E1Bulle
17.10.2000, 07:41
WEEKLY OUTLOOK, October 16, Scott B. Kaye
By Scott B. Kaye, Optionetics.com
10/16/2000 2:30:00 PM
There were several key elements of a market "bottom" that were met for me last week:
Implied Volatility spiked. The CBOE Implied Volatility Index ($VIX ) moved to a high of 36.74% on Friday, before closing lower later in the day.
Put/Call Ratios worsened. The CBOE Equity Put Call ratios pushed into the .80s, and the CBOE Total Put/Call ratio moved over 1.00. This increase in Put buying reflected greater fear moving into the market.
The major indexes pushed down to, or even through their May lows. The Dow Industrials ($INDU ), the last "holdout" punched down through 10,300 in a dramatic decline on Thursday, stopping just short of hitting an even 10,000.
Volume confirmed the selling, and then came in strong on Friday. At least the volume numbers didn’t give us an excuse to disregard the week’s action, as has so often been the case in recent months.
Market Breadth was significantly negative and then reversed solidly with the market reversal on Friday.
Key companies shares were sold down hard, most notably Yahoo (YHOO) whose report usually marks the beginning of earnings season. Lucent’s (LU ) third earnings warning also contributed to hasten the declines in the overall market.
Finally, while the investment world struggled to imagine a catalyst that might serve to mark a reversal, the tensions in the Middle East delivered, with crises in both Yemen and in Israel. As a result, Oil prices, which have come to the fore as a chief concern of economic slowdown, spiked. NYMEX December Light Sweet Crude futures shot up to almost $37/bbl.
Maybe the most important of all indicators to mark a reversal, though, was the picture on the front of Barron’s this week of a voracious bear gulping down a bull sandwich.
Now we’re waiting to see if the action on Friday will really mark an intermediate bottom, and there will be plenty of news on the earnings front to keep us busy as we enter a very busy earnings season. Investors are going to need some convincing in the form of positive earnings and rosy outlooks for the near quarters to get them to loosen their purse strings…
This week, the earnings calendar is going to fill up in a hurry. Key reports will be the financials, among them: Citigroup (C ), Fleet Boston (FBF), Merrill Lynch (MER), and Wells Fargo (WFC) all on Tuesday morning, and the boatload of technology reports coming this week that are too numerous to mention here - not the least of which is Intel’s (INTC ) report after the close on Tuesday. I think there’s going to be a key separation made this week between those technology companies that are here to stay and those that have seen their better days…and may not be long for this world.
As a brief aside, in a conversation with Optionetics.com CEO, Richard Cawood this week, we were discussing the evidence of the worsening picture for the marginal dot-coms. There is a marked increase in activity among friends of ours in Silicon Valley who are corporate bankruptcy attorneys. There is a dire mood among mortgage bankers who are seeing large numbers of home buyers trying to get out of their new mortgages, and also there is an increasing difficulty for start-ups that still need to obtain second and third round financing. This stuff is anecdotal, but motivation enough for serious caution in this investment arena.
Economic reports this week include Industrial Production and Capacity Utilization numbers on Tuesday, the Consumer Price Index on Wednesday, and the Jobless Claims numbers on Thursday. I’ll be most interested in the Cap. Utilization numbers. Productivity has been the key to low inflation in the face of a tight labor market. If this falters, I think it will play heavily into the Federal Open Market Committee’s decision-making about interest rate policy.
As the week progresses, keep in mind that the more things change the more they stay the same. Historically, market reversals have been punctuated with increasing fear in the sentiment indicators, international events as a catalyst, and with the financial and news media declaring the end of commerce as we know it. I’m not saying that we’ve marked the absolute lows among the indexes, and I’m certainly not saying that about individual companies. Many lower quality individual companies will be either washed out or rolled up in the coming months and years. Over the next several weeks, attention should turn to next year in stead of the quarter we just completed. As it does, those companies with bright outlooks will see it worked out in their share prices.
Trade smart, and have a good week.
E1
By Scott B. Kaye, Optionetics.com
10/16/2000 2:30:00 PM
There were several key elements of a market "bottom" that were met for me last week:
Implied Volatility spiked. The CBOE Implied Volatility Index ($VIX ) moved to a high of 36.74% on Friday, before closing lower later in the day.
Put/Call Ratios worsened. The CBOE Equity Put Call ratios pushed into the .80s, and the CBOE Total Put/Call ratio moved over 1.00. This increase in Put buying reflected greater fear moving into the market.
The major indexes pushed down to, or even through their May lows. The Dow Industrials ($INDU ), the last "holdout" punched down through 10,300 in a dramatic decline on Thursday, stopping just short of hitting an even 10,000.
Volume confirmed the selling, and then came in strong on Friday. At least the volume numbers didn’t give us an excuse to disregard the week’s action, as has so often been the case in recent months.
Market Breadth was significantly negative and then reversed solidly with the market reversal on Friday.
Key companies shares were sold down hard, most notably Yahoo (YHOO) whose report usually marks the beginning of earnings season. Lucent’s (LU ) third earnings warning also contributed to hasten the declines in the overall market.
Finally, while the investment world struggled to imagine a catalyst that might serve to mark a reversal, the tensions in the Middle East delivered, with crises in both Yemen and in Israel. As a result, Oil prices, which have come to the fore as a chief concern of economic slowdown, spiked. NYMEX December Light Sweet Crude futures shot up to almost $37/bbl.
Maybe the most important of all indicators to mark a reversal, though, was the picture on the front of Barron’s this week of a voracious bear gulping down a bull sandwich.
Now we’re waiting to see if the action on Friday will really mark an intermediate bottom, and there will be plenty of news on the earnings front to keep us busy as we enter a very busy earnings season. Investors are going to need some convincing in the form of positive earnings and rosy outlooks for the near quarters to get them to loosen their purse strings…
This week, the earnings calendar is going to fill up in a hurry. Key reports will be the financials, among them: Citigroup (C ), Fleet Boston (FBF), Merrill Lynch (MER), and Wells Fargo (WFC) all on Tuesday morning, and the boatload of technology reports coming this week that are too numerous to mention here - not the least of which is Intel’s (INTC ) report after the close on Tuesday. I think there’s going to be a key separation made this week between those technology companies that are here to stay and those that have seen their better days…and may not be long for this world.
As a brief aside, in a conversation with Optionetics.com CEO, Richard Cawood this week, we were discussing the evidence of the worsening picture for the marginal dot-coms. There is a marked increase in activity among friends of ours in Silicon Valley who are corporate bankruptcy attorneys. There is a dire mood among mortgage bankers who are seeing large numbers of home buyers trying to get out of their new mortgages, and also there is an increasing difficulty for start-ups that still need to obtain second and third round financing. This stuff is anecdotal, but motivation enough for serious caution in this investment arena.
Economic reports this week include Industrial Production and Capacity Utilization numbers on Tuesday, the Consumer Price Index on Wednesday, and the Jobless Claims numbers on Thursday. I’ll be most interested in the Cap. Utilization numbers. Productivity has been the key to low inflation in the face of a tight labor market. If this falters, I think it will play heavily into the Federal Open Market Committee’s decision-making about interest rate policy.
As the week progresses, keep in mind that the more things change the more they stay the same. Historically, market reversals have been punctuated with increasing fear in the sentiment indicators, international events as a catalyst, and with the financial and news media declaring the end of commerce as we know it. I’m not saying that we’ve marked the absolute lows among the indexes, and I’m certainly not saying that about individual companies. Many lower quality individual companies will be either washed out or rolled up in the coming months and years. Over the next several weeks, attention should turn to next year in stead of the quarter we just completed. As it does, those companies with bright outlooks will see it worked out in their share prices.
Trade smart, and have a good week.
E1