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Market Wrap

Argentina up +4.5%, Dow/Nasdaq down!

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        7-13-99          High     Low     Volume   Advances Decline
DOW    11175.02 - 25.96 11211.11 11085.10  737,913k  1,278   1,715
Nasdaq  2778.23 - 12.21  2782.25  2755.84  992,634k  1,771   2,184 
S&P-100  719.79 -  2.07   721.86   715.73   Totals   3,049   3,899
S&P-500 1393.56 -  5.54  1399.10  1386.84            43.8%   56.2%
$RUT     458.11 -  1.19   459.30   455.46
$TRAN   3405.60 - 26.29  3433.82  3401.87
VIX       20.23 +   .39    21.14    20.04
Put/Call Ratio      .58    

Argentina up +4.5%, Dow/Nasdaq down!

One day after the leading presidential candidate in Argentina made a remark about asking the pope to help Argentina get a one year debt repayment moratorium, the Dow opened down -115 points but the Argentine Merval Index was up +4.5%. Yes, I know he recanted his remarks and downplayed the statements but the damage had already been done. The comment rippled markets around the world bringing back memories of last years Brazil debacle.

The reason the result was so dramatic was the current state of the Argentine economy. They are in a deep recession and the current president has failed to enact need reforms. The country has been rumored to be on the devaluation trail for some time. Currently their currency is pegged to the U.S. dollar but could be changed after the election. Analysts and investors worldwide were afraid that a post election Argentina could hold some surprises after the flippant comment by the front runner. Latin American experts do not think Argentina can afford to devalue since they need outside investment and loans to keep the country afloat. Taking their currency off the peg or devaluing would keep them from getting outside loans for a long time. In reality the reaction was much ado about nothing but the impact was still the same.

The Dow opened down about -115 points after seeing the S&P futures close down about -8.00. The banks and brokerages were hardest hit but techs suffered also. The tech stocks were first to recover but were still very tentative all day in front of Intel's earnings tonight. With the market still resting (or struggling) from the strong gains two weeks ago, we did not need another straw on our backs. Sectors and stocks were spotty and recent market leaders failed to pull out of the dumps. Only story stocks like Amazon, who announced two new online stores for toys and electronics, were able to gain back lost ground.

As you can see from these charts we remain locked into a solid range on both the Dow and Nasdaq. In reality we should have been moving upward in advance of better than expected earnings.

Several factors are influencing the markets lethargy. One was the Argentina thing. The next big worry was the Intel earnings tonight and the PPI/CPI/Retail Sales Wednesday and Thursday. No one wanted to make big bets in front of these possibly dangerous events.

Maybe Andy Grove, the CFO for Intel, should have gotten the pope to bless the earnings for Intel. Intel announced weaker than expected earnings after the bell with a +.51 cent actual instead of the $.53 the street was expecting. The analysts were immediately faced with a problem. Lower than expected earnings but sales were almost $1 bln higher than expected. The Intel conference call was very positive with Intel pounding the table about second half expectations. Their product mix was strong with higher margin chips offsetting the lower end of the product line. In total contradiction to normal trends Intel dropped over -$2 after hours but quickly bounced and recovered to finish only -.13 down. This would make you believe that the faithful were more focused on the $1.7 bln in profits from $6.7 bln in sales than the actual earnings per share. Intel had already warned they would have a revenue shortfall from last year and analysts were expecting only $5.93 bln. The jump in sales and positive call indicate that maybe there will be no punishment tomorrow.

Motorola however posted $.44 vs $.41, beating the street by $.03 but traded down -$1.50 after hours. Paine Webber beat the street by +.08 and lost -.38. Phelps Dodge beat by +.02 and lost -1.25, International Paper beat by +.01 and lost -1.38. Merrill Lynch beat the street by +.11 and closed up +1.19 on good comments made by several analysts after the announcement. It just goes to prove, "it's all in the call".

The market breaker tomorrow will be the PPI in the morning. It has been trending down recently so a slightly larger number than the expected +.1% could still be seen as a positive. A smaller number could re-ignite the rally on lessening Fed rate fears but a much larger number could be a killer.

As if we did not have enough to worry about this week the CPI numbers are due out Thursday morning. Just replace PPI with CPI in the above paragraph to get the market outlook for Thursday.

The silver lining in the Argentina, Latin American problem is the result on the Fed. With instability in Latin America the Fed would be hard pressed to raise rates again. Raising our rates impacts their loan costs necessary for economic recovery and would be politically incorrect.

Because of the lagging market several market timers are calling for a near term market top as early as Thursday and as late as next week. The lack of earnings momentum is seen as investors selling into every rally and lightening up their portfolios. Several mentions of Y2K were heard today and it seems like they are becoming more frequent. I would also caution our readers that a down trend is possible as earnings wane and not to be married to your positions.

Did anybody say to themselves today "If only I had sold when..."? The market action at the open today should be a wakeup call for taking a profit when one is available. I have vivid memories of October 1997 and a market opening similar to this one. Futures were lock limit down and options did not trade on most stocks for 30-45 minutes. Well after they had dropped huge numbers. Unlike today the market did not rebound on a false alarm. Had this been a real problem the gap down at the open would have only been a prelude for the rest of the day. Any profits would be changed into large losses before you even had the chance to sell. Stop loss orders would be useless. Profits can be lost far faster than gained and investors should always be aware of pending market/global/economic problems and step aside until the clouds blow over.

Good Luck, sell too soon.

Jim Brown

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