Option Investor
Market Wrap

The markets hold their breath in advance of the CPI report.

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        6-15-99          High     Low     Volume   Advances Decline
DOW    10594.99 + 31.66 10682.06 10562.06  698,119k  1,635   1,356
Nasdaq  2414.67 + 16.36  2434.52  2397.40  834,404k  1,789   2,127 
S&;P-100 660.40 +  4.14   665.62   656.26   Totals   3,424   3,483
S&P-500 1301.16 +  7.16  1310.75  1294.00            49.6%   50.4%
$RUT     434.01 +  2.48   435.41   431.37
$TRAN   3351.52 +   .83  3375.59  3347.65
VIX       28.23 +   .84    28.28    25.80
Put/Call Ratio      .56  

The markets hold their breath in advance of the CPI report.

After surging at the open on the strength of the Internets theNasdaq, which closed just under 2400 last night, dropped back from the intraday high of 2434 to bounce off 2400 again just before the close. Is the carnage over in the Internet stocks yet? More later..

The Dow also surged to as high as +120 intraday only to fall back to only +31 at the close. The Dow relief rally is now complete and all eyes are on the CPI report tomorrow. The outcome may be drastic either way. Some say a low CPI will still not have a positive impact since the interest rate worries are now the foremost topic in the market place. A high CPI will only confirm the Fed worry and force an interest rate hike at or before the FOMC meeting on Jun-29-30th but a low report will prove nothing.

So either way we can't win. The market is likely to remain range bound until the FOMC meeting. The volume is very low with less than 700 mln shares traded on the NYSE. Everybody is on hold. The week after the FOMC meeting is the beginning of the earnings reporting cycle. Everyone expects S&P companies to post higher earnings and the market to rally in support. As traders we would all be better off if we could set our alarm clocks for Monday, July 5th, and awaken to the new rally without having to endure the next two weeks of torture.

Ralph Acomporaspan was on CNBC today reminding us that he said we "could" have a 5-10% correction three weeks ago. Funny, I did not hear him say that back then. Now his top number for this year is 11,500 and he said firmly today that he would not change it the rest of the year. As a market technician Ralph has been noted for several of his successes and most of his failures have been ignored. He came out of his burrow today and predicted two more weeks of winter based on the length of market correction cycles. His cycle count is an average of 20-26 days of correction for each strong upward move. The current "correction" started on May 14th. Today would have been 22 trading days. The Fed meeting will conclude on the 33rd day. His two more weeks of winter would then end the day the Fed meeting is over. Coincidence? I think not. The ground hog is really a sly fox in disguise. He can point to his market timing models for direction but then grab a quick glance at the economic event chart to find reality. Any way you cook the numbers, it is still the news and events that move the market. The market movers for the next three weeks are still the CPI, Greenspan's speech on Thursday, FOMC on the 29-30th and July earnings thereafter. Everything else is just noise while w mark time till the FOMC.

Would the Internet bears please stand up and identify yourselves. We keep hearing that the bears are selling but the pundits all say the Internets are now fairly valued and this is a buying opportunity. Are we being killed by the press and their speculative bubble stories or is there really someone out there that we can focus our anger on? As a group I know there are many of us that thought the Internets were a "buying opportunity" at -40% off their recent highs. At -50% those that waited are better off than those of us who thought we saw a bottom 10% ago. So, was the minor bounce we saw today a symptom of new life or just a tremor brought on by application of a cardiac defibrillator to the lifeless corpse? New lows today included AOL $89, YHOO $117, CMGI $71. Those of you who think the Internet world has come to an end should realize that these numbers represent the level we were at in March, not last year. Yes we gave up all the gains from the last 90 days but it is not the
end of the world, UNLESS...

It is the end of the world if you bought AOL at $160 in April or $140 in May AND ARE STILL HOLDING. How about YHOO at $240 in April or CMGI at $160. I received several emails recently asking me if the Internet drop is over yet because they had bought these stocks at the high prices and wanted to know if they should sell them now. I am not kidding. I am withholding the names and emails for obvious reasons. This is where you would normally get the obligatory "stop loss" discussion but not today. If you have used the terms "it can't go any lower" or "it has to come back soon" recently in regards to your own portfolio then you also need to listen carefully. Nothing EVER "has to come back" and absolutely no stock is immune to "going lower". Past performance is not an indication of future results. Previous highs or previous trading ranges or previous earnings runs or previous "anything else", has no bearing on the current stock price. Yes, I know, you can make a case for previous support levels becoming future support levels but in reality the stock price is dependent on investor interest, nothing else. If the press convinces the investing public that Internets are 1000% over valued then they will eventually find their value level. You can replace "Internets" with any other sector as well. Simply pick any 20 charts at random and for every stock not making new highs there are thousands of investors deluding themselves into thinking "it can't go any lower" or "it has to come back". If you believe these two phrases then we need to talk about the Easter Bunny, Tooth Fairy and Santa Claus as well. While believing in any of these things may be fun and a substitute for anti-depressants, reality is still reality and stop losses are the only thing between you and a reality you don't want to face. If you liked AOL @ $140, YHOO @ $240 and CMGI @ $160 then you should really be happy with them on sale today at half price. That is of course only if you were stopped out a long time ago!!
Is the Internet sell off over? Who knows, but do you still want to
be holding if AOL hits $50?

Life after CPI? Dow support is at 10,400, (now 10594), and the Nasdaq support is at 2400 (now 2414) with next support at 2350. I can see the Dow going either way but the Nasdaq "should" not drop much further. I think the upper end of the Nasdaq range will be 2500 and Dow 10700 until the FOMC meeting. If Greenspan says anything hawkish on Thursday then all bets are off and grab the parachutes. Like I said Sunday, traders can trade this market very carefully but "holders" should stay on the sidelines till after July 4th. Remember also this is a triple witching Friday and don't keep holding June options hoping for a miracle.

Good Luck, and please sell too soon.
Jim Brown

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