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Market Wrap

Another day, another record. . .

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        12-6-99            High     Low    Volume Advances Decline
DOW    11225.00 -  61.20 11297.80 11193.50   917,007k 1,105  1,960
Nasdaq  3546.01 +  25.38  3570.91  3507.72 1,369,686k 1,880  2,234
S&P-100  762.75 -   4.73   767.94   760.47    Totals  2,985  4,194
S&P-500 1423.34 -   9.96  1431.02  1418.25            41.5%  58.5%
$RUT     465.75 +   1.17   468.85   464.58
$TRAN   2905.52 -  23.28  2937.92  2879.99
VIX       21.06 +   0.24    21.85    20.31
Put/Call Ratio       .45

Another day, another record. . .

Another loss for words. The strength of the market is simply amazing, even in the DJIA, which lost 61 profit taking points today in the wake of an over 230-point gain last Friday. While we have been fully expecting some retracement of late, we didn't see a huge amount today that is particularly meaningful, especially in the NASDAQ, which went on to close at another new high of 3546. Let's go straight to the numbers.

The DJIA closed down 61 points at 11,225. We expected some profit taking today and got it. On the NYSE, 244 new lows outnumbered 127 new highs, while decliners outpaced advancers 1639 to 933. That doesn't look good, but one day doesn't make a trend. Volume clocked in at a respectable 917 mln shares. Stats are fine, but they don't tell the whole story. The DJIA began its decline shortly after lunch today in what looked like orderly profit taking, but became rather substantial when traders looked up to notice that the index had fallen below 11,200, a level of resistance from last July that perhaps became support today. Anyway with all that cash looking for a home, fund managers began buying again from the bargain pile they had discarded earlier in the day, which made for 27 point recovery in the last hour of trading. That's a short-term win that could carry through tomorrow morning.

On the technical side, a little yellow warning signal should be popping up right about now. The difference between this and a yellow stoplight is that it may not necessarily turn red. The fact is, the DJIA pushed through the old record of 11,327 on Friday and fell back (still a respectable finish), but could not muster another serious assault on the old record today. With a second failed rally over 11,300, chartists are on edge. They are waiting for a third try, then failure, in expectation of the world cracking open to swallow up all of us. While it is entirely possible that we could see 11,100 or lower, liquidity and volume are making this very difficult. We've said it before and we'll say it again, as long as volume and liquidity remain in tact, which we think is likely, we should expect to see new records. It's all about demand outstripping supply.

By the way, since this has been such an outstanding year for the market, Wall Street is looking for $13 bln (with a "b") to paid in year end Bonus' (with a capital "B"!) to all those involved in its success. Think anybody wants to jeopardize their bonus by getting out of the market in a strong economy with a better- projected year ahead? Not likely. Y2K has shaped up to be nothing to worry about. In the current environment, if you see a talking head on the financial airwaves or a market pontiff prattling on about Y2K as an excuse for a regular daily decline, it's probably a buying opportunity.

On the other hand, in what appears to be a growing dichotomy, the tech stocks of the NASDAQ just keep on moving up. While dropping about 25 points at the opening to 3507, it sprang right back all the way to a new trading high of 3570. Like the DJIA, it sold off in the afternoon to 3525 (a higher low - that's good) only to stage a comeback in the last hour of trading. While this looks good on the surface, the last 10 minutes showed renewed signs of deterioration. Alas, saved by the bell, the NASDAQ was able to report a close of 3545, a gain of 25 points and a new closing record, with 1.376 bln shares traded. The volume was a little off its recent 1.4-1.5 bln shares, but we're not complaining. Internally, 2065 advancers fell short of 2402 decliners while new highs actually bested new lows 333 to 258. At one point late in the afternoon, only 45 of the NASDAQ 100 issues were up - the other 55 were in negative territory. If you are thinking that there must be a few special issues holding up the index, boy are you right about that. Of the 5 generals that comprise 40% of the NASDAQ 100, only CSCO finished in positive territory. Semiconductors (excluding Intel) and Internets, especially Yahoo! led the charge. Why YHOO? It will be added to the S&P 500 tomorrow, making it necessary for purchase by index funds in order to accurately reflect the index makeup. (It doesn't hurt that First Union set a new price target of $300, or that it is a split candidate either.)

Other hot sectors today include international telecom companies, drug stores (led by Rite Aid who will get a new Chairman from Kroger) and (what else) networking stocks - seems like a daily occurrence any more.

Relegated to the dungeon today were financial stocks on news that regional banks may fall short of profit projections in 2000 (interest rates made a little sneak down fractionally to 6.245%); retail chains, oil, beverages and drug companies too. Few investors were sipping on Coke today once the announcement was made that 2-year-active CEO, Douglas Ivestor would step down in April. KO spilled $3.71 on 3 times the ADV.

In other interesting news, at an analyst conference today, AT&T announced they will in fact issue a tracking stock for the wireless business, which is slated to become the largest IPO in history at about $10 bln. Separately, they announced that they would open up their cable to ISP competitors on order to avoid future persecution (prosecution?) by the Justice Department, FTC, FCC and others. It will not be immediate, but will be phased in as Excite AtHome ISP contracts expire. Mindspring will be the first to gain access. AT&T and others view the plan as better than any governmental regulation in the future.

Meanwhile, the good news from their analyst conference last week continues to spill over for NOK. Merrill Lynch upped the price target to $220; DLJ made it a "Top pick"; and B of A named it a Strong Buy, while raising its price target to $225. See? Cockroaches - where there's one, there are many. NOK was up $14.44 today to $176.44.

So what about tomorrow and the rest of the week? Salomon Smith Barney is hosting a conference with BRCD, NTAP, EMLX, ZOOX, SUNW, QLGQ, HWP, DELL, and EMC on the docket tomorrow. Watch these issues for favorable news, upgrades, etc. Tomorrow, we also get revised Productivity figures and Consumer Credit, which will likely be a non-event. The biggie is the PPI on Friday and will give everyone an excuse to get scared of inflation again before and, perhaps, after the announcement.

We are in nosebleed territory with lots of negative internals. Liquidity and volume are saving our bacon as money managers continue to buy the medium to large technology issues. Support areas to target shoot are getting harder to find as new records are set every day. Nonetheless, this is Santa Claus Rally season, and overall, we expect the trend to remain up. Just remember nothing goes up in a straight line forever. Plan your trades, trade your plan, and watch for failed rallies and breakouts. As always, sell too soon.

Buzz Lynn
Research Analyst

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