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Market Wrap


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          01-30-2001        High      Low     Volume Advance/Decline
DJIA    10881.20 +179.00 10900.80 10683.00 1.14 bln   1865/1238
NASDAQ   2838.35 +  0.01  2861.71  2817.13 2.07 bln   2162/1638
S&P 100   718.46 +  6.91   719.74   708.76   totals   4027/2876
S&P 500  1373.73 +  9.55  1375.68  1356.20           58.3%/41.7%
RUS 2000  511.66 +  3.75   511.67   506.82
DJ TRANS 3058.78 + 57.45  3062.01  2997.41 
VIX        25.20 +  0.27    26.22    24.82
Put/Call Ratio      0.64

If you were watching the Dow today you would have thought the Fed meeting was yesterday. With a high of exactly 10900 and a gain of +198 the Dow, you would have thought traders were celebrating a -.75% rate cut. The euphoria was due to comments from several Fed watchers that the Fed could actually cut rates more than the expected 50 basis points. Unfortunately the excitement has not rubbed off on the Nasdaq. After trading in a very tight 45 point range the Nasdaq finally closed positive, okay only a +.01 but it counts.

The Dow was up strongly but volume was mediocre at only 1.1 billion. The Nasdaq did manage to trade over two billion shares without going anywhere. This no loss profit taking is boring but much better than the alternative. The Dow was boosted by NYSE:PG which beat estimates by a penny and AT&T closed at a three month high. Only five Dow stocks lost ground and those included NYSE:BA -.31, Nasdaq:INTC -.06, Nyse:MCD -.70, Nasdaq:MSFT -1.13 and Nyse:WMT -.43. The biggest gainers were Nyse:MMM +4.11, PG +4.25 and Nyse:DD +2.25. The excitement was of course based on expectation of a strong rate cut on Wednesday.

While most traders feel the worst earnings are behind us there were several bombs after the close. Nasdaq:AMZN announced their earnings which were in line with the already reduced expectations but then warned that revenue would be down not only for next quarter but for the year. Amazon is also closing two of their new distribution centers and laying off 1300 employees. They still are projecting the fourth quarter of 2001 as their first profitable quarter but analysts are skeptical. Projecting ultimate profitability to be only in the range of 10% of revenue it may cause investors to rethink AMZN as a buy and hold. There are so many other great stocks that are growing +50% to +100% per year and are making huge profits. Why would you want to own a ten percent gainer?

Nasdaq:ADBE warned after the bell that conditions in the last month had deteriorated drastically and economic weakness was impacting all product segments. They had previously said business was strong but that appears to have changed. ADBE lost -$10 in after hours.

NYSE:NOK was the last of the three largest cell phone handset manufacturers to lower projections going forward. Nokia had been viewed as the bright spot in the business but the warnings this morning knocked over -$3 off the price before bargain hunters stepped in. Down only -1.71 at the close to $35.26, analysts were calling this a buying opportunity for long term investors. The damage is done and the downside is limited to around $30. That may be but $30 is better than $35 in my book. Sales growth of 35% is still projected by Nokia.

Another after the bell warning came from Nasdaq:AMAT which had just broken out today to a three month high of $53.94. We even looked at it as a play tonight but with the SOX.X up +37% for the year we felt any post Fed depression could cause a chip sector drop and profit taking in AMAT. After closing at 52.44 AMAT traded as low as 47.19 in after hours but rallied to $51 later in the session.

NYSE:SCH, Schwab asked employees who do not have customer contact to start taking off on Fridays. When first announced SCH took a big drop when it was misreported as all employees. When questioned Schwab said online trading was slowing and commission revenue was dropping. This cost cutting measure was voluntary and needed.

NYSE:CCU also warned that earnings would be about -$.12 less than analysts estimates of $.63 for this quarter. Contrary to what you have been reading not everything was negative. There were some positive surprises with Nasdaq:AFCI beating the street by eight cents, Nasdaq:PSFT beat by four cents and Nyse:HAL by two cents.

It is all up to the Fed! That was the hue and cry all day long with analysts pondering and forecasting everything from no cut to cutting a full point. Take my word for it, neither of those extremes will apply. We are pretty well locked into a 50 basis point cut. Greenspan has gone on record saying the economy is threatening to fall into a recession without an immediate jump start by the Fed. A -.25% cut would be seen as too little too late. A giant rate cut of 75 points or more would cause a knee jerk reaction to "what does the Fed know that we don't." The markets would likely tank while all the chicken littles ran in circles claiming the sky was falling. So, ignoring either end of the spectrum we are expecting a 50 basis point cut. The bad news, it is already priced into the market. After the Dow gains today it is definitely priced into the Dow. At 10900 it is bumping against upper resistance and due for profit taking. The huge gains since the Jan 3rd surprise rate cut have yet to be digested. Since the Jan lows the SOX is up +37%, BTK +27%, IIX +22%, NWX +23%, and XTC +32% for example.

I am not going to dwell anymore on all the Fed pros and cons since you have heard them for several weeks now. The possibility of a sell the news event probably doubled with the big Dow gain today. However, it has been quite some time since we have had a full 1.00% rate cut in a single month. 1982 was the last time. This is the wild card. Stocks go up when the Fed cuts rates aggressively and 1.00% in a single month definitely qualifies. They just don't have to go up the same day. I would be very careful about buying any huge spike after the announcement and would look for a buying opportunity a day or two later. If we get another big move in the morning, buying puts on the announcement could be a good plan.

Enter passively, exit aggressively!

Jim Brown

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