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Market Wrap

What if the markets opened and nobody traded?

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              11-07-2000        High      Low     Volume Advance/Decline
DJIA    10925.20 - 25.00 10996.50 10926.00  879 bln   1463/1326
NASDAQ   3415.79 -  0.42  3435.13  3360.26 1.70 bln   1841/1993
S&P 100   756.30 +  0.86   760.29   751.55   totals   3304/3319
S&P 500  1431.87 -  0.32  1436.22  1423.26           49.9%/50.1%
RUS 2000  506.01 +  2.05   506.01   501.36
DJ TRANS 2770.57 - 22.65  2796.45  2756.26
VIX        26.81 -  0.22    27.15    26.17
Put/Call Ratio      0.58

What if the markets opened and nobody traded?

That was the case today as everyone sat on the fence and waited for the election results. Only 876 million shares traded on the NYSE and only 1.6 billion on the Nasdaq. After pulling back some on the slaughter of chip stocks and fiber optics as a result of comments by CSCO last night, the Nasdaq finally pulled into positive territory in late morning but bled points until just before the close. The Dow was no better trading in a narrow 50 point range all day. Just simply election jitters with most traders unsure which way the vote will go and moving to the sidelines until tomorrow.

The stocks which moved the most were not election related. The acknowledgement by CSCO that they were overstocked on some chip components and telecoms were ordering less than previously expected was not the kind of news traders wanted to hear. Big chip companies were hammered as traders fled them in droves. Broadcom was the hardest hit with a -$42 drop followed closely by PMCS -25, GSPN -17, IDTI -10. The fiber optic stocks also lost ground on news of slower buying. SDLI dropped -10, QLGC -8, JDSU -3, GLW -2. Some networkers and contract manufacturers also fell with RBAK -16, JNPR -8, JNIC -6, JBL -6, CLS -4.

The CSCO conference call was positive in spite of the bloodshed above. CSCO projected stronger revenue going forward and did not disappoint traders with current earnings. CSCO had traded down as low as $53 at the open but rallied on relief as traders decided 50% growth was still 50% growth regardless of the exact sub sector it came from. The recovery of CSCO was largely a factor for the recovery of the Nasdaq. When investors saw the rebound they decided things must not be as bad as they thought the day before and even with the election in progress they took advantage of possibly the last opportunity to buy CSCO before a fall rally.

If you are a news and event investor and have been expecting a Bush win there were plenty of sectors in which to position yourself for post election returns. Drugs, Defense, Energy, HMO, and of course Microsoft. Most of those sectors saw evidence of profit taking the last two days as traders took profits just in case things did not go as planned. Microsoft has probably seen the biggest gains in anticipation of a possible easing of the attack in a Bush presidency. MSFT has gained +22 from the October low of $48 and was up +$1 today. A Gore win is sure to take some of the wind out of their sails. Puts at the open might be a good plan if that happens.

Either candidate winning will not help Pets.com which said it was going to close its online store and lay off 255 of its 320 employees. As the latest dot.com to throw in the towel it joins the ranks of the fire sale asset sellers. Pets.com said it would sell inventory, distribution equipment, Internet addresses and its sock-puppet brand icon and other intellectual property. Now what exactly does the intellectual property consist of? Speak and spell toys for dogs? Dog whoopee cushions? Odds are good that there will not be a huge list of bidders. IPET may go down as one of the quickest boom to bust Internet stories. IPET went public in February at $11, zoomed to $14 and closed today at $.22 cents.

The only real news today was the CSCO aftershocks from last night and the election. The markets tomorrow will be powered entirely by the results tonight. A Gore win is anticipated to cause some drastic reactions in the short term but long term the status quo will be maintained and the markets will recover. If Bush wins we could see some immediate gains but the long term impact may be more subdued. Until the investing public sees what changes Bush can actually ram through congress there may not be any huge bull rallies. I am not saying the markets will not go higher after the election of either candidate, it is just we know what Gore will do as an extension of the current administration and we don't know exactly what Bush will be ABLE to do. The markets are not fond of economic change and the unknown may slow investors coming back into the markets. I am not an election pundit and you should look at somebody else who lives politics for the real cause and effect for each party. I am only interested in what the short term market impact will be and how to trade it. That being said I think we could see, regardless of who wins, a buy the rumor, sell the fact event on Wednesday. Everybody has placed their bets and are waiting. Once the outcome is known those on the wrong side will change sides and those on the right side will take profits. With the PPI and Dell earnings on Thursday investors will immediately refocus back on economic matters and we will moved based on those factors.

We are moving quickly to include the changes I spoke about on Sunday and beginning tonight we have some Low Volatility and Long Term plays. Be sure to check them out and let us know if we are headed in the right direction. We should have all the changes made by the weekend so be sure and look for them.

Good luck and sell too soon.

Jim Brown
Editor

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