Market Summary 10/19/99
The Next Shoe Has Dropped by Joe Duarte
The next shoe has dropped. Elvis has left the building. The party's over. All those catchy phrases can be used to describe the
current state of the U.S. stock market. No, we're not suddenly into Astrological Analysis, or looking at entrails, but with
NASDAQ down over 100 points two days running, in spite of a bounce in the Dow, it's not hard to see that this sell off is
gathering steam.
The pharmaceutical stocks and the telephone stocks are so far resisting further down side action. The former are very sold out,
while the latter are still riding the momentum of a merger craze.
The main culprit for the down draft in stocks is the threat of higher interest rates. But the overwhelmingly negative technicals
are now too visible to ignore, even by non technicians. The most striking of all aspects was the high levels of optimism
expressed in the options markets, where the CBOE Put/Call ratio closed the day at 0.59, compared to 1.05 on last Friday's
rout, turning market sentiment very negative on a contrarian basis going into an important release of the Consumer Price Index.
While the Dow rose over 90 points, the small stocks continue their slow erosion. The S&P 500 refuses to fall below 1250,
masking the overall weakness in stocks, which is visible on the NYSE advance decline line. The NASDAQ Composite has
now fallen below 2700, as the semiconductor stocks fell hard, and Dell Computers pre announced an upcoming earnings short
fall after the market closed.
Momentum continues to weaken, as Our BMTI indicator, has fallen below the 1 level. The number of overbought and
oversold sectors, confirms market complacency, giving our MASI indicator a neutral reading.
Intermediate sentiment measured by our MAGI Indicator, which is nearly oversold, and long term sentiment measured by our
Super Seven Market Forecaster are bullish, but not at levels which suggest the decline is over just yet.
The internet stocks, are holding up but it's difficult to predict if that will last. Especially sturdy is Sun Microsystems
(NNM:SUNW) our Chart of the Day. Telephone stocks, are also making a move, as in our Technical Snapshot,.
Our Sector Selector looks at some semiconductor stocks which may weather the storm, and our Market's Message, revisits
some very beaten up and cheap pharmaceutical stocks.
A drop below S&P 1250 suggests major trouble and should be used as a signal to hedge long positions with Rydex Ursa Fund
(RYURX). We still suggest an overweighing in technology, and Japan, if you must own stocks.
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