The signal for profit taking was given at 1:10 today.
I did not see it OR hear it but it must have happened. The Dow, up +96 at the time, promptly retreated and except for two small pauses moved to sub zero territory by the close. The Nasdaq, which had been soaring on the back of the Internets, struggled valiantly to hold on to some of it's +45 point gain but the drop accelerated near the end of the day and it also finished negative.
Was it a bad day? I don't think so. Many issues retained their gains and other were only fractionally negative. Some of the heavyweights did lose some big bucks. Yahoo, which had been up +10.50 to 189.25 on the day before earnings, gave up -$15 in the last hour to close at only $175. Investors who can read charts and remember what happened after the last two earnings reports were fleeing in droves. YHOO traded over 15 mln shares and it looked like better than half occured in the last hour.
I warned in the Sunday newsletter that we were due for some profit taking and my target was Wednesday. It looks like investors are becoming more cautious and the party started a couple of hours early. If I had a crystal ball I could tell you where the bottom will be and when to start using this "buying opportunity". Unfortunately I do not and I will be waiting for a clear signal as well. Last Tuesday we were at 10,700 on the Dow. I do not expect a retracement to those levels. With the earnings starting this week, investors will want to be positioned to benefit. We could easily see a simple -100 points or a multi-day drag for even more.
AOL powered up +9.50 early on an article in Barrons and a deal with Drkoop.com. They closed up slightly over $5.00 after the sell off. This set the trend for the Internet rally this morning.
The trend for tomorrows Internet trading will be set by New Era of Networks (NEON) which warned after the bell today that they would post a serious loss instead of a profit. In after hours trading NEON lost over half of it's value, losing -24.06 to $20. The pending Yahoo earnings after the bell on Wednesday will also worry the Internet market.
Got gold? If you don't then there is a great buying opportunity coming. (not yet) Gold hit a twenty-year low today breaking under $258. The Bank of England sold 25 tons of the yellow metal for an average price of $261.20 at auction. Yes, this was a lot of gold but it represented only 3.5% of their reserves which they plan to sell. After they drop 25 tons on the market every month or so for the next couple years and gold may be back at levels not seen in decades.
On the other side of the commodity ledger, oil came within $.02 of $20.00. The news that OPEC partners are actually doing the right thing and cutting back as planned should put new life in the oil sector stocks. We don't go there since they are either boom or bust on a daily basis based on the price fluctuations of oil.
Ralph Acompora is smoking something funny again. He went on record as saying he now expects the Dow to trade between 12,000 and 12,300 by the end of summer and "if I play with the numbers a bit" (his words) "I can see 12,500 to 13,000 by year end." He cited the low interest rate picture and strong earnings as the motivating factor. Other analysts are more conservative on their year end targets. Peter Canelo 11,500, Tom Galvin 11,000, Abbey Cohen 10,300, Don Hayes 8572, Cliggot 9300. Ralph just got $500k for an advance on a book outlining his Dow 18,000 forecast for 2003. Just shows you bulls have more fun. I hope Ralph is right. I am just more concerned about the looming Y2K thing. Nobody knows what impact it will actually have but I don't see it as positive in any way. In this weeks issue of Bottom Line Personal, a Y2K column is recommending selling bank/financial stocks now. When major names start warning people to sell, there will be some takers.
There are no major economic reports this week. The key will be the Alcoa and Yahoo earnings reports tomorrow. Good positive reports could stop the profit taking in mid-drop but missed earnings could accelerate the slide. Keep your powder dry and look for the turnaround. Be wary if we do not get a pull back.
We did shift from calls to puts on Yahoo tonight but STRONGLY recommend investors wait until after the earnings to start a PUT position. If they announce a split then all bets are off. I sure wanted to sell calls at the top today but held off due to the uncertainty. There will be a play on Thursday morning. Wait for it!
The Dow was up +5.6% last week and the Nasdaq +7.4%. We could easily give back -2%. Wait for an entry point, sell too soon.