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Market Wrap

Bottom Or Not, Here Come The Buyers

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        10-19-2000        High      Low     Volume Advance/Decline
DJIA    10143.00 +168.00 10143.00 10014.60 1.30 bln   1956/917 
NASDAQ   3418.60 +247.04  3423.45  3314.89 2.34 bln   2846/1158
S&P 100   733.89 + 27.12   734.47   708.35   totals   4802/2075   
S&P 500  1388.76 + 46.63  1389.93  1345.64           69.8%/30.2%
RUS 2000  481.30 + 15.09   481.36   466.21
DJ TRANS 2459.81 + 91.16  2468.07  2368.35
VIX        28.17 -  4.33    30.68    27.79
Put/Call Ratio      0.64

Bottom Or Not, Here Come The Buyers

Despite a continuing indifference among analysts, the buyers came rushing into the market today in fear of missing the rally. This new found optimism is partly due to the Fed chief's comments this morning. At a Cato Institute conference, he said the Fed has been watching for the impact of higher oil prices on the economy and that so far it has been "modest." "Despite some slowing that likely has been related in part to the bite from the so-called 'oil tax' on household incomes, the growth of consumer spending has remained firm. But policymakers need to be on alert for oil-driven, indeed energy-driven, risks to our expansion." These comments were interpreted to further solidify the likelihood that the Fed won't raise rates at the November 15th meeting. Which is a given, but don't take that to mean they may be considering a cut in rates either. If the market continues to improve and the Middle East cools, no move seems to be the best bet at this point.

Today's market action gave investors a lot to cheer about. How about a 7.79% move on the Nasdaq to calm fears. The Nasdaq gained 247.04 points to close at 3418.60. Perhaps the more exciting aspect of the 7.79% move is the strong volume. Volume was 2.15 billion and the trend of returning volume is helping provide a sigh of relief from investors who struggled through the dog days of summer. Advancers lead decliners 28-12. Everyone should be thanking Microsoft for this rally. MSFT reported strong earnings after the close on Wednesday and the stock shot up over $10 today. One interesting note, many have pointed to Microsoft's collapse on the last day of March as the beginning of the summer sell-off. The stock gapped down big that morning and has been in the dumps ever since. Perhaps today's gap higher at the open will signal the reverse in sentiment going forward. There is no doubt Microsoft surprised the Street with such a solid earnings announcement.

The VIX is telling the same story in reverse.

The Dow Jones Industrials also rallied today, although to a lesser extent. But we will take anything positive after the scare it gave us yesterday. The DJIA finished up 167.96 to 10142.98 on volume of 1.3 billion shares. The index was lead higher by Intel, Microsoft, Gillette, Honeywell and AT&T. And even though the market just closed a few hours ago, the Dow may have an upside bias tomorrow due to HON which continues to trade higher after-hours on merger talk. The catch 22 is United Technologies is the one supposedly looking to buy Honeywell and UTX is also in the DJIA. So what may be gained in HON, may also be lost in UTX. This index just can't win this week!

Oil prices gave back a little today to close under $33 a barrel, but that move wasn't anything to write home about. The equity markets would still like to see oil sink lower. Somewhere in between the $28-30 level would be just fine with me. The bond market stayed flat-to-down as investors piled back into stocks. The 10-year Treasury note is currently yielding 5.69%.

The big after-hours news revolved around eBay earnings. EBAY beat the Street with a $0.07 profit versus estimates of $0.04 per share. And this was just the beginning of the good news. Revenues also soared to $113.4 million, up 93.8% for Q3. This is leading analysts to believe the company may raise forecasts for fiscal 2001. "On the surface, it looks like it was very, very strong quarter," said Derek Brown, a financial analyst who covers eBay for WR Hambrecht. The stock is soaring after-hours. EBAY closed up $3.81 to $57.19 during regular trading before as high as $70 after the close. This could be a huge catalyst for the Nasdaq if the brutally-beaten Net stocks continued to return to favor.

Nokia's stock rebounded 27% Thursday after the wireless equipment maker released its quarterly update a week ahead of schedule, revealing a 40% jump in profits, a 50% gain in sales and a bullish outlook. Apparently Nokia was tired of watching their stock get hammered due to Motorola's earnings news and forecast last week so NOK released their report a week early. Hey why not if you have the quarter in the bag and you are tired of watching your stock drop. "Nokia reaffirmed people's faith in wireless growth, so anybody in wireless is getting a boost today," Chase H&Q analyst Ed Snyder said. "This has turned the tide on the current thinking that wireless is slowing down, everything is getting worse and (the industry is) dropping off a cliff." NOK climbed $8.13 to $38.13 today.

So did you heed the volume warning? I'm sure you have all heard the well known saying amongst technicians "volume proceeds price". That is what appears to be going on. Volume has been strong since last Thursday, the day analysts are now pointing to as the beginning of the end for this recent bout of weakness. It is one of those situations that will appear more and more obvious as the days go by, but investors still freeze like deer in the headlights when it happens. Of course, what I am talking about is the October lows. This could be the fourth straight year the Nasdaq has put the low in during this month. And what was the concerns? Computer and Semiconductor weakness, foreign concerns, and inflation and currency problems. Issues that are so obvious that it makes you wonder why everyone was so scared. Isn't it like watching the movie Pscyho or Halloween? Sure it is scary the first time or two, but the re-runs on cable now put me to sleep. Yet investors and traders still panic despite knowing the complete history of recent years.

Now before you think the future is too bright, let me reiterate that many would debate me, saying all is not well. And it is unwise to think the market couldn't turn again on a dime and really get scary. The DJIA is not out of the woods yet. If the Nasdaq trades below yesterday's low of 3026 at this point, I would be nervous. All the signs that we have seen from previous years suggest that the bottom is in place and the next move should be consolidation or higher. If we go against this trend and sink to new lows, then we need to re-evaluate the way to trade this market.

But here is why I don't see that happening. The bad news is beginning to fade fast. Microsoft, Intel and Ebay have given us something to cheer about. Again, this is in typical October fashion as the bad news rapidly fades and is quickly replaced by good news. Many investors are ready to do some buying as no one wants to get left behind. Thus you get moves like you did today where buyers flood the market. Before you know it, the prospects of getting one more chance to buy near the 3000 level on the Nasdaq grow smaller and smaller in the rear view mirror.

In my mind the real dilemma is how to deal with the big moves as option traders. Chasing stocks that are up double-digit or more and have therefore spiked the implied volatility doesn't interest me. I still think there are many companies in the beginning stages of the turn. Those make for better plays. The big movers typically take a day or two off from time to time anyway and that is when to attack those plays. If history repeats itself, we are in for a favorable November run to capitalize on all kinds of different plays.

Ryan Nelson
Editor

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