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Market Wrap

What goes down, must come up?

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        10-20-99           High     Low    Volume Advances Decline
DOW    10392.40 + 187.50 10392.40 10203.30   921,187k 1,630  1,370
Nasdaq  2788.13 +  99.95  2788.13  2728.00 1,053,703k 2,194  1,628
S&P-100  679.24 +  18.97   679.24   663.67    Totals  3,824  2,998
S&P-500 1289.43 +  28.11  1289.44  1264.62              56%    44%
$RUT     413.94 +   3.01   413.94   410.35
$TRAN   2808.44 -  51.77  2872.55  2781.93
VIX       25.21 -   3.25    27.37    24.73
Put/Call Ratio       .52

What goes down, must come up?

Or something like that anyway. What a change a day makes on Wall Street. Yesterday was a good day, no doubt, but today had a whole different pschylogy to it. The bulls take aim at stocks and ran them higher. It has been a few weeks since we've seen that kind of interest in stocks. Could it be that investors have turned a new leaf as the end October is quickly closing in? Probably not just yet, but perhaps a signal of things to come. Or at least that not all sentiment on Wall Street has gone south. Let's look at today's action.

The Dow Jones opened up over 100 points before retreating as a sense of caution was still in the air. After an hour it was only up 45 points which made you wonder if it was yet another failed rally. Fortunately, it turned out to be the real deal and had a good steady climb that sure felt like a strong rally for the rest of the day. The Dow ended at 10392.36, up 187.43, which is also the day-high. The trend, the close at the high, and the volume all had the look of a strong market. The NASDAQ had a similar feel and intraday chart. After hesitating in the first hour of trading, it took off and didn't look back. It closed at 2788.13, up 99.95, just missing a triple-digit gain and also at the day-high. The S&P 500 was up 28.51 to 1289.43. It also showed strength and life throughout the day.

But a look at the internals show the weak signals that we've become used to recently. Advancers beat decliners on both the NASDAQ and the NYSE but by a fairly narrow margin. The NYSE advancers were up 8 to 7 and the NASDAQ was ahead 11 to 8. The new highs vs. new lows continued to look scary heading into Halloween. There were 19 new highs versus 234 new lows on the New York. The Dow Transports weren't able to play along either as they lost 51.44 points which puts the average at a new 52-week low at 2808.44. Even the 30-year bond yield continued to grow finishing at 6.34% So there is nothing amongst the internals that may be signaling an end to the bearish sentiment. (Do you sense a bear trap warning coming on? You are right but we will recap today's market first.) For a look at Wednesday's action relative to the last two weeks, here are the charts...

These charts show that even though we have been able to put together a couple decent days that we are still under where we were just one week ago. We are also at resistance for all three of these averages. The Dow has resistance from both the 10 and 200-dma near the 10,375 range. This is where the market was stuck for most of the afternoon despite the final push just above that level. The NASDAQ has the 10 and 50-dma in this area at 2804 and 2769 respectively. The S&P 500 will will see resistance at the 10-dma at 1292, or 3 points over today's close. Therefore don't look for help from charts to justify a further rally.

Now you probably all ready know the story which drove the markets if you had read the market wrap from yesterday or caught CNBC at all today. Microsoft blew away estimates last night after the close to spark the technology sector. They reported earnings of $0.38 which was the high end of the whisper numbers. First Call was expecting $0.34. There was word that the Justice Department may quickly be coming to a conclusion in the Anti-trust case against MSFT as well. This set the stage for the tech rally which saw the Hardware, Software, Internets and Semiconductors are moving ahead. This is just you might have expected to run on strong MSFT numbers. The underperformers for the day were Banks, Airlines and Brokers. Hmmm, never heard that before!

Since Microsoft was the catalyst, let's see how they finished. MSFT closed at $92.25, up $5.94. This helped the other big names to gains as INTC, DELL, AOL and CSCO gained $4.81, $1.50, $2.75 and $2.56 respectively. And there were even more stellar gains from the second-tier companies. Stocks like EMLX, ADBE, BVSN, and PHCM which gained an impressive $11.25, $4.75, $23.75 and $18.25. BVSN reported earnings after the close last night that beat the street and cleared the runway for their 3:1 split run. The split is happening next Tuesday and thus the $23.75 gain today.

In fact, lots of stocks reported earnings either late yesterday or today but we dont' have time to go over all of them. (Over 500 stocks will report this week) Instead we want to turn our attention to the news after the close today. IBM, GTW and AOL are among the stocks that are reporting at the time of this writing. AOL beat the street by reporting $0.15 versus the estimate of $0.13. They had good subscriber growth and a new deal with Gateway to promote their services. AOL also showed a strong revenue mix and talked of a strong advertising backlog. No stock split announcement though. IBM reported numbers that were in line with estimates at $0.90 versus $0.78 from a year ago. There were concerns though with IBM's top line due to slowing spending from Big Blue's big customers as they prepared for Y2K by fixing older computers. Revenues grew by 5% and the CEO warned that Q4 would also be tight for IBM due to more Y2K. He said to expect as much as $0.15 to $0.20 cents below what IBM did in Q4 of last year. Analysts were expecting IBM to gain $0.09 over last year's number. He did say that next year could shape up to a big year for IBM though. Finally, GTW results were $0.35 against an estimate of $0.34. These were the record results that we have come to expect from Gateway but it may not be enough to save their stock tomorrow. In after- hours trading, AOL was down $3.50 at $117.50, GTW was down slightly and IBM was the disaster down to $100.13, down $12.63.

One quick mention of IPOs for today. There were 4 of them, of which 3 went higher, but one that stood out above the rest. Crossroads Systems, a storage area network provider, priced at $18 last night. It then opened at $36.50 before climbing to a high over $85 before settling back to close at $78.72. It could have just as easily gone sour if it had come out on Friday of Monday. The old saying that timing is everything proves true here!

You know what that means. SNAP! The bear trap was set, loaded and just sprung. Despite the appearance of a market recovery today, we will most likely be heading lower tomorrow. The MSFT earnings rally will turn into the IBM earnings debacle. When the largest computer company (IBM) and the largest online service provider (AOL) are trading down after reporting their quarterly numbers, there is reason to be concerned. They could lead their sectors lower tomorrow and the traders know it as the S&P futures are already down 8.00 points. The bottom line is that we haven't yet resolved the interest rate fears which in turn hasn't stopped the 30-year bond from falling.

Until we do, prepare for the worst and hope for the best.

Ryan Nelson
Asst. Editor

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