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Market Wrap

NASDAQ 3,000 - Easy Come, Easy Go

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        11-2-99           High     Low    Volume Advances Decline
DOW    10581.80 - 66.70 10751.90 10572.70   906,760k 1,651  1,348
Nasdaq  2981.63 + 13.98  3014.84  2971.68 1,244,140k 2,073  1,879
S&P-100  707.82 -  4.39   720.40   706.87    Totals  3,724  3,227
S&P-500 1347.74 -  6.38  1369.44  1346.49            53.5%  46.5%
$RUT     432.39 +  0.57   435.34   431.64
$TRAN   2968.08 -  8.42  3005.12  2962.26
VIX       23.94 +  1.71    24.03    21.34
Put/Call Ratio      .57

NASDAQ 3,000 - Easy Come, Easy Go

It appears that stocks have finally lost a little of the momentum that pushed the Dow and NASDAQ up so strongly since the marketlow on October 18. Most stocks had a lot of trouble holding on to morning gains and sold off in the afternoon.

This morning the Dow rose on comments from Alan Greenspan and much-improved market sentiment for both bonds and stocks. At one point this morning the Dow traded up about 98 points, but as the afternoon progressed a wave of selling forced the major indexes off of their highs, and pushed them to their session lows. It was reported that at least part of the reason for the afternoon sell-off was comments made by a JP Morgan analyst who predicted no less than 3 Fed rate hikes over the next 9 months. If that alone could cause a market decline, some traders must be begging for a reason to sell their stocks and take some profits off of the table.

Greenspan's comments are more closely watched, but more ambiguous than any analyst's. This morning the Fed chairman addressed another group of bankers and essentially said that rising real estate prices have contributed to America's collective spending spree more than soaring stock prices. How we translate that into anything useful is anyone's guess. It seems Mr. Greenspan and many of the other Fed governors enjoy having every economist, analyst, and trader hang on every word they say, hoping every small piece of economic data pleases the wise, father figure. I'm sure Freud had some sort of theory to describe that behavior.

The Dow ended the trading day down 66.67 points, or .63%, at 10,581.84. With an intra-day range of about 170 points it's fair to say it was another volatile day, although triple-digit moves don't even raise eyebrows any more. Even with its newly realigned index, the Dow underperformed the NASDAQ and S&P 500 for the second day in a row. The following chart show's the Dow's relative underperformance.

The NASDAQ set yet another record high today, but, like the Dow, saw the bulk of its gains melt away in the afternoon. After trading as high as 3,014.84 and spending most of the day well above the psychologically important 3,000 level, the NASDAQ settled off its highs and closed up only 13.96, or 0.3%, at 2,976.50. After running so hard it is natural that the NASDAQ would eventually begin to struggle a little while trying to push to new highs. The S&P 500 also had an afternoon sell-off, closing more than 20 points off its highs. It finished at 1,347.74, down 6.38 points, or .47%.

Today's volume was very strong again, with about 1.15 billion shares trading hands on the NASDAQ and 878 million on the NYSE. In spite of the negative afternoon, advancing stocks beat decliners 17 to 15 and 16 to 13 on the NASDAQ and NYSE respectively.

Chip stocks were again among the best performing in the market today. Shrugging off yesterday's earthquake in Taiwan, many chip stocks rallied to all-time highs. The widely followed SOX index hit a new all-time high today at 571.57, up 2.9%, but off of the day's highs. Chemical and banking stocks also had a good day, as both indexes rose 0.5%. Those were the only mainstream sectors outside technology who put in a good day today.

As hard as it is to believe, HMO stocks were probably the strongest in the market today, with the HMO index rising 6.6% today. The index has risen about 20% during the past five trading sessions, which is a strong move, but when you consider that it is still about 30% off of its 52-week high, it still has a long way to go. With such a strong, quick move in HMO stocks, one would think that would be a cue for Hillary Clinton to start clamoring for socialized medicine again.

The Internet sector continued to struggle today, as TheStreet.Com Internet index fell 1.2%. Internet stocks have been languishing in the wake of earnings season as investors have been trying to decide if they are still willing to wait indefinitely for good earnings. Several Internet stocks, such as eBay, who merely met but did not exceed expectations, have suffered as a result and the rich premiums many Internet stocks have commanded may be causing some investors to balk. There are indications that traders of Internet stocks are becoming more selective and requiring more of the companies they invest in.

The 30-year Treasury bond had another respectable day. The benchmark rose 10/32 and brought the yield down to 6.14%. We have been getting mixed messages about the future direction of interest rates, with some seeing a resumption of the yearlong decline in prices and others pointing to last Monday as a bottom. Nothing fundamental has changed and it appears that a 25 basis point hike is priced into the market. We will probably see the yield trade in a range until something substantial gives us some direction. The following chart shows the yield on the 30-year Treasury, which is currently sitting at a long-term support level. If it is broken it could signal a top in bond yields.

Friday's employment reports for October will be another indication of inflationary pressures, and this week's only real piece of potentially market-moving data. Analysts are currently expecting earnings growth to slow a little and the unemployment rate to remain steady with September's data.

The overall sentiment for the market has turned more bullish than it was a few weeks ago. That alone should cause us to be a little more cautious. A lot is being made of the NASDAQ reaching the 3,000 level. CNBC is planning a 2 1/2-hour extravaganza show when it has a close above that level. While in the "Information Age" it may not be quite as bearish as it once was when your shoeshine boy gives you a stock tip, it can be dangerous to trade based solely on news. NASDAQ 3,000 has only psychological significance, which can drive the market temporarily, but can also be very fickle.

It would not be surprising to see the market a little weaker tomorrow morning, based on today's sloppy close. Even with the big rally in the stock market there are still a lot of good plays for both value and momentum investors. Look for pullbacks to either initiate or add to positions. Good luck and happy trading.

Chad Poulson
Research Analyst

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