Got a little pre-Y2K.

Our computers are all
down here. Everything is down. We’ve had some kind of a power
shortage. The only thing I have is my notes from the market
yesterday.  And in the text, if everything comes up, it will include
stocks and programs. Yesterday we had a flash move up pre-opening, and right at
the beginning for the first half hour. The morning trend was down, the
afternoon trend was up. All three averages finished up on the day, and
the market internals all were down: negative breadth, negative up-down volume,
and the percentages of stocks over the 200-day moving average moved down to
26%. Very strange action.  
The program action was true to form
yesterday as they ran the futures pre-opening, and they were up 12 or 13
points by 10 a.m. ET, as the stocks were sold at premium prices to complete
the trade. Nice trade, program traders.
Then like magic the S&P’s sold
down from 1418 to 1391 with hardly a counter-move at all. Twenty-seven points like a knife to the downside.
What’s the difference? They finished what they had to do. Everyone holding the
bag was the retail and the early institutional
buyers.   
There must have been some
unhappy early buyers in those big OTC techs, like Sun
Micro, that was up 4 1/2 to 5 points to over 83, before falling to 80.
It then had a small rally before moving down to a low of 77 1/4. The
market makers cleaned the clocks of the early buyers at gapped
up prices due to the program game, and the emotionalism of retail buyers
early. The market makers then took them down for a nice trade on their part. The
house usually wins, unless you as a trader can learn the rules of the
game.
The market makers aren’t at
fault because they risk their money even though the deck is considerably
stacked in their favor. It is the emotional buying by retail and
institutions and then some very calculated, manipulated program action that
enable the market makers to play. You must understand this action and
adjust your trading to take advantage. Thursday, both the highs and lows
from the previous day were taken out, due to the heavy futures activity.
This is becoming a common occurrence.   
“The
small-cap index will probably take
off…”
By the close, the S&P
futures had retraced 70% of the downmove, from 1418 to 1391; which sets the
table for today. I trust you’re watching Wal-Mart [WMT>WMT] and Home Depot
[HD>HD], both up four points yesterday, as there was no doubt the Generals were coming for these
two stars, because they are in most funds’ top 10 to 20 stocks, so they will get
marked up accordingly. GE [GE>GE] is another top non-tech stock they
will continue to take up, as it broke to new highs again on Wednesday, then took
a breather Thursday. This is a top-10-er of all the growth funds. With
short breadths, as we’ve had the last three days, even if the averages fade
a little more the Generals will continue to buy their performance through
year-end. And then they’ll probably come out of the box strong in early January.
The leading stocks, as a percentage of the S&P 500, will no
doubt reach lofty levels. These include the top ten, in order of
percentage, in the S&P 500:  
Microsoft [MSFT>MSFT], GE, Cisco
[CSCO>CSCO], Exxon [XON>XON], Wal-Mart [WMT>WMT], Lucent [LU>LU],
Intel [INTC>INTC], IBM
(
IBM |
Quote |
Chart |
News |
PowerRating)
, AOL [AOL>AOL], and Citigroup
[C>C]. It’s no accident you see these stocks fly at different times. IBM,
they couldn’t throw it away fast enough at 90, and here it
is back up over 121. Go figure.
Program
Trading NumbersBuySellFair
Value21.6019.0020.30
One interesting note on this market
which could change some of your trading, or part of your money: The
micro-cap index, unbeknownst to many people, was up 21.7% through November
as a good friend of mine, an outstanding small-cap and micro-cap portfolio
manager, pointed out to me last night. If this continues, it will be the first
time in five years that the micro-cap index has beaten the S&P 500. 
It’s also running ahead of the Russell 2000,  which is the small-cap
index. The small-cap index will probably take off and catch up. But there
are some outstanding situations to be looked at in those small stocks. So it
looks like that could be a little bit of a theme coming out of the box for next
year.    
Have a good trading
day.