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Market Wrap

We held Wednesday's gains, almost!

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        10-7-99          High     Low     Volume  Advances Decline
DOW    10537.00 - 51.30 10604.50 10508.20   878,853k 1,220  1,727
Nasdaq  2860.70 +  3.49  2886.20  2847.18 1,216,890k 1,845  2,019
S&P-100  689.74 -  5.10   696.03   687.96    Totals  3,065  3,746
S&P-500 1317.64 -  7.76  1328.03  1314.13              45%    55%
$RUT     428.11 -  1.65   430.72   427.21
$TRAN   3046.92 + 36.89  3066.14  3014.80
VIX       24.88 +  1.35    25.50    23.34
Put/Call Ratio      .58

We held Wednesday's gains, almost!

The real key is now the Employment Report at 8:30 Friday morning. After the blowout numbers from Yahoo the Nasdaq, held up by Internet stocks, held up the Dow for most of the morning. The fear of Friday's Employment Report finally swamped the Dow and sent the advance/decline line into the negative column by late afternoon.

Since Tuesday the Dow has broken out of it's trading range between 10200-10400 and soared to touch 10600 intraday today. The rally on Wednesday was very broad based but the leaders on Thursday were mostly Internet stocks. Yahoo! fueled the fires, for at least one day, and almost anything with a .com behind it was up strong. The Dow was hampered by continued selling in CHV, IBM, GE, MRK, HWP and Sears (S).

Chevron and Exxon sold off again on the possibilities of higher output by some OPEC countries. Oil itself was down -.79 a barrel. The transports cheered and extended their winning streak to four days.

IBM got hammered again by another analyst who was concerned about weak hardware sales. IBM was down -2.94. HWP was again sold into the rally with investors taking back -1.38 of the +$5.00 from yesterday. GE beat estimates by a penny with record profits but pulled back -1.81 on the news. (Not an Internet stock) MRK was weak on profit taking after four days of gains. Sears finished down on the list of retail sales producers and gave back -1.31. Not a great day for the Dow but after adding +400 points from Fridays lows you should have expected some profit taking in front of the Employment Report.

The Nasdaq however was off to the races at the opening bell this morning after Yahoo! blew away estimates after the bell yesterday. The strong +$.14 actual beat the estimate of $.09 and re-affirmed the web models for hundreds of .com businesses. Unfortunately only a handful will ever do a fraction of the revenue Yahoo does but they all get valued by the same standards. So rejoice Internet stock owners. Some of the big gainers were AMZN +4.88, CNET +3.06, EXDS +3.63, INSP +5.38, NSOL +2.25, ONSL +2.44, RNWK +6.69, VERT +6.13, VRIO +3.13, VRSN +5.25, XMCM +3.72, UBID +7.94 and of course the leader YHOO +14.50. (Yes I did buy puts today but that does not mean a weak jobs report tomorrow will not make it move up some more.) Absent was EBAY -1.56, AOL -1.50, LCOS -1.31. These had been up recently and we feel this was just rotation.

The Internet strength helped the Nasdaq stretch it's winning streak to four days. Intraday the Nasdaq moved to within one point of touching it's own record closing high of 2887 but that was at 11:30 and it trended down for the rest of the day. It closed +160 points from last Friday's lows and we are quickly going from oversold to over bought. We could see some profit taking at any time. Volume was very heavy today with over 1.2 bln shares trading. Another cause for concern was the fall from grace for the chip sector. Ironically, the good news that all the earthquake damage had been repaired, was the bullet that knocked them off the leader board. Damages repaired equals prices falling back into the cutthroat range and profits put back under a microscope. Micron (MU) dropped -7.13 on the news that the 100% price premium for memory chips from last week was dissolving. (I ordered some computers for the office last week and my supplier asked if I could wait two weeks since the 128MB chip had gone up +$200 in one week.) Makes you wonder about the security of the "just in time" inventory model if Y2K creates even a small ripple in the supply chain.

The bulls and bears lined up on the sidelines today with their view of the Employment Report and the Fed reaction on Friday. It did not help that the European Central Bank took a page from the Fed play book today and failed to raise rates as expected and instead "tightened their outlook" on future rate increases. The sigh you heard was the global markets slumping in pain. The same reply was heard there as here. "Just raise the rates and get it over with." The cloud over the markets makes the future outlook hazy for them as well as us. Abbey Joseph Cohen went on record again today that she thought the S&P was 5-10% under valued. She also sees no inflation growth and does not fear the Fed. Others are jumping up and down on the bearish side and predict the Fed could pull the trigger as soon as Friday if we have a stronger than expected report. 38 of the S&P-500 companies have reported earnings and the results are incredible. 66% beat the estimates, 26% met the estimate and only 8% missed expectations. Announced earnings have averaged +25% over last year. This kind of spectacular performance will overcome almost any negative market events.

The Employment Report tomorrow is expected to show +220,000 new jobs and a 4.2% unemployment rate. Jobs over 300k and more important, unemployment under 4.2% or hourly wages up over +.4% may cause the market/Fed to react negatively. I think the possibility is slim but it does exist. The market is strongly bullish right now on the earnings euphoria but that can change in a heartbeat with the right event. So unless the jobs report is really bad the market may shake it off and continue upward. Keep watching your back and take profits promptly.

Pick your entry points carefully after the strong gains from last week and definitely sell too soon.

Jim Brown

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