Option Investor
Market Wrap

Storm clouds blow in, bringing uncertanity to the markets.

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        9-16-99          High     Low     Volume  Advances Decline
DOW    10737.46 - 63.96 10799.25 10626.65  730,192k    888   2,066
Nasdaq  2806.72 -  7.45  2820.84  2756.03  963,858k  1,358   2,501
S&P-100  694.89 +  1.08   697.37   684.10   Totals   2,246   4,567
S&P-500 1318.48 +   .51  1322.51  1299.95            32.9%   67.1%
$RUT     430.25 -  6.08   436.63   429.31
$TRAN   2986.88 -100.72  3089.85  2979.02
VIX       26.99 +  0.61    29.95    25.96
Put/Call Ratio      .81

Storm clouds blow in, bringing uncertanity to the markets.

As if the ever changing interest rate climate was not enough to give the markets indigestion, Hurricane Floyd, now downgraded to a tropical storm, pounded away on the east coast and threatened to shut down trading early. After the bond markets and the NY Mercantile Exchange closed early the SEC rushed to assure traders that the equity markets would be open on triple witching Friday.

Traders rushed to cover positions this morning after various rumors made the rounds about a possible Friday closure. Closing the markets on Friday would have been a disaster for the options and futures expirations. Traders were concerned about when/how the expiration would be handled. Would Thursdays close be the number? No, not hardly. Would trading be carried over to Monday with expirations occurring on Tuesday? The question was ruled mute when officials rushed to assure traders that the markets would be open for trading. As with a collective sigh of relief the Dow roared back from a -177 point drop but still ended the day down -64 points. The Nasdaq also recovered from a -58 point fall to flirt with positive territory near the close.

Four days, four drops, where is the Sept rally I was looking for? It looks like the positive market fell victim to a variety of problems. Last week we had not one, not two, but six FED speak appearances. After the Kelley attack the week before, the markets were very cautious of any future FED stealth bombs. Secondly the PPI was another milestone holding traders back last week and the CPI marked this weeks deadline. Both to be avoided by big investors. Thirdly, the wildly optimistic earnings for the third quarter of +20% are now being called into question almost daily with earnings warnings by big name companies. The fourth market problem was the falling dollar which makes our goods and services more expensive and investments in the U.S. less desirable for Japanese investors. Last and not least is the soaring price of oil. At $24.50 today, a 2.5 yr high, the damage is being felt. With future estimates of $28-30 now commonplace the transport sector, the first sector to be impacted strongly, set a new yearly low. Honorable mention here should also be the impending Y2K sell off. It appears investors are becoming more and more concerned that their might not be a third quarter earnings run and selling into any rally is picking up speed.

Federal Express was a major factor in today's drop with an earnings warning for the next quarter. After missing estimates for last qtr by -.02 and warning about next, FEDEX dropped -5.44 to lead the transports down. QTRN was the next lucky loser of the day with a -14.75 after warning of slowing orders for several drugs that were not living up to expectations. But, you point out that those are not tech stocks. Sorry pardner, but some of those leaders took a bullet also.

HWP dropped on news that sales of their UNIX servers were slowing for the fourth quarter. One analyst said that SUNW had a much better product and SUNW sales were increasing rapidly. That was enough to drop HWP for a -4.56 loss and account for about -20 of the Dow drop. As if that was not a big enough name to attract attention, Xerox also reported that sales were expected to grow in the +3 to 4% range when analysts were expecting +5% growth. Boom! Another one bites the dust to the tune of -4.31 for the day. Raytheon (RTNA) rounded out the trio of big tech losers with it's own warnings of a pending shortfall and was dropped for a -7.25 loss.

Things are not looking good in the market. However, that is probably a good thing. Sometimes, like the hurricane problem, things look blackest just before the storm. When the storm actually arrives it's bluster and fury don't always equal the expectations. Look at Floyd. This morning it was a market mover as the entire north east geared up to be blown away. Tonight it is turning into just a strong thunderstorm. The Dow had dropped -516 points from its recent high of 11142 last Friday. -500 points in four days = a strong possibility of a technical bounce. Secondly, we are at the very bottom of our longer term trading range. Right at the bottom set on Sept 2nd/3rd and the bounce today came only a couple dozen points off the August lows. Another receipe for a technical bounce. Thirdly there are not any earth shaking economic reports due out tomorrow. Sure, we have another Fed scare at 8:45 AM ET tomorrow as Alan Greenspan talks about Y2K preparedness but the downside is very slim. I doubt he will preach doom and gloom. I suspect he will brag about measures already in place and try to reassure investors that Y2K will just be another holiday. While many will not believe it there are also many who are hoping that the government will just "take care of it" and their investment plans will not suffer. These people will be encouraged and the market could rally from here. The technicals of the market continue to be very negative. Today there were 17 new highs compared to 147 new lows and the advance/decline line was negative by better than 2:1. However, even with all the doom and gloom in the technicals the market has been know to turn on a dime just when the outlook looked worst.

My take on today? ENTRY POINT !! But never fight the tape. If I am wrong, and it will not be the first or the last time, sell too soon. Friday could be just a technical rally or the start of a more prolonged move. Lets just hope the direction is up. Watch out for more earnings warnings in the morning and wait for amateur hour to be over before opening any new positions.

Jim Brown

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