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Market Wrap

Did you buy the dip?

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        01-04-2001        High      Low     Volume Advance/Decline
DJIA    10912.40 - 33.40 11028.00 10888.40 2.11 bln   1600/1363
NASDAQ   2566.83 - 49.86  2644.80  2549.83 2.61 bln   2193/1797
S&P 100   700.92 -  3.05   709.68   698.58   totals   3793/3160
S&P 500  1333.34 - 14.22  1350.24  1329.14           54.6%/45.4%
RUS 2000  477.20 -  7.19   484.39   475.90
DJ TRANS 3145.65 +130.58  3157.44  3011.78 
VIX        29.96 +  1.29    30.48    28.47
Put/Call Ratio      0.55

If you were anticipating the bottom on Wednesday as we had suggested and bought either dip recovery from the morning 2251 or the afternoon higher low of 2264 then you should be a happy camper. We all know what happened at 1:15PM and the explosion that resulted. Today's wimpy profit taking sell off was a big win and should go down as a plus instead of a minus. Volume was huge again with the NYSE trading over two billion shares for the first time ever. The Nasdaq volume was 2.6 billion with advances beating decliners on both exchanges even though both finished the day slightly negative.

This was simply a consolidation day after both exchanges set records on Wednesday. Traders took profits while investors bought stock for the long term. Companies up high double digits on Wednesday managed to hold onto most of their gains. CIEN +19 only lost -2.44 today, BRCM +30 only lost -6.63 today. Give me $30 and take back $6 any day! With the Nasdaq up +17% from the Wednesday low the only -1.9% retracement today was a non-event!

The keyword for today was rotation. Every defensive stock, which had benefited from investors moving into apparent safety over the last two months, suffered today as those same investors dumped them to raise cash for the anticipated rally. BUD dropped -$5 at the low of the day, MRK accelerated the drop started with the Fed announcement yesterday with a -$5 loss intraday. Biotechs looked more like lepers with most taking big losses. PDLI led the loser list at -10 with GENZ, ABGX, AFFX, IMCL, CRA, DNA following closely. LH, Laboratory Corp, which I highlighted on Tuesday as a capital gains tax sale loser, finally bounced at $130 today after dropping -$53 from last Thursday's high. Forest Labs also found a bottom at $113 after falling -$26. The good news has got to be there is only one day left in this week. Tax sellers are normally done by Friday's close and that money will be put back to work next week. Investors still holding these previous high flyers will start to breathe easier as the bleeding stops.

As if financial stocks needed any more good news other than the Fed rate cut, Lehman and Bear Stearns both announced earnings today and both beat estimates easily. LEH beat estimates by +.20 and BSC by +.25 on increased trading volume in Nov/Dec. This helped revitalize the brokerage community which had been decimated by the lack of volume in our bear market. NITE gained +15%, AMTD +20%, EGRP +13%. The major financials managed to hold onto or even add to their gains from yesterday with C and JPM the standouts.

Lest you think everything was rosy today there were the usual problems. Some of the warnings today included WGRD, RSNT, CYBS, SAPE, NXTV, ETYS, KEYN, BRKT and SMTC. Just cutting rates has not waved a magic wand over earnings and there are still dozens of warnings coming. YHOO was widely rumored to be the next major Internet to warn but the company has been quiet. Since it takes six months for rate hikes or cuts to filter through the economy and end up as earnings we can expect at least two more quarters of problems. However the market will discount that fact and short of specific disasters stocks should trade higher. First Call said today that there have been 92% more warnings this quarter than for the same quarter last year. Real earnings begin next week but other than YHOO and ARBA there are not any high profile releases due out. The following week however is when the flood gates open and investors will be reacting to real news, not speculation.

Economic reports today continued to confirm the slowing economy with the Initial Jobless Claims at 375,000 posting their fourth consecutive increase. The really key report is the Jobs Report on Friday. The outcome is probably already known based on the Fed rate cut. Since they get advance information you could bet that the Jobs Report will be weak and point to more economic declines. It remains to be seen if the actual release will have any direct impact on the market. With the pressure already off and no Fed action anticipated on the release the market may just ignore it and focus on rebuilding portfolios. Still part of the weakness at the close today could have been traders closing positions in front of the unknown Jobs impact.

George W, call Alan before making important decisions. That was basically the message Alan sent to President elect Bush with the -.50% rate cut on Wednesday. Do you think it was just a coincidence that Alan announced the cut while Bush was holding an economic summit in Austin designed to build support for his $1.6 trillion tax cut? What was the purpose of announcing in the middle of the week, in the middle of a trading day? In the past this type of action occurred after the Jobs Report. Just a coincidence that it was two days early and during the summit, right? Alan has said in the past that tax cuts should be delayed to continue reducing the debt. A massive tax cut could be seen as a lack of confidence in Greenspan's ability to control the economy. With a war of words and methods shaping up between Alan and George, Alan fired the first shot with an aggressive cut and effectively drew a line in the sand. Squaring off against Bush may be good for us but may have a career shortening long term result. Of course, how much career does Greenspan have left anyway? It is not like he needs the job. For traders the result may be a more aggressive Fed posture than in the past as the FOMC team tries to pump the economy back up quickly to reduce reasons for a massive Bush tax cut. Go for it Alan, we will be happy to get another -.50% cut at the Jan-30th meeting. I doubt it but I would take it. Many analysts speculate that Alan could step down as early as this year and go out at the height of his popularity instead of waiting for the next disaster to knock him off. If this is his plan then launching an aggressive series of rate cuts to fire up the economy before he leaves makes sense. An economy running at 5% GDP and producing low unemployment is harder for any political party to screw up quickly with bad economic choices. Essentially Greenspan's destiny is in his own hands and the next six months should be interesting and traders should benefit.

For traders Friday is a toss up. The Jobs Report is a wild card with no real impact. There should not be a lot of tax sellers left. There is no real reason to sell stock and plenty of reasons to buy. With the Fed on our team and another meeting only three weeks away the prospects are bright. Money on the sidelines has now gotten everything they wanted. A double bottom on Dec-21st and again this week along with a rate cut. The future is clearly in the Fed's hands and the Fed has said they will continue cutting until the economy is under control again. There is little downside. Historically January rallies begin next Monday as fund managers put retirement cash to work. This historical fact could provide a bullish bias to Friday's trading considering our current mostly oversold conditions. Traders still on the sidelines should consider any dip on Friday as a buying opportunity.

Good Luck, Sell too soon!

Jim Brown

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