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Market Wrap

You can breathe now!

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       12-16-99           High     Low     Volume  Advance Decline
DOW    11244.90 + 19.60 11244.90 11124.40 1,070,310k 1,454   1,629
Nasdaq  3715.06 + 93.11  3715.25  3621.95 1,424,908k 2,107   2,045
S&P-100  775.70 +  4.87   775.70   764.64    Totals  3,561   3,674
S&P-500 1423.11 +  5.59  1423.11  1408.35            49.2%   50.8%
$RUT     465.26 +  3.94   465.26   461.32
$TRAN   2933.01 +  1.97  2933.01  2909.58
VIX       24.88 +  1.52    25.58    22.82
Put/Call Ratio      .46

You can breathe now!

Did you hear it? The collective exhale as the market resumed its upward advance from Tuesday's low was clearly audible. In fact Denver Colorado, where OIN is located, has had winds up to 77 MPH on both Wednesday and Thursday. Do you suppose it was related? We all held our breath after the big drop on Tuesday but all the anxiety was for nothing. After a quick -4.7% drop from the Monday high, the Nasdaq is off setting records again. Two major factors were the blowout earnings and 2:1 stock split by CMGI and the rally by Microsoft after announcing they were delivering Windows 2000. It never hurts to have a couple of market moving news events when the market is unsure of the next direction. CMGI soared today as high as $240 but closed ONLY +22 at $221.56. Microsoft rallied for the second day in a row on the Windows news with a +$5.19 gain.

Remember this chart from Tuesday night? I was expecting the Nasdaq to test 3520 again.

Here is the same chart two days later. Support held and we are off to the races again. The Dow also tested previous support at 11150 and actually traded several points blow that level for a few minutes this afternoon. When the bounce came, it was strong and with the help of the record setting Nasdaq, the Dow is now likely to test the upper resistance range again tomorrow.

Another factor credited for the rally this afternoon was the Year 2000 outlook from Abbey Joseph Cohen. She is expecting another good year but not a great year. Her year end 2000 targets are 12,300 for the Dow and 1585 for the S&P-500. It was after her lengthy interview on CNBC that the market did firm and start moving upward. I do not apply much credence to her market moving ability. A perennial bull who peppers her forecasts with numerous cautions, Ms. Cohen is a stalwart in the bullish community but not a leader. If she turned bearish it would be a major news event and a market mover but just another choreographed bullish statement today did not give me the uncontrollable urge to buy.

The NYSE turned in another billion-share day marking only the second time in history that the exchange traded over 1 billion shares three days in a row. The last was in April when we had a +1300 point rally. That we closed up on strong volume is a good sign normally but the breadth on the NYSE was still negative. Unusually strong volume three days in a row with decliners beating advancers is not the kind of foundation you want for a rally. The rally is still being carried by the few big caps in the Dow while the broader market is still slipping.

The bond market rally from last week is history. After the weekly jobs numbers were posted this morning, showing the smallest number of new filers for unemployment since 1973, and an increasing trade deficit, the bond yields soared to a high of 6.4%. Last weeks forecast by many analysts of sub 6% yields this week are rapidly being replaced by whispers of +7% yields soon. While many are leery of the Fed meeting next week, almost no one expects an interest rate hike. Alan Greenspan is too political to tank the market during Christmas week. However the next Fed meeting after Y2K is going to be a market mover for sure. Oil closed near $27 a barrel today and that will eventually impact inflation and influence the Fed.'s movement.

Tomorrow is a triple witching options expiration day and we have probably already benefited with the rally today. Many analysts however are pointing to Friday as the "last" trading day of this year. Many funds are planning a lock down for the next two weeks and volume is likely to set records on the low side instead of the high side. With very low volume we are likely to see either giant volatility swings or a EKG flat line of a market gone to sleep. I put my two cents on the side of the big swings. The funds may go into hibernation but greed is alive and well. Day trading is also alive and well and there are likely to be many news events and Y2K rumors to move the markets.

The undercurrent of sellers as indicated by the advance decline line is undoubtedly cautious Y2K investors moving to the sidelines. We will not know if this is going to turn into a flood until after the options expiration tomorrow. Monday should be the key. If we can maintain positive Dow and Nasdaq momentum even with the negative breadth then we probably will not see any big moves. Only ten trading days remain between now and Y2K so any move to the sidelines will have to start very soon. I am not saying that half of the investors are going to panic sell. If anything maybe only 2-3% may step aside. Still 3% would be a large number in shares and dollars and could swing the markets several hundred points. Personally I would love to see a several hundred point drop between now and Y2K. It would make the Jan 3rd rally that much more explosive. There would be less fear of profit taking and more confidence moving into the January earnings period. I am stockpiling cash in my account just in case we get another buying opportunity.

A reader sent the following expanded symbols. Send us yours.

JDSU = J(ust) D(on't) S(ell) U(niphase)
QCOM = Q(uick) C(ash) O(n) M(oves)

Good Luck, Sell Too Soon.

Jim Brown
Editor

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