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Ralph Bloch’s Weekly Commentary, Jan22

Still Going Strong

Monday: 1/19
Martin Luther King, Jr. Day - markets were closed.

Tuesday: 1/20
A mixed market as the DJI was up 8 points at the bell and then succumbed to profit-taking for the rest of the day. The DJI ended lower by 71, as four issues hurt - CAT (2), HON (1.77), MMM (5.07) and UTX (2.70) cost the DJI 85 points or more than the day's loss - unusual! On the flipside, AA, IBM and JNJ contributed 30 points to the day and made it an interesting session. The Advance-Decline index started with a bang - faded a bit and closed well (up 803), even with the DJI fading from minus 48 at 3:00 p.m. to its off 71 at the bell. The SOX fell 2, and the BKX was flat. You may remember that the day after expiration often goes opposite (I forgot to mention that yesterday). Once again, we saw NASDAQ outperform, as it was 7-1/2 points higher. Volume was high at 1.65 billion.

Back in December, we kind of guessed that the new year reinvestment demand might peak by mid- to late-January and that the latter would be more likely if the first five days of January were up - they were! As we said the other week, we now have to worry about the entire month of January closing higher than the 12/31 close. That was 10453.92, and we ended yesterday at 10528.66 - there's only 74.74 separating us from the 12/31/03 finish, and that's not much of a cushion. The MACP indicator mentioned recently is now in its seventh day of negative readings - I pay some attention to this one. That, plus the time of the month, has me on guard. Yesterday was an odd session in-as-much-as several issues weighed very heavily on the market. Also, it was expiration-affected. Therefore, a weak session today in terms of points and internals would get me to take some profits for trading accounts. Remember that February very often corrects a strong January or at least goes lateral. Being in some cash is always a comfort when things get uncertain. By the way, AMD, MOT and STX were trading lower in after-hours trading, and that could affect the market today. As of 6:30 a.m., futures are mixed with the DOW and S&P a bit higher and NASDAQ lower small.

Wednesday: 1/21
On Tuesday, NASDAQ “rocked” (-10 but closed +7) as the DJIA “rolled” (-71). Yesterday, it was just the opposite, as the DJIA gained 94, NASDAQ lost 5. It didn't start that way however, as two of the recent leading sectors, namely telecomm and semi, started lower and with it the NASDAQ and DJIA recorded their worst readings pre-11:00 a.m. (-27 and -38 respectively). From there, once the bears failed to capitalize, buying interest surged and it felt as if shorts covered. At that point the bullish contingency piled on and up it went. Inside the DJIA, EK and JNJ are finally participating. Leading areas included financial, housing, utility, drugs and biotech. NYSE volume of 1.72 billion expanded from Tuesday and the Advance-Decline Index ended + 850. A messy day, it wasn't! Losers were mainly confined to tech and telecomm and though one day of underperformance isn't enough to be concerned with, if a trend begins, it will be.

Conclusion:
In remaining objective, from a strictly price perspective, the continuing pattern of higher troughs and higher peaks that is in force by the major averages is positive. Yet, the DJIA & SPX (see below) are approaching peaks from early 2002 at 10673 & 1176 respectively. Lets see if these levels bring out some further profit taking, and if so, to what degree and how do the internals act.

Earnings last night from, among others, EBAY, QCOM and XLNX have led to a mixed futures market. Let's see if NASDAQ can shake off yesterday's underperformance!

Trading-wise, AMR ($14.55) broke out above $14.15 on high volume, helped by EPS news. I don't want to chase, thus I'd prefer to look for a 1/4-point or so dip. It could move up by 10-12%+. Use a tight stop but consider the stocks volatility as defined by a Beta of 3.06

Ralph Bloch
Senior Vice President