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Market Wrap

Time For A Bounce?

HAVING TROUBLE PRINTING?
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      04-23-2002           High     Low     Volume Advance/Decline
DJIA    10089.24 - 47.19 10177.13 10069.46 1.32 bln   1566/1588
NASDAQ   1730.29 - 28.39  1762.94  1723.93 1.74 bln   1633/1902
S&P 100   545.80 -  4.24   551.86   544.44   Totals   3199/3491
S&P 500  1100.96 -  6.87  1111.17  1098.94             
RUS 2000  510.29 -  0.64   512.06   509.53
DJ TRANS 2698.05 - 25.17  2723.32  2689.49
VIX        22.24 +  0.52    22.28    20.85
VXN        39.93 +  0.87    39.97    37.71
TRIN        1.17 
PUT/CALL    0.69

No, I have not lost my mind. At least not yet! With all the major indexes apparently headed for lower levels most investors are probably thinking about hedging their positions by purchasing some puts. However, as evidenced by the VIX they have not turned those thoughts into action just yet. Actually even though the markets appear on the surface to be heading south the internals are still showing that resilience I previously wrote about. If that resilience is going to show tangible results it may happen on Wednesday.

Weak results from Exxon Mobil and Dupont followed up on the damage done yesterday by Ericsson, The earnings parade continued but hopes for news of a quick economic recovery dimmed. The majority of companies are hitting their estimates but the guidance remains cautious. Continued comments about the bottom being behind us has lost interest because there are no comments about good times being ahead of us. It is one thing to believe in the bottom but investors want to buy rising corporate profits with a robust heartbeat not a flat line EKG.

With the earnings excitement waning investors focused on the news of the day which was mostly court related. Microsoft suffered through another day of Bill Gates on the witness stand and the heated exchange of questions and sparing by attorneys. Gates conceded that Sun Microsystems Java programming language and Netscape Navigator had the potential to become software platforms that could compete with Windows. I bet he choked on that sentence. By conceding that point he could have jeopardized one of the defense points that those platforms never posed a threat to Microsoft and therefore it was inappropriate to impose sanctions. The hearings on possible remedies in the case are expected to continue through May. MSFT broke under the recent low of $54.26 and closed at a level not seen since October of 53.99.

Hewlett Packard CEO, Carly Fiorina, also in court, testified about the Compaq merger. She denied that HWP deceived shareholders about the prospects of the merger and said they did not bully big investors to vote for the transaction. She was questioned about entries in a personal diary that showed HP executives thought the merger would work out much worse than the public announcements. The opposition produced internal memos that showed the deal could reduce HWP earnings by as much as -10% instead of boosting them +12% as the company claimed in SEC filings. The company even maintained charts that showed the gaps in revenue between actual and what was promised to investors. If the court allows the merger vote to stand then the companies will combine on May-7th. The opposition hopes to throw out the vote or at lease some of the votes as being unduly influenced.

Worldcom took another beating today when its debt was downgraded again. The stock closed at $3.43 on volume of 256 million shares. WCOM announced that Ebbers owed the company over $300 million for covering his margin calls. Time to have a garage sale Bernie? The entire sector is so ugly that if the adage of "buy stocks when nobody wants them" is true then this is a blue light special of monster proportions.

Surprise, surprise, surprise! Amazon beat the street and posted a smaller 1Q loss than expected and raised guidance. The company said it posted a .06 loss compared to estimates of a .09 cent loss. They said sales rose by 21% but the company fell back into the red due to seasonal shopping patterns. The company said it was ahead of schedule financially and they would cut prices of books to stimulate sales. They feel they can cut prices and still produce a full year profit of more than $100 million. At that rate it would take them more than 30 years to pay off their debt but who is counting.

With the Nasdaq falling for the last five sessions and the Dow and S&P closing right at support could there be a bounce in our future? Never can tell but if it is going to happen it should happen tomorrow. Why? Because if it doesn't the down trend continues we will fall below serious support and the result will not be pretty. For the Dow the 10100 area has been support for two weeks and the Dow closed slightly below it on Tuesday. Not a good sign. The S&P has had support in the 1100-1105 range for two weeks and a close below that would put us back to February levels. It closed today at 1100.42. Can you say "teetering on the brink?" The April low for the Nasdaq was 1724 back on April 11th. It closed at 1730 but the intraday low was 1723.93. As you can see from the numbers above there is no room for error. With a mere handful of points separating us from freefall traders should be scared. They are not, period. Complacency is still king and decliners only beat advancers by 22 issues on the NYSE. (1588/1566) The Nasdaq was a little worse at 1902/1633 but as you can see there is no rush to the exits.

The resilience factor. All month the market has taken some serious hits and failed to give up. The bulls simply refuse to turn lose and continue to buy the dips. Tomorrow the Nasdaq could see a bounce at the open from the Amazon earnings but it is not likely to last. Stocks soared on optimism from mid-February to early March and they are now falling on reality as lack of positive guidance takes its toll. Should the indexes fall through support this week there are probably buy programs at Dow 10,000, Nasdaq 1725 and S&P 1100. Those buy programs, depending on the number and strength, could cause some short covering and a minor bounce. Unfortunately it will just be a bounce. For those traders who have been trading the ranges this will be another opportunity to sell the rally. My entry points for going short on a breakdown are still 10000/1725/1100. If today's trading was any indication that opportunity could come really soon. Next support on the S&P is in the 1080 range and 1700 for the Nasdaq. As you can see those are fairly close. The Dow however does not have significant support until 9750-9825 which could means a significant breakdown in investor sentiment. We are now eight days into the spring crash season and the ride ahead is looking a little bumpy. Buckle that seatbelt!

Enter Very Passively, Exit Aggressively!

Jim Brown
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