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Market Wrap

October is over, and none too soon!

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              10-31-2000        High      Low     Volume Advance/Decline
DJIA    10971.10 +135.30 10995.40 10812.30 1.35 bln   2053/886 
NASDAQ   3369.63 +178.23  3379.08  3226.62 2.15 bln   2775/1254
S&P 100   750.93 + 18.16   752.43   733.97   totals   4828/2140
S&P 500  1429.40 + 30.74  1432.22  1401.18           69.3%/30.7%
RUS 2000  497.68 + 14.96   497.68   482.72
DJ TRANS 2744.62 + 58.01  2747.86  2671.16
VIX        25.99 -  1.80    27.88    25.62
Put/Call Ratio      0.64

October is over, and none too soon!

What a relief and what a way to exit the month known as the bear killer. If the bear is dead we can't prove it by the month on the Nasdaq. With a loss for the month of -345 points the Nasdaq has been beaten senseless. The Dow however, thanks to the last three days, gained over +310 points from the 10659 close on Sept 28th. The Dow clawed back from negative territory this morning to post a triple triple, the third day in a row with a triple digit gain. No trick or treat there! Or maybe the Dow and Nasdaq up strong on the same day is a trick in itself?

The Dow was tanked after the open by steep losses in Proctor&Gamble but with investors eager to jump in front of the anticipated Fall rally the dip was only temporary. With only a brief pause on the 25th and 26th the Dow has gained over +1300 points since the lows on October 18th. This is about as vertical as you can get with an average of over +130 points per day for the ten day period. Can you say over bought? Maybe so but then over bought from a seriously over sold condition. Still nothing goes up in a straight line so we could see a cooling of this frantic climb at any time.

The -$7 morning drop by PG came on the heels of an earnings report that met analysts estimates but showed a -2% drop in revenue. The weak Euro impact to PG took -35 points off the Dow with the report. The drop by PG in the Dow was more than made up for with the almost +6.00 gain in CSCO just one day after being downgraded by Lehman. Today Merrill Lynch took revenge on Lehman for downgrading their favorite stock by downgrading Lehman. Trick or treat LEH! Maybe CSCO was Merrill's pick to replace Honeywell in the Dow?

Rambus got a short circuit today with conflicting stories of a move by Intel away from Rambus technology. Electronic Buyers News said it had obtained a document that showed Intel planned to phase out future support for Rambus products. An Intel spokesman however said there would be no change in the Intel stance. RMBS dropped -11 in early trading but recovered to only -8 as investor denial caused a bounce in the shares.

With the markets all coming into alignment the economic news is still mixed. The consumer confidence today showed a drop well below the estimate of 140 with only a 135.2 reading. Maybe the economy is really slowing and maybe not. Maybe it is just consumers reacting to the falling stock market and margin calls are making it tougher to remain positive. The other economic report showed the NAPM index at 49.6 the lowest reading in 21 months and the sharpest drop since May 1980 after posting a 62.4 in August. This evidence of a serious contraction may actually hasten the Fed into a rate cut sooner than expected to avoid a crash instead of a soft landing.

With analysts claiming this may be a November to remember should we start making new years eve party plans now? The Nasdaq rebound today after getting hammered on Monday looks to be a confirmation signal with the second higher low since the October 18th bottom. The rally came on high volume with advances beating declines by a greater than 2:1 margin. The new lows on the S&P have finally turned the corner and are dropping while the new highs are rapidly accelerating. This appears to be a broad market move with the S&P, Dow, Nasdaq all participating and the Russell-2000 closing at a three week high as well. Even the Dow Transports are soaring with a +300 point gain in just the last four days. Dow theory followers should be ecstatic. Did I mention that the volume of 1.35 billion on the NYSE was the seventh heaviest ever?

The last of the tax sellers appeared around 2:15 PM but buyers cheered the pull back and bought their cast offs with enthusiasm. Hopefully the tax selling was the real reason behind the last two weeks volatility and we will only move up from here. This remains to be seen but appears to be the consensus of opinion. There is some concern that the bounce today was simply the result of funds buying a few thousand shares of the leaders in order to put the final window dressing on the month end reports. This happens constantly and paints the tape with the illusion of buying. IF the tax selling by mutual funds was the real reason for the October drop then the funds are now flush with new cash and the buying season will begin tomorrow. The tens or even hundreds of billions in cash on the sidelines must now be put to work between now and December 31st. The influx of new cash to these same funds from retirement plans and the year end IRA contributions could also fund the potential Fall rally. Historically the November and December months are very strong and with the Fed on hold until well after the election the only thing on investors minds should be which stock to buy if the rest of the week is as good as today. With millions of investors breathing a sigh of relief after the Dow's performance over the last several days and now the Nasdaq confirmation you can bet there will be a lot of charting done tonight after the trick or treaters go to bed. Parents on a sugar high from consuming the rejects will be deciding what to add to their decimated portfolios and planning that summer cruise on the proceeds. We are a nation of optimists and any daylight at the end of October is cause for celebration.

Now that you are all pumped from the anticipation of the funeral for the bears let me give you a few words of caution. Thursday we have the Productivity report for the third quarter and Friday we get the always interesting Non-farm payroll report coupled with Factory Orders for September. Just three of the key indicators the Fed watches closely. Add that to the +1300 points the Dow has risen since October 18th and you could see a little profit taking between now and Friday. What we do not know is if the new buyers can overpower the sellers and keep the rally alive. This concern is evident by the put/call ratio which is now at .64 which indicates slightly more put buying than normal. The COT report today showed that small traders are now at extreme levels of bullishness with a huge number of calls while the institutional traders are still short at ten year extremes. This is setting up for an interesting tug of war beginning next week. If the big guys are forced to cover these positions in a raging market the explosion could be huge. Get out the party hats, start ordering that champagne and get ready to party!

Good luck and sell too soon.

Jim Brown
Editor

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