  3.30  
TRAN    3415.70 -135.56  3551.26 -115.08  3666.34 - 76.49  + 95.54  
VIX       26.38            25.36            29.66            26.72
Put/Call    .54              .64              .71              .61

What? No triple digit close?

After bouncing like a bunjee jumper for the last three days, Friday's trading was very calm. Actually, Friday was the second lightest day of the year for volume on the NYSE at 651 mln and the lightest on the Nasdaq at 678 mln. Because of the very light volume you cannot draw many hard conclusions about the markets movement. After rising early in the day the Dow traded in a 20 point range from 12:30 to 3:15. A $100 mln sell program hit at 3:15 and with most traders already gone for the holiday it quickly knocked -70 points off the Dow before bargain hunters stepped in and bought the dip.

Ten day Dow Chart

Friday Dow Intraday Chart

The Nasdaq dipped slightly on profit taking at the open but with Internets gaining back lost ground the index quickly moved to positive territory and by 11:00 traders had left and volume was minimal. The late day Dow sell program hardly even dented the Nasdaq and the last 30 minutes were marked by strong Internet buying as the remaining traders took positions ahead of the expected bump next week.

Nasdaq Intraday Chart

The rally on Friday was another technical relief bounce from the -235 points on Thursday. The market volatility was eased somewhat by good economic data from the CPM report. The report showed the index fell to 57.9 from 63.3 in April. The closely watched prices-paid index also fell to 52.5 from 56.7, easing inflation worries somewhat. The Chicago report is the forerunner to the NAPM index due out on Tuesday. A further slowdown might keep the Fed from being too hasty on raising rates. The bond yield is creeping back up and closed at 5.84% on Friday. With continued economic reports showing slowing to no inflation it is becoming increasingly likely that the rise in the CPI was just a fluke and the Fed may have jumped the gun on changing their bias.

After the big swings in the market this week the profit taking should be over. The drop from 11130 to the 10440 range (-700 points) was more than enough to correct for the recent gains. (+1300) Now we are on the launching pad. Up or down? The market sentiment is definitely bullish and eager for another test of the 11000 mark but we are currently in a news vacuum and there is nothing to cause the market to move. The next earnings reporting cycle does not start for six weeks. We could see buying start anytime as people position themselves for the next cycle. Many analysts are calling the -700 point drop an excellent buying opportunity and the advance/decline line on Friday definitely supports the theory. The NYSE advancers beat decliners 2:1 and the Nasdaq had a slightly weaker 7:5 ratio. The close by the Dow over 10,500 and the S&P over 1300 were both positive. The Russell posted a strong +5.76 move on Friday to show small caps are still alive and well. New highs/lows were even at 25/23 and gave us no directional help.

Before I rush off on a totally bullish tangent, I have to also caution you about some things that we saw Friday. Kimo and I looked at well over 1,000 charts and the patterns were the same. Sharp declines, sharp bounce then flat. Personally I see the glass half full and feel the lack of follow through on Friday was lack of volume and lack of commitment going into the holiday. The local bear sees the glass half empty and thinks this could just be a technical bounce and a plateau before the next leg down. We can't build a scenario for further drops other than no news to move us upward. Any drop scenario should be met by bargain hunters under Dow 10500 and we feel this level should hold. Of course our opinion is just an opinion. We could have another retest of last weeks lows before starting the next earnings cycle but I am not leaning in that direction.

Intel 10 day chart

RNWK 10 day chart

EGRP's 5 day chart (post split)

As always I am urging traders to be cautious before starting new positions on Tuesday. Don't play in amateur hour (9:30-10:30) and confirm that advances are stronger than decliners and gaining. Confirm that the DOW & Nasdaq are both moving up before playing. A real rally here should be broad based and we do not want to see the Dow or Nasdaq not participating.

Good Luck, sell too soon

Jim Brown

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