Option Investor
Market Wrap

So far, so good!

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        WE 12-31           WE 12-24           WE 12-17          WE 12-10
DOW     11497.12  + 91.36  11405.76  +148.33  11257.43  + 32.73  - 61.48
Nasdaq   4069.28  + 99.84   3969.44  +216.38   3753.06  +132.82  + 99.61
S&P-100   792.83  -  2.73    795.56  + 21.63    773.93  + 10.44  -  3.99
S&P-500  1469.25  +  7.81   1461.44  + 40.39   1421.05  +  4.01  - 16.26
RUT       504.75  + 26.81    477.94  + 11.73    466.21  -   .50  +  2.13
TRAN     2977.20  + 89.50   2887.70  - 30.72   2918.42  + 43.48  - 53.86
VIX        26.71  +  3.59     23.12  +   .11     23.01  +  2.09  +   .10
Put/Call     .51                .47                .43               .45

So far, so good!

As I write this six time zones have now celebrated the New Year and there have been no serious reported problems. As the news from New Zealand and Japan filtered through the market the relief was almost audible. Volume started picking up and many stocks saw reversals of early morning dips.

Without any serious problems in Europe or the U.S. tonight the Y2K money should start flowing next Monday. The bond market showed the first signs of the money movement as bonds dropped almost a full point and yields bounced back up to 6.48%. The bond market had been firming all week as money moved into the safety of bonds in advance of the Y2K event. The flow of money back out so quickly is a good sign and should point to a trend for next week.

It appears an accidental nuclear war has been averted. One hour into the new year, Moscow confirmed that all weapons delivery systems had been checked and all were now certified Y2K safe. That should be good news for the Russians in Colorado Springs soaking up our winter sunshine and every military secret they can grab while on the joint Y2K watch. Now if only our systems don't launch at midnight.

The world markets celebrated in advance as each time zone marked the passage into 2000. The Paris market closed at a new high as well as Hong Kong and Singapore. Tokyo closed at the high for the year. Sydney Australia also ended the year at a record high. The Dow, Nasdaq and S&P all closed the year with new record highs and there was no sign of weakness even going into the close. The Nasdaq finished the year up +85% for the biggest year on record.

The stock of the year, QCOM, showed good strength today in post split trading. On six times normal volume at 36 mln shares QCOM managed to add another +20 points to $181 before selling pressure took its toll. QCOM closed up +14 at $176 but traded down slightly in after hours. Monday is the real test as traders try to decide to hold or lock in profits in the new tax year. I had many emails today asking why the option premiums dropped even though the stock was up. No, they were not bad quotes. The option premiums were so high on the pre-split QCOM because of the increased expectation of huge swings on a $600 stock. With prices moving $100 intraday the option writers get more premium for taking more risk. After the split to $160 the expectations for those big moves are much less. The split is over, earnings are not until February and there has been a huge runnup. Experienced option traders know that there is a better than 50/50 chanec that there will be some serious profit taking in January and the premiums dropped because of the decreased upside expectations. Some of the options dropped -$10 to $15 after the split even though the stock was higher. This is a normal event when trading stock splits.

There is no news that would change my outlook for Mon/Tue. It still looks like we will go higher before we pause for profit taking in January. The advance decline line was highly positive with advancers leading 5:3 on the Nasdaq and 2:1 on the NYSE. The closing ticks were a highly bullish +1128. The jobs report on Friday should be the first real pothole that could derail the current rally.

Have a Happy New Year!

Jim Brown

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