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Market Wrap

Entry Point?

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        11-30-99           High     Low    Volume Advances Decline
DOW    10877.80 -  70.10 11045.50 10873.60   966,560k 1,590  1,516
Nasdaq  3336.16 -  85.21  3424.61  3326.53 1,544,763k 1,823  2,339
S&P-100  738.74 -  10.55   751.51   737.71    Totals  3,413  3,855
S&P-500 1389.07 -  18.76  1410.59  1386.95            46.9%  53.1%
$RUT     454.08 -   2.87   456.95   452.39
$TRAN   2909.72 +   9.53  2933.99  2899.91
VIX       24.95 +   1.26    25.29    23.36
Put/Call Ratio       .53

Entry Point?

Now don't start whining about the drop in the markets today. We have been warning for some time that the Nasdaq will eventually pull back on profit taking. I have mentioned several times that the week after Thanksgiving would be stressful. Historically this week is a pause to refresh from a fourth quarter rally.

On Sunday I suggested that a Nasdaq dip this week should be a buying opportunity. If you bought the dip yesterday then you are not a happy camper today. The -40 Nasdaq drop yesterday was only a teaser for what was to come. The -50 point drop this morning was the second act. The Dow was in rally mode and prepared to run into December and at +80 most of the morning it held the Nasdaq to a minimum loss. Unfortunately the top heavy Nasdaq was just too much for the Dow to support and the bleeding began in earnest around noon. The Nasdaq closed -85 at 3336 just +16 points from the next support level.

The Dow fought valiantly to stay above 11,000 but it was not going to happen. After the profit taking on the Dow yesterday it was ready to roll today even after negative inflation reports this morning. This was a good sign and should help us going forward.

The Nasdaq was up over +500 points in November and we have now given back -133 points in just two days. It is amazing how quickly traders can go from feast to famine. The Nasdaq was setting records every day and many traders were buying at any cost to prevent the tech rally from leaving them behind. Suddenly traders are fleeing in disgust and frustration. Hopefully OIN readers were ready to exit when the selling started and also are ready to re-enter when the rebound starts.

The NASDAQ's next level of support at 3320 could be just the next stop in a larger drop. In my worst case scenario I have 3200 as the bottom but I do not see this happening. With the -133 point we have already dropped -3.8%. Analysts only expect a -5% (3295) to -7% (3225)drop in total. I think the bullish sentiment of the Nasdaq has not stopped. This is just the profit taking we have been expecting. The money is still coming off the sidelines and the smart money is just waiting for a sign that the bottom has been reached.

The talking heads on CNBC never cease to amaze me. For the last two weeks they have been citing worries from traders that the Nasdaq had gone too far too fast and was due for a pull back anytime soon. Today they are uncovering rocks everywhere they go to "find out what is driving this market down." Every reason under the sun was used as the selling excuse today.

1. Year end portfolio adjustments.
2. Tax loss selling.
3. End of November portfolio adjustments.
4. Hedge fund selling/shorting.
5. Y2K concerns.
6. Fund managers locking in their yearly bonuses.
7. Traders off for Y2K (see below)
8. Profit taking?

There are many traders and fund staff off this week. Their employers refused to let everyone off the normal week between Christmas and New Years and gave them this week instead. From the volume in the markets it does not appear they were missed!

Fortunately those of us who study the market, instead of just report it, know that December is historically the third best month for gains. There is actually an old saying about the late November. "Bears have Thanksgiving, Bulls have December." So let the profit taking continue because the selling builds a better base for the December rally.

The economic reports for the day consisted of the Chicago Purchasing Manager Report which came in at 56.8. The highlight of course was the prices paid component which zoomed from 65.4 in Oct to 70.9 today. Inflation anyone? Secondly the consumer confidence index soared as well for the first time in five months. Consumers are less afraid of Y2K, fully employed, and with the Fed is on hold until next year their retirement accounts are safe. Tomorrow will bring the NAPM report which should reflect the Chicago numbers today. A higher prices paid component will impact bonds and indirectly the market. Should the component be magically the same or lower then we could see a firming in the market. I do not however see any major rebound until after the Non-Farm Payrolls on Friday. With rumors that unemployment could possibly have fallen to something under 4%, traders will not want to make any big bets until the smoke clears. As a side note, did you notice that the advances beat the decliners on the NYSE today by a margin of 1597 to 1513? It was not a big win but with strong volume of 953 million shares it shows that the internals may be improving. This could be the first sign of any December strength.

The silver lining to this cloud came after the market close today. Yahoo! was selected to be added to the S&P-500. YHOO had closed down -13.38 at $212.75 in regular trading but quickly jumped +$22 in after hours. The final trade in after hours was $234.81. The announcement powered the Nasdaq futures from a -5.00 to a +9.50 and brought the S&P futures back from a -4.90 to only -1.70 at press time. Will this be enough to stop the Nasdaq in mid drop? Who knows, but it can't hurt. Short sellers will be scrambling at the open to cover before all the buying by index funds drives up the prices even more. In after hours trading prices were up across the board with AMZN +2 to 87, BRCM +10 to 185, QCOM +3 to 365, etc. Keep your fingers crossed!

If you have been moaning about high flying stocks and how you missed the boat last month then pack your luggage. Your new ship just came in. For the last 25 years the Nov/Dec/Jan period has had the strongest gains. Investors that took positions for this three month period had gains equaling the other nine months of the year. While the Y2K event could be an unknown for this December the fact remains that after today we have some really good entry points in many of the Nasdaq stocks. QCOM is resting right on strong support at $360. Look at a one minute chart of QCOM. It stopped dead at $360 an hour and a half before the close and failed to drop any farther. JDSU bounced strongly off support at $221 just before the close and went back to almost $229. YHOO bounced strongly off support at $210 but you will not catch this one at the open. YHOO is a split candidate for sure now. CMGI failed to touch support again at $145 at the close after spiking down to that point at the open. After the huge gains of the last week you could have gotten it today on sale for -$25 off it's high. BRCM bounced off support at $175 and closed at $180 almost -$35 off last weeks high. These prices may not hold depending on how strong the YHOO effect is tomorrow but I would venture to say they were very close to the bottom. WAIT for confirmation of a rebound but be prepared. With the YHOO announcement we could get a false bounce but maybe it will keep us afloat until after the Jobs report on Friday. That should be the green light for the December rally if it is going to happen. With Y2K fears easing we should have a good chance.

Days like yesterday and today test the education and trading skills of even experienced traders. Everybody is looking for that next killer trade and caution is ignored. The first drop with a rebound behind it is bought with a vengeance and the problem begins. Be honest now. Did you buy the first dip on Monday? Did you buy the morning dip today? A "yes" answer to either of these questions is not bad. The million dollar question is "did you sell when the market started falling again?" A "no" answer here is a sign of an inexperienced trader and could be a costly mistake. If you held did you sit and watch the market/stock bleed dollars while you kept convincing yourself the next level, only $x from where you were, would be the bottom? If it broke that level, you would sell, right? Did you sell or did you pick another level a dollar or two lower and draw your line in the sand there? Did you then erase that line and the next and the next? Do you wish you had sold at that first number now? Of course you do and that is the lesson. You never know how far that next drop will go. Is this when Y2K rears it's head? Will the NAPM numbers tomorrow morning be bearish? Will the worry about the Non-Farm Payrolls on Friday knock us down a couple notches? The point - you never know and until you learn to play the cards the market deals you, you will be doomed to frustration, lack of success and loss of capital. Remember, "the mistakes you make are not as important as the lessons you learn from them." If you don't learn from these mistakes, you are doomed to repeat them.

Good Luck, Sell Too Soon.

Jim Brown

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