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Market Wrap

Six Days and Counting...

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        08-13-2001        High      Low     Volume Advance/Decline
DJIA    10415.90 -  0.40 10445.80 10367.10  842 mln   1661/1425 
NASDAQ   1982.20 + 25.80  1986.33  1951.46 1.13 bln   2013/1669
S&P 100   610.49 -  0.92   612.46   607.88   totals   3674/3094
S&P 500  1191.29 +  1.13  1193.82  1185.12           
RUS 2000  477.60 +  2.08   478.89   474.88
DJ TRANS 2935.41 - 25.36  2964.47  2815.45
VIX        23.24 +  0.43    23.86    23.08
Put/Call Ratio      0.54

Six Days and Counting...

Did anyone else have a hard time staying awake today? Several times throughout the day I could have sworn my charting program had stopped responding, as the movement in the markets was nearly flat. As you can see by the table above, there was virtually no movement in the broad markets on Monday. The summer doldrums continue, with the bears apparently going back to sleep and the bulls waiting for the next catalyst (any positive news will do!) to propel the major indices towards the upper end of their recent range. It seems nobody other than Abbey Joseph Cohen expects a breakout of the recent range any time soon.

Light volume is still the rule of the day as investors wait for something to move the markets and maybe the Fed meeting next Tuesday will do the trick. The weakening of the economy continues and recent reports have shown that inflation is not a concern. In fact the word "deflation" is starting to make the rounds in the press. All this has led bullish traders to hope for a 50-basis point cut in August and maybe even another cut in October. The bond market is reflecting this sentiment with the 10-year Bond hitting a low of 49.32 on Monday, its lowest level since early April. Falling bond yields does not paint a cheery picture for equities, but nonetheless all the major indices managed to hang onto their gains from last week, while the NASDAQ actually eked out a small gain.

There was a bright spot in the major indices today as breadth remained positive, even if the margin was narrow. On the NYSE, advancers squeaked by decliners by a 6 to 14 margin, while the picture was a little better over on the NASDAQ, where advancers led the charge with a 20 to 16 ratio. But all of this is just confirming that traders don't know which way to jump next. Nearly even advance/decline ratios, light volume and all the major indices stuck in the middle of their recent ranges. Hmmm...seems like another boring summer Monday.

While it wasn't a roaring gain, the NASDAQ managed to advance with the help of the daily Stochastics which is pointing to a continued advance...at least until the descending trendline at 2060 is reached again.

Stuck in the middle of its recent range, it is hard to make a case for a sustained move in either direction right now. Daily Stochastics point towards a continued advance for the next few days, but then the bulls will need that elusive catalyst to power through the 10,600 resistance level.

The only significant market moving news (if you can call analyst ratings news anymore) came in the Semiconductor sector as Goldman Sachs entered the fray, moving their recommendation for the sector to Overweight. Bullish traders nibbled at the bait, helping the Semiconductor index (SOX.X) to once again reclaim the $600 level. Like the broad markets, the SOX is stuck in the middle of its recent range with solid support at $550 and solid resistance at $650. It's hard to find a winning play in this sector, although Broadcom (NASDAQ:BRCM) seemed to lead the charge higher today with a nearly $3 gain. For the record, BRCM is a current OIN Call play and is today's Play of the Day.

So if there wasn't much market-moving news today, let's see what is on the horizon this week. It is a big week for retailers, with Walmart (NYSE:WMT) getting things started tomorrow morning before the open. The company is expected to earn $0.37 per share compared to $0.36 in the year-ago period. The stock has been under pressure again over the past week after failing to power through the $56 resistance level. Over the past 2 weeks I have been pointing to weakness in the Retail sector, which I expected to continue due to the almighty consumer beginning to slow their spending habits.

Despite hope for brisk business from the back-to-school crowd, the results so far appear to be rather disappointing. This afternoon Dow Jones reported that WMT is experiencing sluggish back-to-school sales. What happened to all that tax rebate money consumers were supposed to be spending? As a bellwether for the Retail sector, I'll be watching the company's earnings report and conference call in the morning. Along with Home Depot (NYSE:HD) who also reports its earnings in the morning, we could have the catalyst for a significant sector move through the rest of the week. . Of course we don't want to forget the Retail Sales report due out before the market open as well. Although I don't expect it, WMT and HD could gang up on the bears, beating estimates and leading the RLX out of near-oversold territory

The Volatility Index or VIX isn't giving us any strong clues either as it continues to meander in the 22-24 area, reflecting a decided lack of fear in the market, but also a lack of strong bullish sentiment. The smart investors seem to be on vacation, waiting for the return of solid volume after Labor Day. In the meantime, we are left with a low-volume, rangebound market that jumps on the slightest news item but lacks the follow through to continue the initial move.

Rounding out the event calendar for the week, we have the CPI report on Wednesday and New Housing Starts on Thursday with the Preliminary Michigan Sentiment on Friday. When there isn't a high-odds trade to be had and there are potential land-mines wherever you look, there is no shame in staying on the sidelines. In fact, sometimes the smartest decision you can make is to not trade today. Investors may just be biding their time until they see which way the Fed is going to move, and we only have 6 more days until we will find out.

Trade only when the reward/risk ratio is in your favor.

Mark Phillips
Research Analyst

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