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Market Wrap

Green Light?

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        10-4-99           High     Low     Volume  Advances Decline
DOW    10401.23 +128.23 10417.69 10274.27 799.520k  1,755    1,244
Nasdaq  2795.97 + 59.12  2795.99  2736.85 917,740k  2,056    1,883
S&P-100  682.60 + 12.29   682.62   670.38  Totals   3,811    3,127
S&P-500 1304.60 + 21.79  1304.60  1282.81           54.9%    45.1%
$RUT     426.61 +  3.08   426.65   423.53
$TRAN   2959.10 + 90.76  2959.38  2868.34
VIX       25.70 -  0.73    26.85    25.56
Put/Call Ratio      .61

Green Light?

Have you ever been out late at night and have come to a red light that seems to last forever? Did you look all around and realizing that there were no cars or cops around, went through the light? Hopefully you didn't get caught by a hiding police car because it wouldn't be worth the few seconds you saved to get a $100 ticket. This is similar to the market today. Sure there were people willing to take the chance the Fed won't raise rates, but everyone needs to decide whether it's better to risk it to make those few extra dollars, or if you feel more comfortable waiting for the green light.

The markets rallied today ahead of the FOMC meeting, sending the message that rates aren't expected to be raised. The Dow rose 128.23 points to 10401.23, a rise of 1.24 percent. The NASDAQ was even more bullish, gaining 59.13 points, or 2.16 percent. Volume was a bit light today ahead of tomorrow's meeting with the Big Board trading 800 million shares and the NASDAQ with 917 million shares turned over. Breadth was positive, but not as much as one would think in such a strong market. The NYSE was 3-to-2 positive, with the NASDAQ just 20-to-19 positive.

The NASDAQ is now trading just 100 points shy of its all-time high of 2897 set on September 10.

Looking at the above chart, one can see the pretty good support the NASDAQ has built at the 2700 mark.

Besides the easing of fears about an interest hike, several mergers and acquisitions were announced today that helped the markets gain ground, especially in the telecomm arena.

Clear Channel Communications(CCU) announced the purchase of AMFM(AFM) for $23.5 billion in stock and assumed debt. The new company will have operations in 32 countries with about 830 radio stations. Of course the news was positive for AFM as it gained $1.38 to $65.19.

Another deal involved Gemstar International Group(GMST) and TV Guide(TVGIA). These two companies are going to merge in a stock swap worth $9.2 billion. GMST makes technology to help consumers video machine programming and TV viewing easier. The purchase of TV Guide seems a natural fit, though many analyst's were concerned with the high price. This concern sent GMST shares down $7.44 to $76.69, though TVGIA rose $4.42 to $45.94.

Though not a merger, Paul Allen ran Vulcan Ventures, announced a $1.65 billion investment in RCN Corp (RCNC). RCNC provides telecom services to the residential market. Vulcan will combine four companies in a joint venture to develop broadband products. The four companies that will be involved are: Charter Communications, RCN Corp(RCNC), Go2Net(GNET) and High Speed Access(HSAC).

Telecomm stocks were also benefited by the announcement that BellSouth has offered $72 billion for Sprint(FON) in an attempt to sway FON from joining forces with MCI WorldCom(WCOM). The news sent FON stock for a gain of $3.88 to $60.88.

In the Internet sector, the announced merger of Preview Travel (PTVL) and The Sabre Holdings(TSG) will create a company projected to have over $1 billion in travel bookings this year. The move is expected to put the heat on Microsoft's Expedia unit, which announced intentions to go public last month. The new company will have a market cap in the $243 million range. Along with the merger news, the new company signed a five-year $200 million contract with AOL to become the exclusive reservation engine on the various AOL properties. The new company symbol will be TVLY. Shares of PTVL gained $1.13 to $19.25 with new partner TSG rising $6.13 to $49.50.

Speaking of the Internet sector, several of the big names in this sector struggled today, but overall Internet stocks did well. Yahoo!(YHOO) will announce earnings tomorrow after the market and its seems traders are starting to play the historic drop YHOO makes after its announcement, as the stock lost $4.25 to $171.19. YHOO actually reached an intraday low of $166.63. Several other big names struggled today also. AMZN(-0.19), PCLN(-0.90), MSPG(-0.56), ATHM(-0.87), RNWK(-0.44). Though not huge losses, these losses occurred on a very nice day in the market.

The Internet stocks that seemed to benefit today are the stocks that are behind the scenes in helping companies take advantage of the e-commerce phenomenon. These stocks create software and systems that help other companies more effective in their e-commerce dealings. ARBA(+11.57), AGIL(+6.19), MRBA(+3.44), CYCH(+1.19) and VIGN(+5.50). Overall, the Amex Internet Index (IIX) gained 4.94, or 1.53 percent, to 327.62.

Today's positive move was pretty much across the board. Financials performed very well as the fear of a rate hike subsided and bond yields dropped to 6.092 percent. Shares of American Express(AXP) gained $6.19 to $137.56. Transportation stocks rose substantially as oil prices dropped $.81 a barrel to $23.73. The Dow Transports rose 90.76 points to 2959.10. To help add to the positive news for transportation stocks, Continental Airlines(CAL) stated that September air traffic grew 9.3 percent over the year ago figure.

The semiconductor sector rose nicely today ahead of several of the sectors companies announcing earnings this week. The SOX rose 23.23 to 531.67. It seems traders were correct in bidding up these stocks today since Micron(MU) announced earnings after the bell that beat estimates. In regular hours trading, MU shares rose $4.88 to $76.38. MU's earnings came in at $-0.07 a share, substantially better than analyst's estimate of $-0.16. Revenues increased 56 percent. In after hours trading, MU shares continued up. This should bode well for the Tech sector tomorrow. Several other semiconductor companies will announce earnings this week also. The big name being Advanced Micro(AMD) on Wednesday.

So do we run the light tomorrow and jump in the market? Tough call. We would suggest waiting to see if a pre-announcement drop occurs, offering a better entry point. The Street feels that as long as the Fed doesn't raise rates, the markets should rally, the debatable question is for how long. Technicians will continue to point out the precarious situation the markets are in compared to their moving averages, but with earnings season knocking at the door, it seems that traders will start focusing on these earnings, rather than the negatives. With the dollar seeming to firm against the yen, the advance/decline finding a short-term bottom and bond yields seeming to have topped, the market looks poised to head higher. One problem with this idea is that if the Fed takes a "tightening bias" and the jobs report on Friday comes out very inflationary, the Fed could tighten at that time. The odds of this are very low, but the thought could keep some out of the markets until the jobs report is announced. We would suggest finding prices in stocks you are tracking that might be hit on a dip Tuesday before the announcement at 2:15 Eastern time. We would like to see the Dow break through the 10,500 level, a point that used to be support, but since broken, has become resistance. This seems likely to happen with a non-move by the Fed tomorrow.

Always remember to plan your trade and trade your plan, and lest we forget, sell to soon!

Jody Osborne
Research Analyst

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