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Market Wrap

Can't Get the Lead Out. . .Again

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      03-18-2002          High     Low     Volume Advance/Decline
DJIA    10577.75 - 29.48 10661.06 10525.03  1.15 bln   1770/1396
NASDAQ   1877.06 +  8.76  1893.26  1861.11  1.55 bln   1943/1589
S&P 100   589.63 -  1.50   594.66   586.50   Totals    3713/2985
S&P 500  1165.55 -  0.61  1172.73  1159.14             
RUS 2000  502.80 +  3.68   503.55   498.68
DJ TRANS 2947.89 -  3.65  2962.30  2907.33
VIX        20.75 -  0.02    21.89    20.42
VXN        38.75 -  1.51    39.85    38.21
TRIN        1.11
PUT/CALL    0.64

Can't Get the Lead Out. . .Again
By Buzz Lynn
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Today should have been cancelled due to lack of interest. Seems like more than a few Mondays lately have started out the week on the slow side. In fact, just checking the scoreboard above, the markets have barely budged in the last week.

Well, today's excuse du jour is the Fed meeting tomorrow and what might then become of interest rates. The truth be known, it really doesn't matter what happens to rates. The market already assumes that with a federal funds rate at 1.75%, there isn't much room for further cuts. Likewise, nobody expects an increase quite yet in the wake of slightly rebounding economic indicators.

So it's almost unanimous that the Fed will return its easing bias to neutral, but do nothing with rates. Unless there is something outside the ordinary, the real meat will come from the Fed's outlook, and even then, it may not have much sway on the market's direction.

Nonetheless, and just to be sure, traders were cautious in today's activity with little to position for going into tomorrow's Fed meeting. The volume reflects that, coming in at a scrawny 1.15 bln shares traded on the NYSE and 1.55 bln traded on the NASDAQ. No matter what the action, without volume, it holds no meaning. I wouldn't read a darn thing into today's action, except to say that most traders and investors are really focusing on what's to come later in the week. So skip today's billboards and focus on what's coming down the road.

For starter's, there's the Fed meeting that we've already broached above. Then there's the vote that determines if Carly Fiorina get to keep her job as CEO of HWP/CPQ. Yep, the vote on the merger is tomorrow and promises to be close. If there are enough votes against the merger and it doesn't come to fruition, two things will happen. First, Carly will lose her job. Second, Michael Dell will be the hands-down winner. For those that were in the game over two years ago, Dell made a prediction that CPQ would be out of business in five years because of their antiquated business model. The merger prolongs the inevitable demise if they don't change their approach, but failed merger hastens their death, as it will leave them a weaker competitor on DELL's turf.

Late word is that HWP's employees will vote against the plan. Thus even if it is approved, employees could remain disgruntled - not a place where Fundamentals Guy wants to put his money.

Furthermore, in economic news we have the trade balance coming in tomorrow morning, housing starts and building permits on Wednesday, followed by initial jobless claims, CPI, leading indicators, and the Phili Fed report all on Thursday. There ought not to be any surprises, but eyebrows could easily rise with a higher than expected CPI since inflation is assumed dormant. If that happens, look for traders to get nervous about a Fed rate increase the next time around. That won't sit well with market bulls.

OK, what about the technicals? Let me sum it up this way. They are inconclusive.

Dow Industrials - INDU (weekly/daily/60):

The weekly chart has stalled but the daily chart halted its slide mid-run in descent. The 60-minute candles seem to be finding a home between 10,500 and 10,650. Not surprisingly, the 10,650 level of resistance also happens to be the 78% retracement off the October lows and there is a bearish pennant under formation. The saving grace for bulls is today's turnaround in the daily stochastic. Repeat: mixed picture.

NASDAQ - COMPX (weekly/daily/60):

NASDAQ has a similar mixed picture. The weekly chart candles are neutral leaving us no clue as the ultimate break in direction. Stochastics are still bullish. The daily stochastic looks like it might be ready to turn positive, but the lack of conviction on the 60-min stochastic suggests that any daily moves will also be indecisive. Furthermore, on the daily chart, COMPX is in the midst of congestion. The 50 dma (magenta) and the 200 dma (gray) are conspiring in a parallel downward slope against further gains. Again: mixed picture.

S&P 500 - SPX (weekly/daily/60):

Any different on the SPX? Nope. Weekly candles and stochastics topping out. Same with the daily candles at the 63% retracement and the 60 min too, both at 1170-1172. Daily stochastics halted in mid-slide . Direction from here is uncertain. Did I mention, "mixed picture"?

As if all that inconclusiveness is not enough, our good buddy, VIX is again flashing historical lows. When volatility is this low, traders are fairly certain of market direction. Everyone seems to think we will keep rolling down the same path to economic recovery, prosperity, and happy days soon to be here again. For us contrarians, that's way too many people off in la-la land. The native are fixated on dinner just through the trees, when all the while, they may be the ones about to become dinner to those unknowns that lurk just behind them. Oscillators oscillate, and while the VIX can go lower as even greater unanimity of direction permeates bulls' brains with all the subtlety of a pending stampede, that too will reverse as sure as the sun will rise in the morning. To all the bulls, beware the cliff that possibly lies ahead - the same one you collectively didn't see in March 2000.

As for tomorrow, have I said it enough? Low volume and lack of any substantive chart pattern has me on the sidelines until after the Fed meeting. Perhaps a pattern will shake loose that becomes obvious. Until then, the best thing I can do is avoid the temptation to trade a weak volume, indecisive market. Wish we had better trading setups for tonight. Bullish, bearish, doesn't matter. Just show me a trend.

See you at the bell.

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