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What's Up?

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      09-10-2002           High     Low     Volume Advance/Decline
DJIA     8602.61 + 83.20  8602.61  8502.32 1.37 bln   1780/1365
NASDAQ   1320.10 + 15.50  1322.43  1299.53 1.41 bln   1774/1560
S&P 100   455.89 +  4.62   455.90   450.62   Totals   3554/2925
S&P 500   909.58 +  6.62   909.89   900.50 
RUS 2000  394.16 +  1.69   394.58   389.53 
DJ TRANS 2287.60 + 24.20  2294.67  2259.42   
VIX        36.96 -  1.44    38.40    36.78   
VXN        53.07 -  2.40    56.57    53.03
Total Vol   2,949M
Total UpVol 1,783M
Total DnVol   980M
52wk Highs   142
52wk Lows    195
TRIN        0.96
PUT/CALL    0.65

What's Up?
By Jim Brown

The short answer is the market! On the day before a possible flood of anniversary attacks by terrorists or copy cats trying to capitalize on the event, the buyers appeared. A high profile announcement by the government that the terrorist risk was at the highest level since 9/11/01 simply produced a dip back to intraday support and then another rally to the highs of the day. What is up with this?

Dow Chart

Nasdaq Chart

The day started out more like Christmas Eve than Halloween. Expectations for a post 9/11 rally were shown in the positive markets and even the few goblins that showed up intraday could not scare away the bulls. The "fix" was in and it appeared nobody wanted to let the markets drop. If you doubt the conspiracy theory and the plunge protection team intervention stories then why did the S&P futures close the regular session exactly at 911 after a strong futures led buy program in the last 15 minutes? Just a coincidence, right?

Intel shook off the cautious comments by its president yesterday and closed up +.39 cents for the day. Intel pledged to increase the speed of its chips and include hyper threading in the majority of its chips next year. That feature allows the processor to run about 25% faster than chips without it. They demonstrated a Pentium4 running at 4.7GHZ or almost double the speed of current P4 chips. They demonstrated a new Itanium chip with 500 million transistors and said a one billion transistor chip is already under development. The biggest news was its wireless connectivity announcements which allows laptops to connect to the Internet wirelessly. They claim they are capturing market share and will increase margins with the integrated chips.

Not to be outdone HPQ announced a new chip architecture that would enable 1000 transistors to fit on the end of a human hair. This ability could lead to memory chips that are 1/10th the size or offer 10 times as much capacity. AMD announced its Fin Field Effect that could lead to a billion transistor chip the same size as the current 100 million transistor chip.

All these chip advances produced bullishness in the chip sector. The SOX came off the bottom and back to resistance at 300. This was aided by news that NVDA had increased its order for wafers, which led investors to guess that business was improving. News out of Taiwan was that mother board production climbed +9% in August. Bulls were absolutely giddy about all this positive news. The current business model appears to be if you build a fast enough chip they will buy.

This of course requires that buyers have money. It was announced today that 640,000 homes were in foreclosure during the Apr/May/Jun period. This was the highest rate in the 30 years of tracking by the Mortgage Bankers Association. The low down, interest only and high equity loans have suckered consumers into payments they cannot handle in a weak economy and weak unemployment. Previous surveys had not predicted this problem and it calls into question the current real estate bubble. With unemployment expected to go over 6% soon this problem will grow. Consumers with high debt have been lured to roll this debt into home equity loans and off their credit cards. Once rolled the cards are free to be used again and once maxed out the cycle is complete. More debt, no way out and a loose job market prevents them from moving up to a higher paying position. The survey also showed an increase to nearly 5% of all home owners those who were behind in their payments 30 days or more. Since homeowners with foreclosures on their credit are no longer home buyers but lifetime renters it means an entire sector of the population can no longer buy a home regardless of how cheap the interest will be.

Tomorrow will not depend on stock news. It will be directly related to world and national events OR the lack of them. Regardless of what brought us to the closing level of 911 on the futures or faster chips and bursting housing bubbles, with no terrorist event the buyers will return. If we do have an event somewhere else on the globe the market will probably open down and then rally if nothing happens here. If we have an event here it will depend on the magnitude of the event as to the market reaction. Obviously they are not going to be able to pull off another event of WTC proportions without a nuclear weapon. As I have said earlier I doubt there will be a large scale attack tomorrow. There may be some small events around the world but nothing big in the US. Terrorists are cowards. They want to strike when nobody expects them. They do not want to face an armed security force that will shoot first and ask questions later. In a surprising move the defense department has now ordered that the antiaircraft defense systems deployed around Washington yesterday as only an "exercise" now be loaded with live rockets. (Did anybody really believe it was an exercise?)

The problem is not tomorrow. The problem is next Monday. If we do rally on Wednesday it could carry over for a couple days. Monday will be the pivot point. That is where the fundamentals will start being important again. Mutual funds will know by Monday if deposits are going to return. Traders on the fence will have used the weekend to analyze the weeks events and decide if the bull market has returned or if it was just temporary. This is where the markets must stand on their own shaky legs and take on all comers. This is where normal markets return. Unfortunately normal markets go down in Sept and October. Normal markets are plagued with earnings warnings by the dozens in September and missed estimates in October. Normal markets are not supported by the Fed. Geenspan speaks on Thursday and is expected to say that the economy does not need another rate cut and will eventually get there on its own. He is on record recently for missing the boat on slowing the last bubble. He does not want a new bubble and is quite content to see the economy struggle for a couple more years as long as growth is still present. Bush speaks at the United Nations and is expected to tell them to get in line or get out of the way as he attacks Iraq on his own. This is not a speech that will be taken lightly around the world or at home. Yes, normal markets are just a few hours away. Are we ready?

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor

Please be advised that during tomorrow's Memorial Service for September 11th, the following exchanges will experience changes to their opening schedules: Please note the differences. NASDAQ

In memoriam and remembrance of the events of September 11, 2001 , NASDAQ will delay its Market Open on September 11, 2002, until 11 a.m. Eastern Time NYSE/AMEX

On Sept. 11, the New York Stock Exchange will open for trading 30 minutes after the conclusion of the memorial service being held at the World Trade Center site, but not before 11 a.m. Should the event last longer than its anticipated 10:29 a.m. conclusion, the NYSE will delay its opening beyond 11 a.m. The Exchange will announce the exact timing of the opening bell following the conclusion of the memorial service.

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