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Market Wrap

Faster than a speeding bullet, more powerful than a locomotive, able to leap tall records in a single bound.

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       12-21-99             High     Low     Volume Advance Decline
DOW    11200.50 +  56.20 11237.80 11098.00   963,540k 1,579   1,502
Nasdaq  3911.15 + 127.28  3911.17  3785.78 1,480,165k 2,148   2,056
S&P-100  778.86 +   7.57   781.35   769.41    Totals  3,727   3,558
S&P-500 1433.43 +  15.34  1436.41  1414.80            51.1%   48.9%
$RUT     475.79 +   8.60   475.79   467.12
$TRAN   2836.50 -  47.97  2884.62  2826.96
VIX       23.44 -   1.22    25.81    23.01
Put/Call Ratio       .46

Faster than a speeding bullet, more powerful than a locomotive, able to leap tall records in a single bound.

The Nasdaq, the superman of bull markets, leapt several records in a single bound today. Posting a +127 point gain the Nasdaq surpassed the previous one day gain of +108 last September. It also posted another record high, the 56th this year, and had another 1.5 bln share day. The S&P also joined the party adding +15.34 to a new record high. The Dow was again the laggard with only a +56 point gain and remains firmly mired in a trading range between 11100 and 11300. We did close above previous support of 11150 again but the index was negative most of the day.

This is a simply remarkable chart of the Nasdaq. After bouncing off support at 3525 three times it has taken off like a rocket. Gravity and sanity has ceased to exist. It looks like the next stop could be 4000. The Nasdaq is now up +78% for the year and if the bullishness continues to gain speed we could have an outside chance of seeing something close to a +100% gain for the year. +100% would be in the 4394 range. Granted that would be a monumental feat but with the constant stream of bigger days and record highs nothing is out of the realm of reality. Would you have believed a +30 gain on QCOM to $500? Or maybe a +36 gain on YHOO to $405 or a +57 gain on CMRC to $480? Could you expect +48 for CMGI to $270 and +$40 on ICGE to 184?

Does anybody see anything wrong with this picture? Granted we should thank the Fed for the Y2K Christmas present but this is true irrational exuberance. Like the new years eve reveler who has too much to drink and allows his inhibitions to relax with the excitement of the party, waking up the next day may bring some regrets. The Fed passed on raising rates or even raising the bias only two weeks before Y2K and the Nasdaq celebrated with wild abandon. The lack of a stern Fed statement today has put the Fed on hold until next year but the outlook for February is grim. They simply wanted to avoid any hint of misunderstanding about their Y2K stance but I am afraid that Uncle Al will not be so nice next time they meet. With the economy soaring at a +5% growth rate it is almost a sure thing that they will raise rates after Y2K. There are three new bears and only one neutral member being added to the FOMC committee for next year and it is almost a 100% chance we will see a series of rate hikes from these new bears as they attempt to shape monetary policy for 2000. 23 of 30 bond dealers surveyed are expecting a rate hike in February.

But for the time being the trading light is green, or at least it would appear to be. You know what I have always said, "when everything is too good too be true, it is." I can't currently picture a scenario that will cause a significant pull back any time soon. That is scary. Normally there are several things on the watch list to help keep a lid on the markets but the current rally strength would require a monster event and there are none scheduled with that potential. We are firmly entrenched in earnings warning season but there is a scarcity of negative events. Many analysts think many companies are waiting until after Y2K hoping a post 1/1/2000 announcement will be ignored in the expected rally. If a flood of announcements does take place we will have our first test of 2000 very soon.

The relief rally we saw today was impressive on the surface but the Advance/Decline numbers were still a concern. With such big gains on the Nasdaq you would expect a large win by advancers but it did not happen. The advances did win but only by a slim margin of 92 issues. (2148/2056) The NYSE was positive also but only by 169 (3727/3558). The leaders soared but the rank and file marched to a different drummer. New lows on the NYSE were 326 compared to only 75 new highs. Eventually this will impact the market.

The most notable non-Fed event for the day was the high profile announcement by Ralph Acompora of his new targets for next year. He is calling for as much as 14,000 on the Dow, 1800 for the S&P and 5000 for the Nasdaq. Calling the current rally simply another leg in the current "Mega Bull Market" (his term) he says we could easily see another 25% gain over the next two years. His words were fuel to the already hot rally but he did also say there would be pull backs before we reached his targets. When Ralph?

Several new additions to the S&P-500 could provide some trading ideas for this week. Transocean Offshore (RIG), NCR Corp (NCR) and First Security (FSCO) were announced today. Fund managers will now be forced to buy them and rebalance their portfolios.

The money is still flowing into the market as TrimTabs.com said $11 bln came into the market last week. They are also projecting a huge flow of cash into the market in the next two weeks as Y2K holdouts start throwing cash at the market. The year 2000 rally train appears to have left the station and it is approaching supersonic speeds. With only two trading days before the after Christmas rally is expected to start, one wonders how much more buying can occur. The expected light volume turned into another top ten record day on the Nasdaq. No profit taking there. If buyers are waiting for another pull back before taking positions for January they are probably entering panic mode. With new highs all around on incredible gains the "it can't go up any more" thoughts are turning into "Oh my gosh, I missed it" and the urge to throw money at anything not up double digits in the next two days is undoubtedly growing.

They markets got a "get out of December free" card from the Fed's deck today but the bond market did not celebrate. Yields rose to 6.46% on the prospect of a rate hike next February. Bonds and stocks may have disconnected today but like a boomerang they always come back. In times like these, there is nothing to do but "go long till your wrong" and let the market tell us when to quit. The trend is your friend and many traders have gone broke trying to buck a winning trend and call market tops. Our suggestion is to enjoy the ride but keep your stops close just in case. With upgrades flowing like eggnog and stock splits more plentiful than candy canes there appears to be no coal in the market stocking this week.

Good Luck, Sell Too Soon.

Jim Brown

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