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Market Wrap

What if the Nasdaq could close positive three days in a row?

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        03-06-2001        High      Low     Volume Advance/Decline
DJIA    10591.20 + 28.90 10690.90 10570.20 1.10 bln   1851/1196
NASDAQ   2204.43 + 61.51  2243.78  2202.70 1.99 bln   2302/1401
S&P 100   645.45 +  7.02   653.21   640.08   totals   4153/2597
S&P 500  1253.80 + 12.39  1267.42  1243.88           61.5%/38.5%
RUS 2000  481.13 +  5.34   482.28   475.79 
DJ TRANS 2980.43 + 41.03  2980.43  2937.06 
VIX        27.44 -  1.78    28.09    27.03
Put/Call Ratio      0.57

Was that a rally in the face of bad news? What happened to the gloom and doom from last week? Did I miss something important over the weekend? Did Abbey Joseph Cohen call a market bottom while I was at lunch? Inquiring minds want to know! For whatever reason the shorts covered once again at the open on Tuesday. The elusive "short covering indicator" must have signaled a possible short squeeze and traders squared accounts in oversold tech stocks. Could it be fears of a surprise rate cut on Wednesday? I doubt it but stranger things have happened.

With seven chip stocks either warning or being downgraded in the last 48 hours does it strike anybody else strange that the SOX is up +25% in the last three days? Intel CEO Andy Grove said in a conference call today that he does not see a snap back in chip demand but rather a protracted workout of the inventory problem. Still his stock did not sell off. The selective hearing by investors has analysts scratching their heads. Several of the chip stocks downgraded included PMCS, AMCC, PMCS, VTSS all of which closed positive for today.

Maybe we have reached that perfect point in the markets where investors have had enough. Blue chip tech stocks are now back down to PE ranges in the 20s and 30s. Long term analysts are saying stocks are currently valued at 1991 levels which was before the recent eight year run in the market. Al Goldman could not say enough positive things about the current stock values. John Murphy stuck his neck out and called the bottom on CNBC this afternoon. The only people missing are Abbey and Ralph Acampora and we could bag this bear market for good. Well, we could also use an end to earnings warnings!

Speaking of warnings, Nasdaq:JDSU, warned on top of a warning after the close today. They warned just a couple weeks ago when the SDLI merger was complete and today they warned that that estimate was too aggressive. Investors in after hours trading did not get very excited and only knocked -$1 off the $28 closing price. This may be a sign of things to come. JDSU has been fallen from $140 to under $25 recently and at that price is considered fairly valued.

Easy come, easy go for Nasdaq:AMZN. The rumor from Monday that they were going to link up with Wal-Mart was killed today. The talks had occurred but had concluded without any action. The +25% gain from Monday, +2.75 translated into a -.75 loss today. Jeff, if you can invent a rumor like that every week your stockholders would love you. A +25% gain on the rumor and a -5% loss on the news. To heck with selling books, sell rumors instead!

Will he or won't he? Wednesday is widely expected to be the last day for an intra-meeting rate cut. After Wednesday the odds increase dramatically that any rate cut will wait until the Mar-20th FOMC meeting. There are some analysts trying to reach back to our last recession in 1991 and point to a surprise rate cut four days before the meeting as proof that Greenspan can do it at anytime. Sure he can do it but in his speeches he has said there is no urgency and that is the kiss of death for a surprise cut. The next major piece of economic news is the Jobs Report on Friday. There is an outside chance a much weaker than expected number could trigger a cut but almost nobody expects that. Next week however is full of Fed watched numbers including PPI, Sentiment and Industrial Production. Today was Greenspan's 75th birthday. Maybe George W will send him a free rate cut pass in his birthday card.

The Nasdaq gapped above resistance at 2200 at the open, spent the day trading much higher and then drifted back to close at 2200 again. Traders waiting for that milestone to be breached to go long were caught off guard and probably were unable to trade the bounce. Whenever the market gaps open substantially it is a very good idea to sit back and watch. The gap open produces a bounce in option prices that is very hard to profit from unless you already own them. Buy on a strong gap open like we had on Tuesday and you will watch those options premiums bleed for the next day or two if there is no follow through in the markets. Remaining on the sidelines is painful but not as expensive as choosing the wrong entry points.

For Wednesday traders should look for a pull back to make an entry. However Tuesday's high of 2243 should serve as an entry point if there is no morning drop. Actually I would wait until we trade over 2250 before opening a new long position. 2300 is still resistance as well so the next several days could be a struggle to make any big gains. The futures are actually positive at 7:30 and considering the JDSU warning, among others, this is very positive. Three up days in a row? If I am dreaming, don't wake me up!

Enter passively, exit aggressively!

Jim Brown

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