Look to Protect Your Long-Term Holdings

January 24, 2000
Kevin Haggerty

Let’s take a quick
look at the week that wasn’t
because as we enter the last week of the first month of the millennium, not much
has changed and you must continue to trade in the stocks being run up by the
Generals and the hedge funds because the majority of the market looks terrible
and getting worse. The S&P 500 and the Dow both finished down on the week
while the Nasdaq 100
(
NDX |
Quote |
Chart |
News |
PowerRating) and Internets finished up. Nothing new there.

Friday’s expiration gave us over 1
billion shares again but it was a nonevent as the S&P 500 finished the week
on a narrow-range inside day and although there
were over 25,000 blocks of 10,000 shares or more, it was primarily program
agendas and gains in the Investor Psychology/Internet stocks that took center
stage. It is always good at the end of each week to outline the good guys and
bad guys regarding the indexes so as to keep you focused on the stronger areas
if you are buying, or the reverse if you are selling.Â

_{“… the
higher probability is thatÂ}

(the Nasdaq) won’t continue to diverge from the negative bond market…”

Let’s take a look at the positives.
All the major averages fit in the positive category where they are above their
50-day EMAs and the 50-day is above the 200-day EMA. As far as the negatives, we’ve got bonds, the
CRB, which was roaring last week and also the transportations. The
transportations crashed and burned last week to their lowest low since October
1998. In the sector area, on the positive side we have the MSH, the SOX, the CWX
and the three major technology indexes. We have the Internet indexes, the IIX,
and also the energy indexes, the OSX, XOI and XNG. On
the negative side of the sectors, we have the financials, the bank index, UTY,
the IUX (insurance), and also the drugs (DRG), and forest and paper products
index (FPP), chemical index (CEX), and XAU (gold and silver mining). Two neutral
indexes where the analysts might come in and start re-recommending stocks
include the RLX (retail) and the broker index (XBD). The prices are below their
50-day EMAs but the prices are above the 200-day EMA and the 50-day EMA is greater than the 200-day EMA.

As you already know, the breadth
overall was poor, as you can see that there are only 29% of all NYSE stocks over
their 200-day moving average. You say, “Who cares? The Nasdaq was up big
time last year and continues to run, so I’ll just play it that way.” You
are a brave soul, Charlie Brown, but the higher probability is that it won’t
continue to diverge from the negative bond market, weak financial groups and a
rising CRB index, not to mention 100 to 200 PEs and then some. I suggest to you
that discretion is the better part of valor and you should start to look to
protecting your mutual fund holdings with LEAP puts. If we go up 30% this year,
would you be terribly upset if you only advanced 22% to 25% because you bought
long-term LEAP puts as protection in this very tenuous market? I don’t think so,
seeing as the long-term market return is about 11% to 12% but it’s just that you
are spoiled in this bull market. That is, of course, assuming that your mutual
fund manager can beat the market.Â

I do know that if this parabolic
narrow market ends with a 30% to 40% down, you will be ecstatic that you missed
all of that down move except for what you paid for long-term leap put
protection. If you are new to options, I suggest you visit the CBOE site at www.cboe.com.
They do an outstanding job at education
for all levels.

Program
Trading Numbers

Fair
Value

Buy

Sell

Â Â Â 10.20

11.40

9.00

I see the futures right now are up
almost 9 points. Nice to see a rally in the bond market. Maybe we can make the
gap up on that side but the weight of the evidence says the rest of the market
will catch up with the financials on the downside. Not today.

Look to Protect Your Long-Term Holdings

BUY THE FEAR, SELL THE GREED

Quick Links

Company Info

Contact

Company Resources