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Market Wrap

Euphoria: An Intense Feeling of Well-Being

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        12-8-99            High     Low    Volume Advances Decline
DOW    11068.10 -  38.50 11171.80 11068.10   957,040k 1,138  1,937
Nasdaq  3586.08 -   0.84  3625.47  3579.51 1,671,042k 1,929  2,223
S&P-100  754.11 -   1.99   760.29   754.11    Totals  3,067  4,160
S&P-500 1403.88 -   5.29  1415.66  1403.88            42.4%  57.6%
$RUT     468.84 +   3.14   468.84   465.16
$TRAN   2881.67 -   4.49  2937.50  2879.42
VIX       22.62 +   1.24    22.79    21.51
Put/Call Ratio       .51

Euphoria: An Intense Feeling of Well-Being

That is the definition of euphoria but it could easy be applied to many of the tech stocks that have been running wild lately. Today was another day in which you would have needed a double- digit gain to just make the top thirty in Nasdaq gainers. To list in the top 5, you needed a plus +40 move! Individual issues with a positive story to tell are being over-run with momentum money and daytraders looking for the quick kill. That is where the euphoria is and it isn't necessarily bad if you use some degree of caution to protect against yourself. Small fortunes are being won in stocks like CMGI, YHOO, ICGE and SFE, but others are being lost in LE, VISX, CC and YHOO (notice on YHOO it can work both ways).

Right now investors are acting extremely care-free in moving back and forth from the momentum plays. Take a look at some of the returns in the largest point movers today. ISLD +45.31, ICGE +43.31, BOBJ +28.38, BFRE +23.00, ASWX +22.75, VERT +22.00, EXDS +21.06, SFE +20.00 and JNPR +18.13. Unfortunately, this is typical of the action before the end of the short-term cycle. We will get into this more before this article is done, but let's get to the markets.

The Dow Industrials were down 38.53 to 11068.12, continuing the meltdown since mid-day last Friday. The S&P 500 turned in a loss of 5.29 to close at 1403.88. The NASDAQ held in positive territory for most of the day before dipping just under the unchanged line. It finished at 3586.07, -0.85 for the session. The volume was heavy, which is a continuing theme for the past two months. The NYSE recorded 948 million shares and for those of you looking for some kind of NASDAQ record, you got it in volume. The NASDAQ did 1.67 billion shares. The decliners beat advancers once again by a 7-to-4 margin. The one bright spot was the Russell 2000 which hit a new 52-week high today at 468.84, up 3.14. But we are still aways from its all-time high at 491.

Notice the continuing slow death of the Industrials in the chart. We won't likely hit support until at 11,050, which is also the 10-dma, followed by more support at 11,000. This is the level that will need to hold for investor confidence to remain in tact heading towards the end of the year. You may also notice the divergence continues between these two major averages. The rally is narrowing!

Today's economic numbers from the Beige book report were a lot like the color of the book...dull. It showed that relatively little had changed in the past six weeks. Growth remained moderate to strong, labor is still tight, a possible slowdown in spending and prices that were steady. This is the same scenario we have been facing for months now. The bond traders seemed to agree as the yield held in a tight range. The bond was down 11/32 today, forcing the yield up to 6.23%.

The Dow Jones Utility average fell to a 15-month low today. This is just another sign of the euphoria. This group that is typically bought for dividend yield, has suffered from a lack of buyers as investors are going after the tech sector. This is also common at the end of the year as tax loss selling takes precedence. Investors ditch some of there losers to offset their gains for tax purposes.

The Internet group was the place to be once again. The AMEX Internet index rose by 1.3% and featured some of the big winners listed above. EXDS was up $21.06 after bullish comments from Merrill Lynch analyst Henry Blodgett. The big story in the news this morning was on ISLD. The new deal for Digital Island brought a smile to the faces of investors. They announced a pact with SUNW and INKT which greatly expands the Digital Island server network. Under the agreement, Digital Island will deploy up to 5,000 Sun Microsystems' servers equipped with Inktomi's Traffic server platform and content distribution suite. That was all traders need to here as they bid ISLD up $45.31 to $114.94 which is a new all-time high.

The Internet group was the place to be with the exception of Yahoo, of course. The day after an addition to the S&P 500 can wreak havoc on your stock price. This is from the big moves that happen the day before, as index funds pile into the stock. That is why we dropped YHOO from the call list last night after the pronounced move. The stock opened down over $20. If you weren't aware of the "day after" phenomenon (very similar to earnings and stock splits), it is a tough lessen for your account to learn but hopefully we all know not to buy a stock that is up over $40 on the day. It all comes back to "sell too soon".

Microsoft and Ericsson announced today that they will form a joint company to market and deliver mobile e-mail solutions to network operators. Ericsson will be a majority shareholder in the new company. ERICY added $5.44 to $64.13 and MSFT went lower by $1.25 to $91.75.

Circuit City, Best Buy and Tandy got hammered today after CNET said they found electronic products to be cheaper online. The survey, released today, compared prices of 24 items such as DVD players, portable televisions and digital cameras between online retailers such as Amazon.com and MySimon.com, and real-world stores like Circuit City and Sears. Some of the items were noticeably cheaper too. Now we know where to do our Christmas shopping. On the session, CC -13.2%, BBY -6.3% and TAN -5.0%.

So is there more euphoria ahead? Well, there is a reason you won't find the name NASDAQ anywhere in the dictionary under the definition for euphoria. That is because the market cycles. How many times over the past 4 years have we seen 2-4 months up, only to be followed by 2-4 months sideways to down. Granted the volatility has seemingly increased but this cycling pattern is not likely to end anytime soon. So what is the opposite of Euphoria? Maybe lugubrious, which portends to doleful, mournful, and dismal. All feelings that you will have if you are the one left without a chair when the music stops. With Y2K right on the doorstep, look for the volatility to increase even more than current levels.

The trick is to not get sucked in by visions of dollar signs dancing in your head. There are still good solid technical and fundamental plays that will produce trends and returns that you are used to seeing. You will have better success by trading in an environment in which you are familiar then by chasing a stock that is up $20 on the day. There are still plays with catalysts such as an earnings run, stock split or analyst upgrade that historically prove more reliable than rolling out of bed and seeing what is at the top of the biggest point-gainers list. YHOO was in the $220s when announced that they would join the S&P 500. GMST traded down to $102 twice in the few days after the stock split announcement before closing at $133 today. It also pulled back to $110 for a couple days just last week! The plays are there and they carry a nice reward. Just don't get caught in a stock that doesn't belong in your portfolio.

I know I sound like a scrooge but I am not ready to give back any of profits that were earned in this incredible year for the NASDAQ. So make the most of the volatility in the stocks that you know and love and, as always, sell too soon. Especially if a stock is up $68 on the day it enters the S&P 500 after the close!

Ryan Nelson
Asst. Editor

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