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Market Wrap

Another Day, Another Bounce

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        12-15-99           High     Low     Volume Advance Decline
DOW    11225.30 + 65.10 11282.20 11130.50 1,033,411k 1,449   1,636
Nasdaq  3621.95 + 50.29  3621.98  3503.70 1,641,944k 1,799   2,399
S&P-100  767.19 +  8.57   769.35   755.51    Totals  3,248   4,035
S&P-500 1413.19 + 10.02  1417.34  1395.93            44.5%   55.5%
$RUT     461.32 -  1.43   462.74   455.39
$TRAN   2919.54 + 10.66  2926.14  2890.93
VIX       23.36 -  1.11    26.25    23.01
Put/Call Ratio      .50

Another Day, Another Bounce

"Who, me scared? No, I knew it would bounce." If this statement came from you, then you are more brave than I. There is always something unsettling about the Nasdaq breaking its 10-dma that will keep me close to the sell button. I don't want to be the one left holding the bag just in case the Y2K hysteria gets out of hand. Remember, the Nasdaq is up over 65% year-to- date and many investors and traders alike may want to walk away before the Christmas holiday. But if you look just at today's action, with a solid bounce at 3500, it doesn't look that bad. The high-tech index was down as much as 68 points before recovering all of that and then some.

OK, so the Nasdaq over shot the 3520 support that has been solid for the past couple weeks. You can justify that in this volatile market environment, plus it was only by 17 points. If you had played 3520 support, you were still handsomely rewarded today. It is amazing how the buyers show up at the 3500 area. This level has held during all pullbacks this month. That is a good sign of continuing interest in the markets and could also be used as sell signal if we drop below that level. It is nice when the support lines have been tested enough to give a more clear indication of sentiment. Now we know if it breaks 3500, and the massive amount of buyers that have lined up there, that it is likely due for a bit of a fall.

The leaders today were a blast from the past (if you consider earlier this year a long time ago). Stocks like MSFT, INTC and ORCL were cruising. MSFT was up yesterday on rumors of a deal soon to be forthcoming with the Justice Department. These are largely considered rumors but today they did say that the Windows 2000 product for manufacturing is complete and set to launch in February. INTC was up on news that as soon as next week they would release an even faster Pentium III chip to combat AMD's Athlon chip. ORCL rocked on a great earnings report released after the close on Tuesday. They topped both First Call and the whisper number by posting $0.26 eps. The point is that these larger companies, especially INTC and MSFT, make up a big portion of the indices. Today's gain in the Dow can be directly attributed to INTC and MSFT alone. Without these big winners we may have been down on the day. INTC +6.50, MSFT +9.56, and ORCL +13.44.

The Dow Industrials finished up 65.15 to close at 11130.51 on strong volume. In fact, today's volume over 1 billion shares marked the third time in history that we have had back-to-back billion share days on the NYSE. How times have we had three consecutive days over a billion shares? Never. Maybe tomorrow will be the day. What does this all mean? Nothing. It is mostly related to the triple-witching Friday coming up later this week. And the reality is that volume will continue to increase with IPOs, stock splits, etc. We will look back at a billion share day as being light someday in the near future. Decliners beat advancers by 16 to 14 on the NYSE.

The other indices did well too. The Nasdaq closed up 50.29 to 3621.95. The volume on the Nasdaq was heavy as well at 1.6 billion. The S&P 500 was up 9.86 to 1413.03. The Transports finished higher, the Utilities were up by 2.99, while the Russell 2000 fell slightly. Notice from the chart below that the Dow 30 is continuing to creep higher. The lows are moving up with each sell-off and the index is bouncing on the 10-dma. It is nice to see the Dow moving up with the Nasdaq as opposed to doing nothing while the tech-heavy indices take off. The reasoning is likely due to the tax loss selling coming to an end. Sectors like Paper, Oil, and Aluminum have begun to show signs of life again.

Networking issues were weaker today thanks to CSCO. The giant of the industry was down over concerns about the wording in their 10-Q filing. This is the detailed quarterly report that all companies must file with the SEC. The filing warned of slower sales growth in the future but analysts noted that most companies have similar statements used to warn investors of the potential for a turnaround. In the filing, the company said gross margins decreased to 64.8 percent in Q1 of 2000 from 65.5 percent in the same period last year. The decrease was due primarily to a continued shift in revenue mix towards lower- margin products and the continued pricing pressure seen from competitors in certain product areas. This is likely to be a one-day event as cooler heads amongst the institutions take over and began buying from panicked traders.

Other losers included Verity. They were cut in half today after missing both earning and revenue numbers in their Q2 earnings report late yesterday. This brought on multiple downgrades and left shareholders with lighter pockets. VRTY closed down $22.88 to $26.13.

To avoid the above disaster, play stocks that will triple their revenue estimates for the quarter. Not possible you say? Well, don't tell CMGI. They released earnings after the close today and posted a top line of $123 million vs. a consensus estimate of $46 mln and a year ago number of $37 mln. Throw in a 2:1 stock split and you have the recipe for a rally tomorrow. The question is, will it open at a reasonable price? From a look at the after-hours action, probably not. It is ticking up by the minute. During the regular session CMGI ended at $199.75, down $6, but in after-hours it was as high as $235. The earnings per share number was also impressive by showing a loss of $1.08 vs. an estimate of $1.76.

In looking at the support that we keep mentioning for the Nasdaq at 3500-to-3520, is there a reason for investors to be buying? When you look at both ORCL and CMGI's earnings, the answer is a resounding yes. Remember, earnings season is just a couple weeks away and if these are the kind of numbers we will be seeing then put me down for 10 contracts of anything! But the truth is that I will be more picky heading into the year-end than ever before. I think it is safe to say that Y2K shouldn't have a material impact. But that is not my major concern. My concern is, how will other investors react to a minor pullback in the next two weeks? Will they have their fingers on the sell trigger? How many stop loss orders are already in place that may cause a sudden drop? If so, will others fuel the drop with more selling? It is possible. The potential for some solid entry points heading into the earnings season is there. This whole Y2K episode may be the first and last of its kind and I don't mind taking a couple weeks off to sit back and watch it unfold. After the returns in the market this year, it's likely that you can afford to take a step back and be patient with your entry points.

Tomorrow before the market opens, the trade deficit numbers for October will be released. The estimate is for a deficit of $24.5 billion. A better than expected number may help the bond to recover as it ended near the low with the yield at 6.32%. The VIX looks about neutral at 23.33, rebounding from a high this morning over 26. INAP also announced a stock split after the close. A morning rally is likely with the good earnings from CMGI, two stock splits, the Nasdaq rallying into the close and today's elastic market that made for a great bounce. Just remember to sell too soon. You don't want to be left standing when (or if) the music stops.

Ryan Nelson
Asst. Editor

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