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Market Wrap


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      03-13-2003           High     Low     Volume   Adv/Dcl
DJIA     7821.68 +269.60  7824.34  7555.29 2.10 bln 2331/ 949
NASDAQ   1340.78 + 61.50  1340.78  1290.59 1.79 bln 2314/ 938
S&P 100   422.99 + 14.07   423.10   408.92   Totals 4645/1887
S&P 500   831.90 + 27.71   832.02   804.19 
W5000    7886.48 +255.40  7887.38  7631.08
RUS 2000  355.44 +  9.50   355.46   345.94 
DJ TRANS 2014.34 + 63.70  2014.76  1951.47   
VIX        35.93 -  3.06    38.23    35.80   
VXN        44.98 -  2.52    47.64    44.31 
Total Volume 4,181B
Total UpVol    555B
Total DnVol  3,573M
52wk Highs  110
52wk Lows   256
TRIN       0.64
PUT/CALL   0.75

By Jim Brown

The bulls came stampeding back to the markets today for no particular reason and ignored more bad economic news. Was it the Elizabeth Smart news? Was it the rumor of mass defections of Iraqi generals? Did Osama's great great uncle get arrested for jaywalking somewhere? Nobody knows but the bulls were not taking prisoners and the breadth of the rally was amazing.

Dow Chart - daily

Nasdaq Chart - Daily

The market was definitely not moving up on economic news. The Jobless Claims fell -15,000 from last weeks upwardly revised number of 435,000. Unfortunately that meant we still had 420,000 new claims and the four-week moving average rose to 420,000. This was the highest level since December. This escalating trend shows the economy to be picking up speed as it declines.

The Retail Sales fell -1.6% in February and well below the consensus estimates for zero growth. The consumer is not rushing out to hold up the economy and the siege mentality is settling in. Reasons given were blizzards, high gas prices, unemployment, terror alerts and war fears. Import and Export prices both rose primarily due to high oil prices. Friday is chock full of economic reports with Business Inventories, Industrial Production, PPI and Michigan Consumer Sentiment. Plenty of reason for the market to be confused again but I am not sure it is going to matter.

The Fed meets on Tuesday and there is a 29% chance of a -25 point rate cut as predicted by the Fed Funds Futures. Not a big chance but the various economic indicators could be weighing more on the Fed than on consumers. There are some thoughts that if the Fed cut rates they would take a bigger cut of 50 points to send a stronger message. A minimal 25 point cut would have no impact and they have only a few bullets left in their gun. Time to react quickly and use that megaphone. This could be what is powering part of the bounce due to retail traders hoping to get a 1990s style market bounce from a rate cut surprise. Don't hold your breath. Odds are much better that they will change the bias to easing and plan on a rate cut at the May 6th meeting. Fed funds futures predict an 82% chance of a cut at that meeting.

Earnings warning season arrives with a flourish next week but there were several high profile warnings today. TYC warned that it was slashing profit forecasts for 2003 and had fired a division president for accounting irregularities. The current chairman, Edward Breen, vowed to clean up the "crap" and that heads would roll if any more problems were found inside the company. Schwab warned that current outlooks were too aggressive in light of trading volume that was continuing to fall. They declined to issue an outlook claiming no visibility. They said trades entered had dropped -20% in February to 101,000 a day and so far in March that number had dropped another -5%. International Paper said demand was weak and getting weaker as the quarter progressed. MYG said yesterday that demand began falling off in February and had been decreasing rapidly since. This appears to be the common thread, sharp drops in demand across industries in February with increasing weakness into March. Not a good sign.

The main reason given for the gains today was the removal of the war premium from the market. With President Bush turning into a kindler and gentler war planner and the starting date pushed off until at least April 1st it appeared the pressure was off. The resolution, no resolution, heck we may not even take a vote stance seems to have finally hit home that we are only doing the diplomatic dance to help Tony Blair and pass time while we get all our troops repositioned. Thank you Turkey. In reality the strongest rumor given for the rebound was a report overnight that the CIA had already negotiated surrender deals with many Iraqi generals. True or not this potential for a parade into Baghdad instead of house to house fighting had traders celebrating. I can imagine what is going through Saddam's mind today. If his troops are already bailing out without a shot being fired he must feel the walls closing in quickly. Evidently the CIA has been sending emails, calling them on their cell phones and dropping leaflets with phone numbers and how to escape being obliterated. If these efforts are working then Bush can take all the time he wants and end up a hero with minimal military effort.

On Wednesday 15% of the S&P set a new 52-week low. Volume was down 2:1 despite the end of day bounce. This was almost bullish compared to the 18:1 down volume on Monday. Today the volume was over 7:1 to the upside with over four billion shares traded. This was the most volume in a single day since Nov-22nd. The Day started out with a gap open and sold off to just above 7600 before charging off to a break over 7800. It was not a raging bull but more of a determined walk by the entire herd. There were numerous strong resistance points broken at 7600, 7650, 7740, 7785 and even 7800. Make no mistake this was a powerful move. Not powerful enough to propel the new highs over the new lows which came in at 110 highs to 256 lows, but strong enough to get the bears attention. Unfortunately most of them were in denial all day and I have to count myself as one of them.

Despite my exhortation on Tuesday night that there would probably be a strong rebound soon and our challenge was not to be caught off guard, I was caught off guard. The +100 point gap open on negative economic news and Iraqi surrender rumors had me believing another roll over was in the cards. We did for about an hour but wise bears used that drop to exit shorts. Notice I said wise bears. The rest of us tried to short obvious resistance levels on the way up and helped to feed the rally with our short covering. As one trader put it, "I would do much better if I checked my brain at the door and traded only with my eyes." Ah yes, a wise man.

Of course the $64 question is what will happen tomorrow. I got more email than "Dear Abby" after the close today with unsolicited reasons that the market would go up/down tomorrow. Some of them were very creative, others very technical, many very emotional and none of them guaranteed. The next material resistance is Dow 7900-7925 but then material resistance only served to slow the index today. There are significant indications that the large drops over the last month may have created serious deficiencies in market makers option accounts and along with institutional traders they are trying to square these positions by running the markets up. While I think there may be big holes in accounts I doubt this scenario. It may have an impact but you don't get four billion shares from a few market makers. I think there are many more factors at work here. Steve Price pointed out that the Wednesday dip hit his targets for the H&S patterns from the last month. Somebody else pointed out that the oversold conditions created earlier this week were just too severe to be ignored prior to a Fed meeting once the war was postponed for three more weeks. As I pointed out Tuesday night there was likely to be some strong asset allocation moves soon. I think it was the combination of all these factors that stimulated the initial move and short covering did the rest.

Take a close look at the Nasdaq chart above and I am sure you will see that very strong resistance at 1350. This is going to be a challenge to the bulls after a +61 point gain on Thursday.

I don't think those factors are done. Our gains today should stimulate the Europe/Asian markets to gains and we should see a positive open tomorrow. The futures are up tonight and there was no negative news after the close. The UN vote/no vote has been put off until Monday and the war until April. However, there are still shorts in the market. After being hammered today and seeing the result of the Osama rumors this week they will NOT want to be short over the weekend. This should provide lift to the markets on Friday.

Late news at 7:15 tonight. Dow Jones is reporting that Iraq has moved artillery capable of firing chemical or biological warheads to several locations just north of the Kuwait border. US officials said the artillery posed a direct threat to the US troops in the Kuwait staging areas. US officials also said Iraq was positioning surface to surface missiles in far western Iraq in an apparent attempt to use chemical or biological weapons against Israel. NBC reported that the US military was prepared to launch preemptive attacks against the new artillery and missile sites "before the Iraqis have a chance to use them." Futures took a dive on the news. Never a dull life as an investor! This just shows how tentative Friday's rally could be. All bets for Friday are officially off. Trade what you see.

Enter Very Passively, Exit Very Aggressively!

Jim Brown


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