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Market Wrap

Off on the right foot!

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        9-01-99          High      Low      Volume Advances Decline
DOW    10937.88 +108.60 10941.36 10828.44  701,326k   1,703   1,251
Nasdaq  2750.80 + 11.45  2768.55  2739.11  918,222k   2,073   1,808
S&P-100  698.21 +  5.97   698.99   692.39   Totals    3,776   3,059
S&P-500 1331.07 + 10.66  1331.18  1320.31             55.3%   44.7%
$RUT     430.99 +  3.16   431.53   427.83
$TRAN   3104.11 + 28.34  3112.43  3076.10
VIX       23.74 -  1.50    25.66    23.67
Put/Call Ratio      .98

Off on the right foot!

The first day of the new month got off on the right foot despite a midday stumble. Perhaps today's rally was a carry over from yesterday's late surge, which broke the NASDAQ out of 3-day tailspin. Most investors, still recovering from Tuesday's shock when the NAPM report was released a day early, realized today could be smooth sailing, free of any important economic data (barring any other surprise release, of course). And smooth sailing was in the forecast as stocks generally moved higher. We saw a lot of nervousness though as a lot of investor nerves are still recovering. It is becoming more apparent that some investors will be quick on the sell button heading in to the Y2K fears. Hopefully the neutralizing effect will be the strong earnings that most analysts are forecasting for the remainder of the year.

So what does that leave us? Lots of volatility. Consider today's action for example. The Dow was sitting up +100 points, for the most part, between 11:30am and 1:30pm ET before dropping back to +30 by 2:30pm. The NASDAQ gave back all of its 29 point gain and the S&P 500 had also gone flat. This possibility of going back down under water after yesterday's strong recovery can make even the strongest traders faint of heart. But thank goodness for even numbers as the S&P 500 bounced off 1320 and the NASDAQ bounced off 2740. The final hour-and-a-half pushed the Dow back to its high and left the S&P and NASDAQ with decent gains as well.

The Dow Industrials finished up over 108 points to end at 10937.88. The volume was a little better once again at 701 mln shares. Advancers led decliners 17-to-13 on the New York and, though more narrow, rising NASDAQ issues also led decliners 10-to-9. Other indices in positive territory include the S&P 500 by 10.66 points, the NASDAQ by 11.45 and the Russell by 3.16. One concern would be the new-highs versus new-lows which remained weak.

DJIA

NASDAQ

The next watering hole in this oasis we call the markets is Friday's release of the August employment numbers. Wall Street is expecting 215K new jobs and an unemployment rate of 4.2%. This report will either poison the water and kill the market or provide the much needed relief for traders to quench their thirst. For those who don't know, if the employment numbers are too tight, then it will give the Fed another reason to raises rates again this year. Definitely not a plus for the equity markets. If we get anything stronger than expected, it will be just another weight to drag down the 30-year bond. Who knows where that would put the yield? Short- term highs aren't that far away at 6.25%. And don't forget about the weakening dollar, which fell below 109 against the yen today. This makes imports more expensive and is therefore inflationary. But before you run out to buy Honda Accords and Sony Playstations (assuming you actually see the discount), remember the dollar is far from being in any serious trouble. Neither the U.S. nor Japanese government wants to see an excessively strong Yen and would step in to defend the dollar if it falls too far.

BOND YIELD

As was mentioned above, the markets were shy one economic report today but we still got Construction Spending numbers. They came in at a better-than-expected -0.5% for July. This means that our economy may not be overheating. The June numbers were revised as well to -0.1%. This no doubt helped some investors regain their confidence as the bargain shopping for stocks got under way.

We did see some positive signs from the cyclicals and transports which had been sinking lately. Paine Webber and Salomon Smith Barney jumped in with upbeat comments for the paper group plus issuing upgrades for IP and WY. Forest products analyst Richard Schneider said he feels the recent sell-off has produced attractive valuations and expects upside earnings surprises from most stocks in the sector. The transports had looked bleak for the past four sessions which is always a concern to technicians but they rallied today despite higher oil prices. This should help overall market sentiment but if oil stays high, the rally may be short-lived.

One of the hot sectors today included the Biotechs which saw winners like IMNX +$2.61, AGN +$4.81, DNA +$3.31, HGSI +$3.31, MEDI +$8.81 and AFFX +$4.50. The later three had upward price target revisions by CSFB. They cited positive product developments and profit outlooks for the firm. Other strong sectors include the Brokers, Semiconductors and Hardware. Speaking of semiconductors, Intel hit a new intraday high as news of their new chip designs powered a new rally in the whole sector. Intel is going after a new market with this Internet chip to work in routers and the like. They've already got orders from most of the big networking companies. This new chip will probably show up in about a dozen new products or more.

Some of the big players were moving on Wednesday as well. AAPL and SUNW all hit new 52-week highs. CMVT surged 7.37%, or $5.75, after beating the street by .03 cents with their Q2 earnings. Lehman Brothers jumped on board by raising their price target and earnings estimates for 1999 and 2000.

On the not-so-hot list we find the Wireless communication companies. This group contains the high-profile loser for the day, Qualcomm. This is an interesting story. An analyst at Everen Securities started things off this morning by saying he expects QCOM to meet his fourth quarter profit goals but not dramatically exceed them as they have in the past. Apparently tightness in component supplies and price erosion in the handset business may limit earnings. Banc of America also jumped on the bandwagon by downgrading the stock from a Strong Buy to a Buy. They cited increased competition as well. Shares of QCOM got whacked on the news falling to an intraday low of $165 before recovering slightly to end at $168.69 (-23.50 for the day). The interesting part is that analysts at JP Morgan emphatically deny that such a slowdown will take place. Again quick trigger fingers hit the sell button as no one wants to be left holding the bag in case the worries prove true. Other weak sectors include Internets, Oil Drillers and Online Brokers.

Speaking of selling, MMCN fell again today. They closed at $26.75, down $4.13 which doesn't sound too bad until you look at the two-day total which stands at $23.25. Ouch! Hopefully the company's emergency conference call after the close today can restore some degree of order in their stock.

So when it is all said and done for the day, there is reason for a good sigh of relief. We are getting a mixed bag of economic and market related news. This should at least keep things in check for awhile. After all we did end near the highs for the day. We are encouraged by the easy comparisons for year-over-year earnings for the 3rd quarter which have investors buzzing (unless of course you are investing in the retail sector). The latest number now shows an expectation from First Call of 22% increases on average for the S&P 500. We are seeing much stronger foreign economies than this time last year. The Bovespa in Brazil closed up 2.8% today. Not to be out done, the Japan's Nikkei was up 365 points after IMF doubled their growth forecast for Japan from 0.25% to 0.50%.

Investors are also looking forward to the return of volume after the Labor Day weekend and some traders may try to get in ahead of a post-Labor Day rally. What are we keeping our eye on? The 30-year bond for starters. It ended on its low for the day putting the yield near its high for the day. A reoccurring theme that worries most traders. Thursday's focus will be on Friday's employment report so don't expect a lot of volume ahead of the release. Also let's not forget that earning warnings season officially opened yesterday. We mentioned ODP yesterday and I guess you could add QCOM to list, even though it wasn't the company issuing the warning. Again a relative balance between fear and euphoria.

For you more technical traders, it is arguable that the Dow is giving us positive signs. Granted this is very short term, but it looks like it is building a bullish triangle with higher lows over the last day and a half with resistance at 10,950. Fortunately, the Dow is holding its 100 dma, but its 50 dma is 10,956. The NASDAQ bounced off its 50 dma yesterday, but we will need more volume to make any rally believable. Don't under estimate the safety of the sidelines. You are better waiting for confirmation than getting caught in the crossfire.

Sell too soon.

Ryan
Asst. Editor

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