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Market Wrap

"Rumors of my death are greatly exaggerated"

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        11-24-99           High     Low    Volume     Advances Decline
DOW    11008.20 +  12.60 11044.30 10949.10   739,026k 1,388    1,625
Nasdaq  3420.50 +  77.63  3420.50  3328.03 1,286,527k 2,147    1,860
S&P-100  753.20 +   6.25   755.88   744.18    Totals  3,535    3,485
S&P-500 1417.08 +  12.44  1419.71  1399.17            50.3%    49.7%
$RUT     455.93 +   1.48   456.04   451.22
$TRAN   2923.33 -  56.96  2980.01  2912.25
VIX       20.47 -   0.70    22.39    20.12
Put/Call Ratio       .43

"Rumors of my death are greatly exaggerated"

Mark Twain, meet Mister Market. Other than orderly profit taking experienced yesterday, the markets simply refuses to die. Why? In front of Thanksgiving, isn't it supposed to be quiet with lackluster volume? Usually yes; but this is an unusual rally that when you strip away the smoke, mirrors, lights and noise, it comes down to one thing: LIQUIDITY. There is simply more cash out there that needs to be put to work. The evidence manifests itself in volume. If there is no cash getting put to work, by definition, nobody is buying, thus volume is low. Anybody listening today to the financial reporters on CNBC walked away thinking the stellar gains were from day traders sitting in front of their terminals entertaining themselves because they had the day off. Don't buy it. Day traders would not be playing in MSFT, INTC, CSCO, WCOM and DELL and would certainly not be taking NASDAQ to a breakout new high over 3400 - the 15th record high in the last 19 trading days. These companies make up 40% of the NASDAQ and saw the biggest price moves and volume today, which by definition would have the most influence on the index numbers. This is institutions buying with all that cash they'd saved up in September and October while waiting for the buying opportunity. With 1.3 bln shares trading the day before Thanksgiving, you can be sure that Aunt Edna and Uncle Frank didn't pull the motorhome over at the closest phone booth to buy 100 shares of Microsoft or Cisco. Institutions move markets, not you and I

Need more proof? Would daytraders take 1.3 bln shares home with them over an extended weekend? Nope - they want to go home flat (no positions), especially since Friday is a half day, making today the effective close for the week. Knowing that, there should have been major selling into the close. But, take a look at the chart below.

This is a 1-day chart of today's action on the NASDAQ. See any selling at the close? It's not there. Institutions with a longer time horizon are in the driver seat. They don't buy at these levels to lose money.

So how 'bout that third quarter GDP revision from 4.8% to 5.5%, or the jobless claims showing up at 17K less than expected. Isn't that inflationary? Won't Alphonso the Great want to raise rates again? The answer on any other day after January 1, 2000 would be yes, and the bond market has started to take notice by sending the 30-yr. bond rate up to 6.21%. However, since the last rate increase on November 16, nobody really expects the FED to raise rates again in the face of Y2K uncertainty. Accordingly, the expectation is that the next rate hike would not come until February at the earliest, and more likely, March.

Why? Take oil stockpiles as an example. Distributors report that customers, including utilities and gasoline retailers want to stock up "just in case". Everyone wants a full tank of gas and heating oil on December 31. Of course, that stimulates current demand as evidenced by the current price of oil hovering at $27. After January 1, 2000 when we wake up to discover that everything (with few exceptions) still works, those inventories will have to burn off before they get replaced. By definition, lowered immediate demand will fall off, thus stalling replacement spending - inherently deflationary. This same cycle could play itself out in most other facets of the economy too. It would therefore not look so smart to raise rates then. That's why March becomes the next FED watch period. That's an eternity and of little concern for those wanting to make money NOW. And that's likely why we see the disconnection of equities from interest rates.

Enough economics - back to the market. Just how well did it do today? Just like JDSU, we must pay homage and glory in its splendor (bow your head or do a victory dance - take your pick). The NASDAQ closed at yet another new record, up 77 points to finish at 3420. You'd think it would at least stop for breath at the 3400 psychological barrier. Nope. It just pushed right through to close at its high of the day. In the first half hour, decliners were beating up on advancers 4:3. By noon, the score was even. In the last hour advancers pulled out the stops, zipping past decliners for a finish of 7 advancers to 6 decliners. Up volume slammed the down volume 837 mln shares to 366 mln shares, while 129 new highs put the squeeze on just 53 new lows. Even the losers are being pulled up in this latest rally.

As we mentioned earlier, the 5 generals went on the march. MSFT added $2.06 to finish at $91.69, it highest level since Judge Jackson slapped the big bad bully with the scarlet letter "M" for monopolist. INTC gained $3.19 to $82.19. CSCO powered ahead $3.94 to finish at a new high of $92.44, making it number three in market cap behind only Microsoft and GE. DELL came out swinging for another $2.06, closing at $43.31 on volume 15% greater than the ADV. Finally, WCOM advanced $1.69 to $88.75.

Internets too were mostly up, especially Yahoo! who benefited strongly from comments from Merrill Lynch following an analyst meeting wherein they reiterated their Buy rating. They are expected to have a great holiday season stemming from new evidence that banner ads really do work. Merrill expects them to exceed street expectations this quarter and next year. Software, networking and retail were also hot. We've got to show the love for QCOM (+15.06 to 375.31) and JDSU (+18.25 to 258.56) too.

As for the big board, the DJIA thankfully closed up 12 points to finish at 11,008, once again above the 11,000 mark where it's been consolidating its recent run. Without MSFT and INTC, it wouldn't have been as pretty. Nonetheless, the gains weren't limited to just these two. Companies like AT&T, HWP, XON, and WMT saw gains of more than a point. Advanced bested decliners 8:7 with volume clocking in at 739 mln shares - respectable in front of Thanksgiving, but not heavy. 41 new highs were handily beaten by 127 new lows.

We had thoroughly expected that at some point in the last two weeks, the overall market would have corrected some based on historical experience. We still think that is a very real possibility. The indices cannot continue exceeding the their 200-dma's forever. But for now, this has been a clear lesson to us that liquidity manifested in volume is no match for technical history or rationality. Corrections and pullbacks are not likely to be that drastic until the cash dries up, though there will continue to be down days. Nonetheless, a 10-15% correction doesn't appear likely until liquidity dries up, given current levels of institutional buying volume. While the hair on the back of our collective necks stands on end from fear of heights, we can't say when that will happen. So in the meantime, watch the market volume for clues, paying particular attention to support and resistance; buy the dips on the rebound; use trailing stops on the breakouts; and if all else fails, sell too soon.

We will not be publishing a Thursday update (but will resume a regular weekend edition this Sunday) since the market will be closed tomorrow for Thanksgiving, and open only half day on Friday. The direction then is up for grabs. But if CNBC turns out that to be right that daytraders on their day off from work will be entertaining themselves, the possibility certainly exists for sharp moves on low volume.

For those of you tearing your hair out over whether or not to trade on Friday, Janar offers the advice of taking a week off from trading every month to clear your mind. That's excellent advice, but if you are not in the position to take off a whole week, at least try to remember why you trade in the first place - to spend more time enjoying the company of family and friends. Friday might be a good day to remember those closest to you instead of the market. We wish all of you a Happy Thanksgiving.

Buzz Lynn
Research Analyst

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