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Market Wrap

Just Another Session of Failed Hopes

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      06-20-2002           High     Low     Volume Advance/Decline
DJIA     9431.77 -129.80  9573.89  9425.88 1.33 bln   1324/1639
NASDAQ   1464.75 - 32.10  1503.01  1461.59 1.66 bln   1480/1950
S&P 100   500.02 -  7.62   509.26   499.08   Totals   2704/3589
S&P 500  1006.29 - 13.70  1023.33  1004.59             
RUS 2000  460.25 -  2.67   466.61   499.08
DJ TRANS 2747.36 -  7.70  2766.05  2735.44
VIX        32.50 +  2.79    32.50    29.95
VXN        57.93 +  2.69    59.15    55.73
TRIN        2.24
PUT/CALL    1.04

Buy and hold investors are having to do so while holding their nose. The markets just keep teasing investors with a couple days of gains followed by a couple days of even worse selling. it is simply a volume thing. There is no buying volume to compete with the sellers. Up volume across all markets on Thursday was a terrible 585 million shares. Down volume was a whopping 2.44 billion shares. A better than 4:1 disadvantage! The internals, with only 880 more declining stocks than advancing, are not really as bad as the headline numbers imply.

It was a pretty flat news day with no sensational warnings. There was the normal mix of broker upgrade/downgrades and the economic reports came in better than expected. So why are we sitting at new lows again? As I stated in the opening paragraph, there are just no buyers. Normal technical support calculations are failing because nobody cares if Nasdaq 1475 is support or resistance. It appears the constant stream of bad news about stocks and even worse news about terrorist attacks has turned all buy and hold investors into sell and hold hoarders. Everyone is in cash and they appear content to stay there.

The biggest concern for today was not whether Microsoft would break support at $54 but constant news alerts that the 4th of July was a likely target for terrorist attacks. Yesterday the big news was the lost freighter somewhere on the west coast with 40 Al Queda, guns and explosives aboard. The FBI is said to be mobilizing massive numbers of personnel to protect holiday events. Do you want to be long over the 4th?

This constant negativity, coupled with the falling dollar is slowly draining the equity markets of cash. Strong rumors exist that foreign investors are looking at the U.S. as a target and far from invincible in the current war. Add in the lost profits from the falling dollar and falling markets and suddenly U.S. investments are not as exciting as they were in the past. The possibility of another recessionary dip over the summer just adds to the confusion. World markets are falling on the slowdown in PC sales and the sour outlook for not only the U.S. but for Europe. Brazil's debt worries are growing and investors are fleeing their market as well. The Bovespa dropped -584 points today or roughly -5%. Each detail in itself is not a crippling blow but all taken together are weighing on investor confidence.

The fear of the next major earnings warning is keeping investors from buying the end of day dips. Do you want to invest thousands of dollars today when IBM or any other bigcap could warn tonight? Speaking of IBM did you see it was at a new three year low? The close at $71.58 tonight knocked IBM back in time to October-1998. The low for 1998 was $47.81. Can't do that again? Don't bet on it. Three years of support at $80 is just history now. Those readers that bought puts last week are happy campers today. IBM is just one reason the Dow cannot get out of its own shadow. There were just three Dow components positive today. BA, KO, XOM, not what you would call market leaders!

The cash drain is continuing to hamper fund movements. TrimTabs.com said today that $1.6 billion flowed out of U.S. equity funds in the week ended on Wednesday. This was only about a third of the prior two weeks outflows but still substantial. In reality funds should be starting their end of quarter window dressing buying binge. Instead they are dumping losers to dress up their statements and raise cash for redemptions. The Russell shuffle is in full swing but you could not tell it by the majority of the new additions to the index. I will go into the list in detail in my editors plays on Sunday. There are some stocks moving but the lack of interest is amazing.

I could cut and paste the following sentence from almost every market wrap I have done in the last three months. "The markets closed right on key support levels and .. etc" While that statement is true I am beginning to wonder what a support level really is. Is it OEX 500 because that is where it has stopped before? Or is it the pre-bubble 1998 low of 431? We keep hearing about how stocks are grossly over valued with an average PE of 40 and how the pre-bubble PE ratios of 10-20 are where we should really be trading. Do you think the greater fool theory has finally run its course and every investor has turned into a Warren Buffet clone over the last six months? I don't think so but trying to trade against this current trend is suicide. I have the scars to prove it!

The bullish sentiment from earlier in the week has completely evaporated with all the severely negative PC/chip warnings. The bounce turned into just another bear trap rally and the downtrend is still in force. However, even in a bear market nothing goes down in a straight line. The market internals are severely oversold and we are setting up for another bear trap rally. I don't know what will spark it other than the oversold conditions but it IS in our future. The VIX closed well over 30 (32.50) for the second time in six months. The TRIN is 2.24 and the put/call ratio is 1.04. All very bullish indications of oversold conditions and fear in the streets.

Repeat after me now, "the market right on key support levels..." Those levels are OEX 500, SPX 1007 and Nasdaq 1465. The Dow is our albatross. With no real support in sight we have to hope that traders key on the Nasdaq's retest of the Sept levels as their buying signal. (Unfortunately it did not work with the NDX since it is already below the September lows and dropping like a rock.)

My advice for traders tonight is take any bounce we may get on Friday as a gift if you are long and trail your stops up real tight. If it has legs then follow along for the ride. If it rolls over again then learn how to spell PUT. If these levels are broken the next bus stop may not be on the map.

Leigh Stevens will no longer be writing the market wrap on Thursdays but will be publishing a Traders Corner article on technical analysis instead. Check it out!

http://www.OptionInvestor.com/indexes/traderscorner.asp

Enter Very Passively, Exit Aggressively!

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