Option Investor
Market Wrap

Bulls Get Hard-Earned Satisfaction

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       4-17-2000           High     Low     Volume Advance Decline
DOW    10582.50 + 276.70 10583.80 10232.50 1,204,710k 1,280  1,729
Nasdaq 3,539.16 + 217.87  3539.77  3227.04 2,428,074k 1,752  2,614
S&P-100  762.49 -  45.35   762.59   724.53    Totals  3,032  4,343
S&P-500 1401.44 -  83.20  1401.53  1346.50            41.1%  58.9%
$RUT     459.26 +   5.54   459.26   441.56
$TRAN   2678.58 -  48.46  2731.23  2678.58
VIX       32.19 -   7.14    39.42    32.19
Put/Call Ratio       .78

Bulls Get Hard-Earned Satisfaction

Following last Friday's meltdown, it looked like this morning's gap down on the NASDAQ might reflect a continuation of the negative sentiment. Thanks to a late day rally in the semiconductor stocks in front of TXN's earnings today and INTC's earnings tomorrow, other tech stocks followed the semiconductors' lead to give the NASDAQ its biggest one-day gain ever -- 217 points! It was also the second largest percentage gain ever at 6.6%. The Dow turned in a respectable +276 points too, though far from a record. Last Monday, we were pining for a Tom Galvin comment to support the market and we got it today. He's the lead DLJ analyst that announced today DLJ had shifted from 80% equities to 90% equities and 10% cash. Way to go Tom! Thanks!

Don't break out the party hats and horns just yet. Yes, the huge volume helped confirm the move up. 1.2 bln shares on the NYSE and nearly 2.5 bln shares on the NASDAQ falls on the heavy side. It's a signal that buyers are voting with their $$$ and coming back into the market. When the market is up big on big volume, buyers are in control. (See Women's World article from last Thursday by Renee White titled "Using Volume to Understand Direction, When You Are Begging for a Reversal" and from Sunday, "Memories of the October, 1987 Crash and Using Volume to Decide Upside Breakouts Part II") However, the big gains were limited mostly to the big-cap, high quality, earnings driven stocks that were already doing OK. Not every stock joined the party. In fact, just IBM, HWP and INTC accounted for 156 points of the Dow's +276 point move. Need confirmation that the party was for a select few? Look no further than the advance/decline lines on both exchanges. While both started out in extremely ugly territory and made up for lost time, the NASDAQ finished with 26 decliners swamping every 17 advancers, while on the NYSE, 17 decliners outpaced every 13 advancers. That does not constitute a widespread rally, and despite the volume, leaves the weaker issues susceptible to more damage.

In particular, smaller B2C Internets without a shot at profitability (even some bigger ones) are the new dinosaurs bordering on extinction in this market. KTEL, CDNW, BAMM, FOGD, CGLD, etc. are in intensive care and will likely never recover, despite the rising tide lifting other boats.

Did you miss Goldman Sachs' Abbey Joseph Cohen conference call today? Good thing. While not devastating, she merely reiterated that there would be no change in her position regarding the expected S&P 500 results by year end -- 1575 by December, 31, 2000 and 1625 by the end of Q1, 2001. She noted too that inflation would "drift up, not gallop" thanks to energy prices and that Greenspan's interest rate increases were already priced into the market thanks to the FOMC's "deliberate and incremental" increases so far this year. No surprise here. If it was on CNBC, we never heard it.

Anyway, the selling that marred the opening bell and caused the NASDAQ to gap down 91 points at the open didn't last long as buyers immediately stepped in to spark a 180 point rebound off the low within the next 35 minutes. We were surprised by the market's immediate strength and had expected more maintenance margin selling and foreign market reaction to our market last Friday to spill over into today. If we didn't see it this morning, a new wave of broker selling in the late afternoon to cover those earlier maintenance calls might have ensued. . .glad to be wrong on that one. If buyers were in fact on strike over the last few days, it appeared that they went back to work today. We hope they are soon joined by others that think the current "un-negotiated settlement" is OK. Otherwise, we're bound to see range trading as the "buy the dip crowd does battle with the "sell the rally" crowd.

The good news is that individuals appeared to be hanging on for the long run. Last Friday's action, as it turned out, was mostly institutional selling. With volume like we saw today, we'd have to conclude that institutions reversed course and began buying again on selected issues. CSCO was the volume leader at 117 mln shares traded, followed in descending volume order by MSFT, ORCL, INTC, SUNW, JDSU, WCOM, DELL, and QCOM. With the exception of MSFT gaining just $1.75, and WCOM and DELL gaining $2 or less, the other issues experienced double-digit or nearly double-digit gains. If the institutions think it's safe to get in the water, it's probably safe for us too if we stick to the big cap issues moving in unison with the indices. Just remember, these things are not recovering in a straight line and are subject to ups an downs just like before, only bigger. The advantage of being one of the "little guys" is that we have the ability to get out quickly if things go south on us. By now, we've all seen the value of stop loss orders and we encourage you to use them in this time of high volatility.

So, you want to know exactly how the indices traded? The NASDAQ as noted above finished up 217 points at 3539 on 2.48 bln shares. 1.37 bln shares traded up, while 1.0 bln shares traded down. But 618 new lows (compared to just 8 new highs) should tell us we're still at the bottom of the barrel. If we haven't hit the bottom yet, we are near it. Silver lining? Though the NASDAQ opened substantially below its 200-dma (3506) at 3227, it rallied above the 200-dma into the close, giving strong support to the formation of a bottom. 3500 also happens to be a support level from December and January. Next resistance is 3650, then 3750. If we can hold this level and see an improvement on the advance/decline line, we would feel more comfortable in the strength of today's rally.

For the Dow, it finished up 276 at 10,567 marked by heavy volume of 1.2 bln shares on the NYSE. 702 mln shares traded up while 475 mln traded down. Still, new highs got creamed by new lows, 15 to 152. (Have we mentioned that the gains were narrow?!) What a squeeker technically though! It recovered to just 3 points over its 50-dma of 10,579. It's gotta hold here to keep moving up. Otherwise, we could be staring at 10,300 again. Look for resistance at 10,725.

Tonight after the close, TXN reported earnings of $0.55, $0.02 above analysts' expectations of $0.53. Even though it tacked on $10 to close at $149 in today's trading, it still traded up after hours. Now if we could get INTC to do that trick tomorrow after it reports earnings, that could be the catalyst to lead the tech sector gradually higher.

Don't get completely fired up about today's rosy picture yet. There are still some landmines, which are by definition invisible. First is that corporate insiders have been selling shares and options like crazy in record amounts. Second is that, despite the carnage last week, margin debt has not subsided much from its record levels -- those bits of information from Charles Biderman of Trimtabs fame. He notes that this looks bad going forward and he has been historically correct. He did temper those comments by noting that despite all the noise about $6 bln in outflows last week, there had been an inflow of $18.5 bln previously. This week in the tax season though is the time that those inflows slow substantially. . .not may contributing to the IRA after today.

So what about tomorrow and the rest of the week? Yes, today looks good, but temper that enthusiasm by remembering the bigger picture. That is that a recovery is never clearly visible and that nothing recovers in a straight line. Tomorrow could give us another downdraft as wheat gets further separated from the chaff. You may want to focus your efforts on the larger issues until the secondary issues show signs of support, not just 1-day relief rallies. Remember too to watch the major indices for support and resistance. Your stock going up as the indices going down does not a good entry make. Housing starts are announced tomorrow, followed by Trade Balance on Wednesday and Initial Job Claims on Thursday. There are also earnings releases aplenty this week, starting with EMC, IMNX, TYC FON, and PCS tomorrow morning, then the biggie, INTC tomorrow after the bell. While 70% of those reporting so far have beat the number and only 10% have disappointed, it will pay to watch the leaders for industry clues and be prepared to exit an "unsympathetic" play if the stink rubs off. Conservative types may want to see another week of stability before getting back in, but the hardcore trader can have a field day with the current volatility. Just remember to plan your exit carefully before you enter, and if all else fails, get trigger-happy and sell too soon.

Buzz Lynn
Research Analyst

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