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Market Wrap

Running in place or just marking time?

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       WE 11-03         WE 10-27         WE 10-20         WE 10-13
DOW    10817.95 +227.33 10590.62 +364.03 10226.59 + 34.41  -404.36
Nasdaq  3451.58 +173.22  3278.36 -204.78  3483.14 +166.37  - 44.27
S&P-100  751.70 + 25.52   726.18 - 11.98   738.16 +  9.15  - 21.96
S&P-500 1426.69 + 47.11  1379.58 - 17.35  1396.93 + 22.76  - 34.82
W5000  13382.90 +522.30 12860.60 -196.80 13057.40 +253.90  -338.60
RUT      507.75 + 27.90   479.85 -  7.60   487.45 +  7.06  - 10.63
TRAN    2761.75 +232.78  2528.97 + 59.90  2469.07 + 38.89  -113.47
VIX       26.31 -  3.84    30.15 +  2.73    27.42 -  3.56  +  5.31
Put/Call    .57              .59              .50              .76

Another day, another +22 points. Or -62 if you own old economy stocks. Not to beat a dead horse but nobody expected any major moves until after the CSCO earnings and the election results. Looks like we got what we expected Friday. No surprises showed up in the lackluster trading as neither major exchange broke their respective billion share marks with the NYSE trading 992 mil and the Nasdaq 1.8 bil. Advances and declines were almost dead even and the market excitement was about the equivalent of a nine hour plane ride. You are locked into being there and nothing makes the time go faster. It is hard to complain however about a week that posted gains of +227 for the Dow and +173 for the Nasdaq. We are just spoiled and a +22 point day is like watching paint dry.

There was some really exciting earnings news out if telecom stocks are what turns you on. Sprint (FON) called in with lower than expected profits for 2001 making it the third long-distance telephone company in the last 10 days to warn. FON actually gained +1.38 on the news while their wireless telephone arm Sprint PCS dropped over -$8 after growth estimates were cut in half for next year. Are you excited yet?

Even more titillating was the Non-farm payroll or Jobs report Friday morning. The economy created only 137,000 new jobs in October and failed to meet expectations of almost 200,000 net additions. Sept was revised downwards by -50,000 jobs to an average of 140,000 which would be consistent with a soft landing. The unemployment rate held steady at the April low of 3.9% which was less than expected and kept the Fed squarely in our future. While the report was basically a yawner it does raise the worry that a 3.9% unemployment rate will not provide enough workers to handle the seasonal crush of holiday job needs. The number of jobs created over the next two months will soar but qualified employees will be scarce and bidding for these employees could provide an inflationary factor to the employee wages which the Fed watches. Are you bored yet? That last paragraph almost put me to sleep as well.

When you consider I just covered the two most important events of Friday's trading day you can imagine there is not much to look forward to below. I will try to keep your interest but I must warn you I have to talk about the election and CSCO earnings again. I will try to keep both brief.

The election is Tuesday in case you live in a vacuum and nothing of importance is likely to happen in the markets until after the winner is known. I will not even go into the drinking issue even though I have heard some pretty good jokes today. About the only visible evidence of election impact was in the drug and healthcare stocks which pulled back some on profit taking from the run up into the expected Bush win. With the DUI news yesterday many traders became not quite so sure of that win and took profits just in case.

The other major market cloud remains CSCO and their earnings on Monday. Analysts are battling in the media with conflicting estimates of revenue growth going forward with some warning about a Nortel like slow growth warning and others claiming a 50% growth rate into the next millennium. Obviously the prospect of either are slim but that difference of opinion is what makes horse races and stock markets. Several big players loaded up on insurance today with a block of 10,000 QQQ 80 PUTS crossed this morning and several other 1000 lot or bigger trades cleared as well. There was a block of 17,000 short 81 CALLS sold earlier this week. Looks like someone has inside info or a really big position to cover and wanted insurance against the unexpected. These types of trades put the market "on notice" that some big money is betting against a favorable report. Needless to say nobody wanted to invest heavily in tech stocks before the weekend. CSCO is expected to announce +.17 cents earnings and they have a long term history of beating estimates by a penny. They are not likely to have a blowout and they are just as likely not to miss. It is all in the call and traders will be holding their breath until the guidance going forward is made public.

In spite of the two major clouds over the market the Nasdaq did manage to post another gain and edge ever closer to resistance at 3525. While +22 points may not be exciting it is much more preferable in my book than the alternating +100/-100 point swings from last week. Look at the bright side, every day the Nasdaq moves up slowly the volatility is bleeding premium out of those calls you want to buy on Wednesday. Lower volatility equals lower premiums and a better opportunity to profit when the big swings return.

I still think we saw a bottom on October 18th and any pullback a negative earnings report or election result gives us is just another buying opportunity. We are likely to see a run to 3525 this week and then fall back on profit taking but once over 3525 we should be good to go. Once the CSCO news is out and traders decide the election winner is not as bad as they previously thought then we will start looking at the Dell earnings on Thursday along with the PPI report. Neither should be a major problem. I suggest you take a long look this weekend at some long plays and be prepared to buy any non-CSCO related Tuesday dip.

Here at OIN we are going to be busy doing a face lift and giving you more choices for your option selections. We are responding to reader requests to be more reactive to the market and provide different plays of all types. Since this is a slow market news day I am going to tell you what to look for next week.

First, we are going to a daily play picking schedule. Each evening we will add new plays and drop old ones based on that days market action. Since entry points don't always correspond with a three day a week publishing schedule we will now be able to suggest plays when they look the best.

Second, we are adding three categories of plays. Long Term, Low Volatility (less risk) and Lottery Plays. They will have their own section in the recommended calls area.

The Long Term plays will not be LEAPs, although there may be some LEAPs mentioned if we think they apply, but will be plays based on longer term technicals, bases, news events, value plays and sometimes just plain speculation. These will not be current month but 4-6 months or longer.

The Low Volatility plays will be just that. You will not find a JNPR, ITWO or SDLI but you will not find double digit premium prices either. These plays will focus on lower volatility stocks but stocks with good potential and established trends. Some of these plays may be stocks under $30 which we have avoided in the past. An example of a low volatility play would be a $20 call on WIN. Check it out.

The last category we are adding is the Lottery Play. This is a high risk play for very little money but the payoff can be large. An example would be a NOV 25 call on BMCS for $.31 or the DEC $25 call for $1.13. These should not be a large portion of your play list but two or three contracts here and there will add some spice to someone with normally a low risk tolerance.

Third, we are adding a real time market commentary and stock watch produced by Jeff Bailey. This is not a one or two paragraph "market went up, market went down" fluff piece. This is real meat and will be posted on the site and emailed four times daily. (yes you can opt in or out of this email) What is moving the markets, winners, sinners and even intraday plays when the situation warrants.

Fourth, we are adding a Watch List for stocks we are thinking about playing and why. This will let you make your own decision as the market moves and possibly get a better entry point than waiting for the end of day recommendation. We will try and keep 20-30 stocks on this "pre-pick" list and you can watch the plays develop.

Next week we should have our Option Quote Montage ready with real time quotes from all five option exchanges. You can't get that anywhere else!

With the market doldrums hopefully over and yearly fortunes to be made we are trying to make your stock selection easier and more plentiful. We welcome your comments as our changes take place. It should take most of the week as we migrate into the new formats so pay close attention as it changes each day. We will try and update you daily with the changes for that day and show you what is different and how to use it. We are excited about the changes and hope you will be also.

So here is the game plan for next week. Be careful buying tech stocks before the CSCO earnings. If CSCO says good things about the future use any weakness on election Tuesday to ease into new positions. The next bump in the road is Dell earnings on Thursday. They have already warned so expectations are light but again negative talk about future prospects could impact the market. If Dell does not miss numbers or whine again about the future then we should move up again. 3525 is resistance on the Nasdaq but if CSCO and DELL are positive it should not be a problem. The following Wednesday, Nov 15th is a Fed meeting and many analysts are already factoring in a rate cut. Don't hold your breath. The good news is that very few think the next move will be another rise. With the economic news mostly positive the Fed is likely to wait until January before releasing the interest rate pressure. As traders our course is much clearer. Plan for a continued rally and any surprise rate cut will be icing on the cake. You have my permission to take Monday off from trading and rest up for the coming marathon. Everybody else is, why not us?

Trade smart, don't buy too soon.

Jim Brown
Editor

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