Option Investor
Market Wrap

It's the Market Stupid!

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        04-19-2001        High      Low     Volume Advance/Decline
DJIA    10693.60 + 77.80 10694.20 10562.10 1.46 bln   1630/1431	
NASDAQ   2181.90 +102.50  2182.08  2082.24 2.70 bln   2418/1517
S&P 100   649.01 +  9.68   649.05   637.63   totals   4048/2948
S&P 500  1253.68 + 15.52  1253.71  1233.39           57.9%/42.1%
RUS 2000  472.40 +  5.89   472.41   465.92 
DJ TRANS 2888.80 + 29.78  2890.41  2841.64 
VIX        28.46 +  0.01    29.07    27.93
Put/Call Ratio      0.47

The rally continued with legs good enough to win the Boston Marathon as tech stocks continued to post better than expected earnings. Company after company are beating the street and there is hardly any gloom and doom in the forecasts. The recession fears appear to be evaporating daily and bears are finding it hard to continue their sell the bounce routine.

The Nasdaq has now rallied almost +600 points since the April 4th low of 1619. Just ten trading days and the rate of change is increasing. The Dow has not been a slowpoke either with almost a +1600 point gain since the 9106 low on March-22nd. Resistance levels have been broken and there is a breakout to the upside in progress. Shorts are running for cover and volume is huge. The Nasdaq had the biggest volume ever on Wednesday and over 2.7 bil today. The NYSE managed over 1.4 bln with advancers beating decliners substantially. Trader heaven!

The leader of the tech race today was IBM, again! Up +15 in the last two days of trading IBM is seeing new life after finally breaking over $100. Worries of an earnings miss behind them there appears to be no speed bumps on the road ahead. Their product mix appears to be gaining market share from SUNW and their services business continues to pay the bills.

There were some more blockbuster earnings after the bell tonight. Microsoft was the leader beating estimates by two cents and not saying anything too negative on the conference call. Up strongly the last two days MSFT gained almost +4 in after hours on strong results. They have numerous new products in the pipeline and said Windows-2000 was gaining speed in acceptance and profitability.

SUNW also announced results and disappointed the street on revenues while beating the street on actual earnings. They were seeing "moderation of demand" on a global basis and the $.08 gain this qtr was well below the $.13 gain for this time last year. SUNW was one of the few stocks to lose ground in after hours based on their earnings.

NT missed estimates that were at the low end of the range from their previous lowered guidance. Posting a -$.12 loss instead of the eleven cent loss expected they fell sharply in after hours but then rallied back to a gain as investors felt the bad news was fully disclosed.

EBAY roared in after hours after beating estimates by three cents and raising guidance for next quarter. Sales were up over +80% from the same quarter last year and said earnings could be as much as +$15 million higher than previously expected. Citing a big acceptance of the auction process as a method to buy/sell almost anything they are actually making money on dead dot.coms. This morning there were 2,306 Cisco items on auction for pennies on the dollar. Why pay retail when the same product is available used? EBAY is proving that there is a viable use for the Internet and they are leaving the other auction sites in their dust.

Gateway announced huge losses and even bigger charges for various things but stuck to their estimates for the coming quarters. They were not very enthusiastic about the coming year but at least not negative either. GTW did fall slightly in after hours.

Apple Computer continued to post gains today after beating analysts estimates easily. The back to back AAPL/IBM announcements helped to provide background stability to the tech rally and even helped some companies with less than stellar earnings regain lost ground. PMCS hit twice lowered estimates of $.02 and they gained +8 in after hours even after saying that sales may not have bottomed yet. The soft warning projected a bottom within 3-6 months which must have encouraged investors after the -84% drop in profits.

EMC also managed to post strong gains again and is now up almost +50% in the last three days. EMC said earnings met estimates but reaffirmed 2001 revenue growth of +20%. They said they were seeing a firming in IT budgets and better things were in our future.

In an unusual move a stock came out with a plea to stockholders to fight traders shorting their stock. MSTR, which had been sold hard recently and fell to under $3 per share, begged stockholders to take their shares out of "street name" and basically put shorts into a squeeze to borrow stock. The strategy worked with MSTR jumping to a high of $7.17 intraday (a +141% gain) as shorts raced to cover positions.

Is it the market or is it the economy? Who is really stupid? There is an increasing question making the rounds today that something is not right in the current economic picture. Indicators are showing a bounce, labor is easing, companies are beating estimates and saying positive things about the future and the Fed is announcing surprise -.50 rate cuts. Vice Chairman Roger Ferguson is saying things like "the economic outlook is more uncertain than usual" and "Fed will be vigilant about cutting rates and has a lot of room to go in this area." Several analysts feel there will be another rate cut at the May meeting and even more inter-meeting cuts after that. The clear message is that the Fed is in control, but in control of what? The inflation monster is dead, the Internet bubble is over and stocks are closer to fair value than in any time in the last three years.

So where is the beef? What does the Fed know that we don't? While this question is making the rounds we need to consider the circumstances. Alan cut rates by a larger than normal amount on a day that the market was already in rally mode from positive earnings. He clearly wanted to provide the markets a huge boost. By cutting rates on a strong rally day when shorts were already under pressure he created an even bigger short squeeze and the result has been amazing. Now do you really believe that was simply a coincidence? Not on your life. It was carefully planned and orchestrated. Now why did he do it? It is the market stupid!

The market has been credited with almost single handedly causing the recession for the consumer. The negative wealth effect was killing consumer demand and consumer sentiment. How do you combat that? By juicing the markets and making retail investors breathe easier. Investors were putting houses on the market, selling luxury cars and pulling back on discretionary purchases. Alan is attempting to put money back into investors accounts and take the pressure off the dinner conversations in families everywhere. Do you think maybe George Bush "suggested" he take some of the heat off voters? Did George need that falling tax revenue to rebound and pay for his tax cuts? Who knows but for whatever the reason, keep it up Alan! We are glad to have you back on our side!

As traders we are now faced with a market that has exploded and many stocks are up +25% to +50% in some cases. Are they now over valued? I don't think so but the temptation to take profits is getting stronger with every day that passes. Do we jump in now and possibly get hit with an immediate drop or do we wait for a possible pull back and chance missing a continued explosive rally? Good question Regis. I would like to poll the audience, use my lifeline AND use my 50/50 option before making that decision. We all feel that the markets will continue up from here. Sure there were analysts on TV today saying that we would see another retest of the lows but that may be just wishful thinking by people who missed the train already. Personally, I will wait until next week and take my chances. If you want to buy today then consider also buying a protective put as well. For instance you can buy an October-$20 call on CSCO for $3.40 and a May-$17.50 put for $1.40. Your potential loss is limited and your upside is only impacted by the $1.40 spent for insurance. Think about it.

Enter VERY passively, exit VERY aggressively!

Jim Brown

Quote.com/QCharts problems

As everyone who uses QCharts knows, the service lately has been terrible. How quickly we become spoiled. When QCharts works it is the greatest tool for the money available. When it is down it is worthless. We receive no money from QCharts but we have been instrumental in promoting it over the last couple years. It was a good product and it will be again soon. The team at Quote.com is working 24hrs a day to fix their problems. If you are a subscriber then you received a notice from them yesterday outlining what the problem was and how they were going to fix it. Unfortunately one of their fixes was to restrict option data in favor of stock data. Their rationale was option montages are actually hundreds of individual quotes compared to a single stock quote. While I understand their logic I do not agree with their solution. I suggest every OptionInvestor reader send an email complaining nicely about this unfair solution to:

Steven Killeen, President, Terra Lycos,

Update for seminar attendees: I closed the remaining naked put position on the seminar stock just before the close on Wednesday for $286.20. This represented an $8.90 per share profit on the remaining contract. Since the company had earnings yesterday I wanted to prevent giving back profits by holding over. Of course it was up another +4 today. I am going to wait until next week and hopefully a dip before starting a new position. Since the protective long put expires on Friday I will need to create a new insurance position as well. Stay tuned.

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