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Market Wrap

New life or just a bump in the road?

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        7-27-99          High     Low     Volume   Advances Decline
DOW    10979.04 +115.88 11031.28 10862.84  719,214k  1,618   1,368
Nasdaq  2679.33 + 60.14  2685.04  2650.18  994,959k  2,168   1,827 
S&P-100  701.51 +  8.60   704.72   692.91   Totals   3,698   3,342
S&P-500 1362.84 + 15.08  1368.77  1347.75            52.5%   47.5%
$RUT     446.48 +  3.61   446.49   442.88
$TRAN   3417.26 + 33.94  3424.00  3384.02
VIX       23.93 -  1.98    25.35    23.11
Put/Call Ratio      .58    

New life or just a bump in the road?

After dropping from last Monday's high of 11252 to yesterday's intraday lows under 11850 the -400 point decline was stopped dead in its tracks with the drop in consumer confidence reported this morning. The index dropped to 135.6 from a revised 139.0 in June. This was the first drop since last October and suggests that maybe the economy is not growing as fast as the Fed thinks.

The bounce today could have been just that. Nothing moves in a straight line, up or down. With the Dow dropping -400 points and the Nasdaq dropping a whopping -275 (over -1000 in Dow points) the possibility of a technical bounce was approaching 100%. The true test will be in holding at this level or higher. The Dow bounced twice yesterday off 10,850 which appeared to be good support. Today however, it failed to hold over 11000 which could become resistance at this level. The Dow suffered from fear of darkness again and lost -50 points from its high in the last hour of trading.

The fear of darkness was probably brought on by the horror show scheduled to play at the Senate Banking Committee meeting room tomorrow morning. It is the sequel to the Nightmare on Wall Street part 1 that played to packed crowds in the House last week. The star is chainsaw Al Greenspan. Al uses his chainsaw wit to trim markets at will and attendance at Wednesday's event is sure to be a sell out. All seriousness aside, we all know the market will take its cue from the cross examination after the prepared speech. The Senate is probably more concerned with Mr. Greenspan's opinion about the tax cut proposal but there will be several senators waiting to spend their minute in the spotlight trying to elicit some market moving comment. He is sure to be asked his "feeling" on the economy and we all know that Al thinks the market is over valued, etc, etc. The real question is whether he caught enough flack from his hawkish appearance last week to decide to tone down his remarks tomorrow.

The bounce today in the markets were also helped by upgrades by several market moving stocks. American Express jumped +6.38 after being rated a strong buy at Morgan Stanley. Profits were up +12% and the forecast was strong. Hewlett-Packard was up +$4.00 after Salomon Smith Barney raised their price target to $130 from $105. Over +50 points of the Dow gains came from these two stocks.

Intel was upgraded to a buy from Neutral by SG Cowen Securities. They feel the free PC movement can only help Intel and fuel a new cycle of PC sales. Dell, another Nasdaq leader, powered forward for a +2.13 after announcing their new sub $1000 PC that comes with one year of Internet service and a personal web page. The free PC movement is taking hold and it makes you wonder what the PC vendors are going to do next year to bolster slipping sales. What is cheaper than free? The other Nasdaq horsemen rallied slightly. MSFT +1.19, CSCO +1.88, QCOM +1.75 and WCOM +1.50. The performances did not impress me.

The supposedly oversold market did not have any breadth. The advancers only narrowly beat decliners and the closing sell off shows a lack of confidence or commitment. I am sure we could move up from here but the market is still top heavy. Sellers were only barely beaten by bargain hunters buying the dip. One analyst said he saw evidence of short covering as short sellers locked in profit from the recent gains. The impact of Greenspan on TV tomorrow is a wildcard and it is better to take some profit off the table than risk it all on a possible kinder gentler Greenspan appearance.

AOL may be under pressure tomorrow as rumors surface that AT&T will start discounting its Internet access. A strong discount program would easily cut into AOL profits. Using a smaller independent ISP is a risk many surfers would rather not take and they stay in the comfort of AOL's security blanket. AT&T is a recognized name and would not have the stigma of the unknown. Any AOL weakness could pressure the Internet sector again.

The bounce, in my opinion, was simply technical and was powered by bottom fishing bargain hunters. With the Nasdaq down almost -9% from its highs there were many perceived bargains. If the market continues downward into August the red apples picked today could be thrown out with the rest just as quickly. One positive sign was the spike in put buying yesterday. The put/call ratio bounced to .70 at the close yesterday. This is a level not seen since last Feb and Oct before that. This represents a possible short term bottom and could give us a resting place if Greenspan does not torpedo the plan.

If you want to trade this bounce I would suggest waiting to confirm market direction AFTER Greenspan speaks tomorrow. Please, pick your entry points carefully.

Good Luck, Sell too soon.

Jim Brown

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