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Market Wrap

Did anybody get the license number of that truck?

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             4-13-2000           High     Low     Volume Advance Decline
DOW    10923.50 - 201.60 11144.10 10920.80 1,036,314k 1,254  1,711
Nasdaq 3,676.78 -  92.85  3914.68  3676.67 1,906,015k 1,423  2,794
S&P-100  777.29 -  15.61   797.57   775.97    Totals  2,677  4,505
S&P-500 1440.51 -  26.66  1477.52  1439.34            37.3%  62.7%
$RUT     489.22 -   4.22   502.51   488.94
$TRAN   2903.56 -  49.07  2961.00  2900.20
VIX       33.95 +   2.07    33.95    31.39
Put/Call Ratio       .71

Did anybody get the license number of that truck?

That was really painful, again. After appearing to be setting up for a bottom on Tuesday we were greeted by a stealth downgrade of the entire tech sector before the open on Wednesday which started another new round of selling.

The Goldman Sachs analyst only officially downgraded estimates for Microsoft revenues, not earnings. Looks simple on the surface but the language of the downgrade was a stealth downgrade of the entire PC sector, software sector and networking sector. How did he do this? When he said Microsoft revenues would be weak from slowing sales the magic words were "slowing PC sales." If PC sales were slowing then all PC vendors, Dell, HWP, GTW, CPQ all would have earnings problems by implication. The lack of new computers would mean fewer software sales for the software vendors. Fewer PC sales means fewer network cards, routers, hubs, Internet connections, etc. Funny how a simple revenue reduction estimate for Microsoft only could ripple through the entire Nasdaq by default. The -160 Dow drop at the close on Wednesday was due solely to the four major Dow tech stocks, MSFT, INTC, HWP, IBM, which accounted for exactly -160 Dow points.

That was the story for yesterday and today was a pure role Reversal for the major indexes. As I had written on Tuesday the chances for the Dow to continue upward without some serious profit taking, as the major Dow components announced earnings, were slim. As the majors like GE announce and traders move on to other plays the post announce depression arrives. For example GE announced this morning with a +20% increase in profits but the stock lost -6.25 today. After the Dow tech wreck yesterday started the Dow slide, today was momentum driven with the post earnings sparks. After climbing out of the recent trading range between 10900-11200 today's drop slammed us right smack against the bottom of the range again. Right on recent support as well.

The earnings announcements are picking up speed. Just some of the notables today included:

Stock Actual  Estimate

PAIR -.03	-.03
PMCS +.17	+.16
DS   +.35	+.32
ODP  +.32	+.29
GM   +2.80      +2.68
GDT  +.38	+.38
JNPR +.06	+.04
FDRY +.14	+.09
AMTD +.02	-.04
EGRP +.00	-.16
GTW  +.41	+.41
SUNW +.26	+.23
GE   +.78	+.77

The most notable in our opinion is the SunMicro announcement after the bell. This announcement has the potential to put a floor under the tech market. They announced on their conference call that order growth was the strongest in the last ten years and revenues should grow by +25%. Revenues this quarter broke all previous records and was the first time over $4 billion. This very positive report could counteract the MSFT downgrade and refocus the outlook on gains. Gateway also posted revenue gains and increasing unit sales. These positives on top of the AMD blowout and bullish forecast could put a floor under the Nasdaq.

The Greenspan speech this morning had little or no impact on the markets as he carefully avoided any bearish statements. The PPI report this morning was benign as well. Posting a +1% increase on the surface but only +0.1% for the core rate the feared inflation monster is still invisible.

The most serious thing impacting us is still the tax selling by late tax filers. However, there is light at the end of the tunnel. After significant fund outflows last week, there was actually positive cash flow this week. AMG Data reported that in the week ended 4/12 there was +$8bln in positive cash flow into equity funds. $1.8 Bln went into aggressive growth funds and $4 bln into large cap growth funds. Much of this money is late cycle retirement contributions and although positive this week they may shrink after the April-17th filing date. What this does show is that the retail investor is still putting their money to work in the markets and have not been scared off by the bearish activity.

This is not the week to IPO your company and several were pulled from the market. With many recent IPOs trading for less than their IPO price the underwriters do not want to launch new offerings when there are no buyers. It is not good for their reputation or their future business prospects.

Where to from here? Ask 100 people and you will get 100 answers. One or two might be right. On Tuesday I thought we were due for a bounce and the Goldman Sachs downgrade torpedoed the support that had been building. The rally today just could not get out from under the Dow shadow and the lingering "we have to retest 3650" comments. Well great, they may get their wish. With the Nasdaq only 28 points away from 3650 we may get to retest a lot more than that. Part of the thought process on Tuesday was that any bounce would only be a trading rally for two to three days before the yearly post April earnings dip. Two of those days are now gone and we are very close to the post earnings depression cycle. Now for the catch. Since we are already -27% from the March highs, will there be a post April earnings depression or have we been beaten down far enough already?

If you look at the big cap Nasdaq stocks today there was some really big drops at the close. Some would say there was fear and capitulation. Look at the end of day spikes on INKT, AMAT, EBAY, YHOO, AMZN. There were some big drops but some of them only pulled back to zero. There is a term called "shooting the generals" and no pullback is complete without a shooting. Tomorrow we will see if 3650 holds and if not then 3500 could be the next stop. The best of all scenarios would be another capitulation dip at the open and a quick rebound. Because everyone expects this retest and rebound we could be setting ourselves up for a sucker punch. Dip, rebound (because it is expected) and then a real dip as the final selling climax takes place. We all hope it does not come to that but who would have expected the carnage up to this point?

I bought the dip on Wednesday and got stopped out, twice! I nibbled again this morning but only slightly and then bought some QQQ calls for $1 at the close. Simply a lottery play. When we get to the point where everyone stops guessing where to buy the next dip and decides to move to the sidelines then the selling will be over. Until the last diehards, like me, decide to sit on cash regardless of how tempting the dip looks, the market will continue to drop. Well, listen up! I am on the sidelines and I plan to stay there until the volume proves the rebound. It would be nice to buy the bottom but I have plenty of false bottoms in my account already so I am going to wait until up volume exceeds down volume by at least 2:1 and advances are beating decliners by at least 2:1. 3:1 would be better but 2:1 should work. I have resigned myself that if it takes weeks I am going to wait. Waiting is cheap compared to getting stopped out over and over and I strongly suggest you consider this as an option. The market is showing NO STRENGTH. The Nasdaq and the Dow closed at the absolute low of the day on heavy volume. None of this wimpy 60% of normal volume stuff.

On the bullish side the VIX is at 33 and screaming a buy signal and the put/call ratio is .71 which is also a buy signal. Still there has been no capitulation. So I promise to do my part. I will buy 100 expensive put contracts on the OEX and QQQ at the open in the morning and that will be the capitulation signal that the last bull died and the rally will be instantaneous. (just kidding but you know what I mean)

When in doubt, sit out, and doubt about market direction is the only sure thing tonight. Trying to trade this extremely volatile and choppy market will only waste your money. Take Friday off and play golf, fish OR go shopping with your wife. Trust me, it is cheaper than being stopped out again!

Trade smart and don't buy too soon.

Jim Brown

Current long position:

Lottery play on $1.00 QQQ calls only.

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