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Market Wrap

Hello Ripley? Believe it or not, 9 records in 10 days.

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       11-11-99           High     Low      Volume Advances Decline
DOW    10595.30 -   2.40 10643.90 10543.90   891,350k 1,259  1,715
Nasdaq  3197.29 +  41.33  3201.38  3169.04 1,379,835k 2,012  1,983
S&P-100  725.11 +   4.24   726.27   720.30    Totals  3,271  3,698
S&P-500 1381.46 +   8.00  1382.12  1372.20            46.9%  53.1%
$RUT     447.49 -   1.23   450.76   447.09
$TRAN   3011.99 +   5.75  3017.04  2988.84
VIX       22.54 -   0.96    23.76    22.26
Put/Call Ratio       .55

Hello Ripley? Believe it or not, 9 records in 10 days.

After only a -19 loss on profit taking on Tuesday the Nasdaq has charged off again on another streak of new record highs. The gains are on strong volume making Thursday the fourth heaviest day on record with 1.38 bln shares traded. The Nasdaq continues to soar without the help of the Dow. Since spiking to 10840 at the open on Friday of last week, the Dow has continued to be weak and has closed exactly at lower support (10600+ for the last three days. The advance/decline line has been negative all week and new lows continue to beat new highs.

You can see by the Dow chart above, that except for the spike last Friday the trend has been flat to down for over a week. However in contrast to the Dow the Nasdaq chart below is perfection in real life. The Nasdaq has been charging forward as if there was no worries in sight.

I applaud the rally in the face of the coming Fed meeting and hope it continues. The reason for the rally is historical. Normally techs go down first and rally first. After the tech prices appear to top the rally will broaden out into the other sectors if the internals and economic fundamentals remain favorable. The Nasdaq rally is being fueled by massive amounts of cash coming in from the sidelines by institutional buyers. Comments like "just get me filled at any price" is powering some of these stocks to nosebleed levels. The fear by the tech funds is that the train is leaving the station and by waiting for a pull back that never comes they will be cursed with lesser returns than their fund brethren. This is causing a speculative bubble in techs that could be dangerous if the market fundamentals turn negative.

The Fed meets next Tuesday to decide if they are going to raise rates, one of the major bull market fundamentals, and the Nasdaq market is ignoring this event. The on again, off again rate hike is still undecided. We seem to be vacillating between rate hike and no rate hike every other day. If the Fed does not raise rates then their warning words over the last few months will fall on deaf ears next time. This is the last chance to raise before Y2K. They meet again in December but nobody expects a raise one week before Y2K. The next meeting is in February. The Nasdaq appears to have factored in a rate hike several weeks ago during its strong correction. It is hard to believe the low for the Nasdaq on Oct-18th was 2632, almost 600 points or 23% later. Even if the rate hike does not happen the odds of a significant Nasdaq correction soon are growing every day we have another strong back to back gain. The Nasdaq is now up +45% for the year. 45% !!!!!

Like I said on Tuesday, the Dow appears more concerned about possible Fed action. In reality the Dow was tech weak until just recently but is heavily impacted by financial concerns with Citigroup, JP Morgan and American Express. The recent addition of MSFT and INTC to the Dow has increased the tech ratio but those stocks have not set the Dow on fire yet. The tech stocks holding up/down the Dow now include HWP, IBM, UTX, IBM, MSFT, none of which have participated in the tech rally.

The PPI report on Wednesday only served to slow the Nasdaq advance slightly. You know the old saying, "don't confuse me with the facts". It appears the Nasdaq is bulldozing all the fact roadblocks in its path. The new roadblocks to be faced tomorrow are the Retail Sales and the Productivity report. The Productivity Report is sure to show some strong gains which would be good for the market. The Retail Sales however may show some strong gains also and that will not be good for the market. The productivity gains are more important since it is the trade off for higher unemployment and labor costs. The Fed will be looking at both of these to factor into their decision process. The wildcard here is the market itself. If they feel the Nasdaq rally is the beginning of a speculative bubble then they will be more likely than not to pull the pin and deflate it.

There was some interesting news driving some of the market leaders today. Microsoft announced a deal with Tandy (Radio Shack) where MSFT products will be sold in kiosks in Radio Shack stores. TAN was up strongly on the news. This prompted Best Buy and Circuit City to jump on the expectation that AOL would do a similar deal with them. (What no AMZN book kiosk?)

The major credit card lenders took a nose dive when Bank One (ONE) issued a profit warning today. They expect to miss estimates by -.20 next quarter. Customers paying off their balances early are impacting their results. This is another example of the wealth effect from a constantly rising bull market. Wealth is being made and spent from rising stock prices instead of labor, materials and products. The end result will be inflation. PVN, COF and MNBA (KRB) were all down early but COF issued a statement that "business could not be better" and they finished slightly positive.

Dell announced earnings after the close and met analysts estimates of $.18 vs $.14 last year. The more important number was the revenue at $6.78 bln. Analysts were afraid that the recent earthquake warning by Dell could have cost them millions in lost sales. Apparently Dell had enough in the pipeline to offset any recent problems. After the announcement CEO Michael Dell was very upbeat in a phone interview, saying Y2K was not a problem and 40% growth in the fourth qtr was probable. Dell traded up +1.00 in after hours.

Friday Forecast: It is all in the numbers, again. The Retail Sales and Productivity numbers out before the open will dictate our direction. With the Fed meeting only two days away the numbers will be microscopically examined for any of the dreaded inflation signs. A bad report on either could cause some profit taking to settle in again. Also traders may want to go into the weekend and Monday flat and see what direction we go after the FOMC. The last several Fed meetings have been preceded by rallies even though there was no justification for the move. Market logic (oxymoron) would call for a step backwards before Tuesday. Don't tell the Nasdaq, its not listening to logic.

I had several requests for stocks on which to sell naked puts on Friday with only a week to go before November expirations. This is dangerous because of the possibility of an abrupt change in market direction in the next three days. If you protect yourself with stop losses then these candidates would be good choices. (They are not the normal low dollar stocks that Ray does so well in the Sunday Naked Put Section. They are my high dollar, high risk favorites.) UBID $37, Nov-35P, DELL $44.25 Nov-42.50P, KIDE $76.50 at support Nov-75P (good premium), SFE $118.75 Nov-115, EMLX $179 support 175, Nov-175P (good premium), BVSN 81.56 Nov-80P, MSFT 89.56 Nov-90. Remember, the best way to play these is to wait for a market dip on one of the news events the next three days. This will inflate the premium and give you some feeling for where the support might be. As long as you use stop losses you can enter them anytime the market is moving up and then protect yourself.

Pick your entry points carefully at this altitude and sell too soon. The Fed is still ahead!

Jim Brown

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