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WHIPPY

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        4-18-2002           High     Low     Volume Advance/Decline
DJIA  10,205.28  - 15.50 10,258.84 10057.00 1.6 bln   1513/1805
NASDAQ   1802.43 -  8.24  1818.79  1778.10  1.8 bln   1538/1621
S&P 100   559.36 -  0.37   562.34   550.9997 Totals   3051/3426
S&P 500  1124.47 -  1.60  1130.48  1124.47
RUS 2000  518.57 -  0.20   519.56   513.78
DJ TRANS 2799.21 - 49.10  2852.06  2799.21
VIX        21.31 +  1.13    22.34    20.46
VXN        39.34 +  0.05    40.86    38.82
TRIN        1.15
CBOE Put/Call Ratio: .97

WHIPPY
by Leigh Stevens

Whip-saw action mid-morning was the story of the day in terms of price action. A sharp intraday market drop occurred in a buying vacuum as bids evaporated on the story of a plane crashing into the tallest office building in Milan. No world trade center, at only 30 stories high, it nevertheless created a drop like a kamikaze dive and the snap back was enough to give you whiplash. The act turned out not to be terrorism, but only a tragic accident.

The Dow and the overall market began today on a weak note influenced by follow through selling that showed up in Boeing (BA), down 3.7%, continuing yesterday's weakness stemming from the company's weak earnings report. (Sell offs in Honeywell, (HON) off 5% and United Technologies (UTX) down 3.7%, also contributed to Dow and S&P index weakness.) Considerable early notice also went to the sharp London sell off in Nokia (NOK), down 10% there, after the company sharply lowered its estimates of its handset sales this year by 20 million.

NOK stated that its full year sales growth of 15 percent would be slashed to an estimate of around 5 percent. If we needed any reminder that the global economy remains very moribund, we got it in Nokia and Boeing's businesses. Also, as if we needed any reminder, most every market rally is predictably followed by a sharp downdraft.

Advanced Micro Devices (AMD), a key chip-maker, was another dead weight on the market, after reporting a loss and guiding the estimates of second quarter sales lower as they are now estimating a sales decline off 5-10 percent from the previous quarter. The Semiconductor (SOX) index was down 3 percent on the day, but this came after a very strong rise on Tuesday. The Wireless Telecom sector ($YLS.X) was also down 3 percent.

On the upside, McDonald's (MCD) up 5%, IBM gaining nearly 5%, and American Express (AXP) with its profit jumping 15% -- stock was up 3%, would have supplied some lift and an even an up day, without the drag of the losers.

Other than these Dow rebounders, money managers also stashed some money in the defensive type stocks like Pharmaceuticals, Healthcare and Utilities.

AFTER HOURS EARNINGS REPORTS -

Microsoft was disappointing (off a few dollars in after hours trading on heavy trading). Microsoft fell short of per-share estimates by 2 cents. Sun Microsystems was OK, with a net loss of a penny, reporting a narrower-than-expected loss for their quarter, after a 24% dip in revenue. Compaq reported a small first quarter profit despite revenue being off. It did match its guidance of last week.

What does it all mean?

Investors are and will be, quite nervous, until an improving earnings trend is seen over next quarter or two. This is fairly typical of a market that is moving from a full-blown bear to one that I would best characterize as a transitional one, or as a trading range market -- rather than a bull market, even an emerging one. We could talk about an emerging bull market by the fall perhaps. Meanwhile the key market averages will continue to whip back and forth or meander. However this meandering does create a trading range, that is wide enough for index and stock options plays.

Fundamentally, there is a twist on buying the rumor selling the fact. There tends to be a lift in the market when we get through half or more of the earnings reports. At some point there is not enough further bad news to drive down the overall market anymore and money managers feel they should put some more money to work in the market as does the investing public. In other words, hope for an accelerating recovery takes over. If we continue to get even minor positives in the economy per the economic reports, this alone will tend to lift an oversold market.

Possible trading ranges ahead look like:

S&P 500: 1100-1175. Short-term: 1120-1150
S&P 100: 545-600; Short-term: 555-570
DOW: 10,000 - 10,600; Short-term: 10,100-10,400
Nasdaq 100: 1330 - 1700; Short-term: 1330 - 1500

TWO CHARTS WORTH WATCHING -

S&P 500(SPX) Daily Chart -

The key factors here, technically, on the S&P 500 (SPX) daily chart is the probable up trendline that now has 3 key points of intersection, given the recent lows. I think the formation of this pattern of higher downswing lows suggests that the price trend is up, maybe not strongly, but up nevertheless. And, that the decline dating from the mid-March peak has run its course suggesting to me, that we are not likely to see lower lows, under 1100. Of course any 1-2 day close under this key area, would seriously dent this bullish technical outlook. The daily stochastic is showing upward momentum, which is a related positive.

Nasdaq Composite (COMP) Daily Chart -

I think it is likely, technically, that we have put in a double bottom given recent lows forming right in the area of the late- Feb/early-March bottom. The other technical positive here is that RSI, on a 14-day basis, made a higher relative low than at that earlier bottom. I find that these bullish type divergences, is a good related sign for an upside reversal.

STRATEGY -

1. Play stocks in the strong sectors -
I emphasize looking at calls (out to May or June, or to Sept.), with candidates drawn from stocks in the strong sectors, buying pullbacks. Example sectors would include healthcare, oil services, financials like select insurance stocks (e.g., Hartford), forest and paper products.

There are also plays to be made in oversold sectors that appear due for a bounce. Recently, I have been highlighting representative option plays on stocks in sectors that look like they are due for a decent trading bounce (in Sector Trader).

Of course shorting opportunities and put plays abound, more than enough are presented every week by our team of advisors. For example, I'll suggest in Sector Trader tonight to buy the Gold and Silver Index ($XAU.X) puts (again) as this index appears to have failed or reversed from the area of a prior top; i.e., making a double top. Gold futures price activity, topping out repeatedly in the $307-309 area, is indicating that bullion prices may now be at the top end of a trading range. I have yet to see gold sustain prices over $300 without some driving economic influence, besides political unrest, especially inflation.

2. Play the Index options -
I suggest buying the indexes calls near-term on pullbacks, as it appears that the market is stabilizing around recent lows and pullbacks like today offer an entry opportunity for what will probably be a moderate rebound but with enough upside to make this strategy worthwhile from a risk to reward standpoint.

The view to take to the long side ahead is borne out by what I am seeing in the market "internals" like the improving advance- decline figures and the increase in stocks making new 52-week highs. These factors, along with technical factors, like possible double bottoms in OEX and NDX and the oversold condition suggested by oscillator type indicators, also favor some further upside.

Leigh Stevens
Chief Market Strategist
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