This Week’s Battle Plan

2. Capital spending is beginning to show signs of life. This is what
took us up, this is what then took us down over the years, and this is
what will likely take us up again.

3. Quarterly comparisons. This is being discussed a lot and the
thinking is correct. It’s not going to be too hard to beat the poor
quarterly numbers from 2001. And this is going to drive the momentum
players (both institutional and individual) back into this market.

My list could go on but I think you get the message. We can look
backwards and dwell on the negative past (which has nothing to do with
making money) or we can look forward and focus on some obvious and
very positive events that will likely occur next year. Yes, I remain
in the bull camp for the longer turn. Too much evidence to do
otherwise.

I’m a lot less bullish for this upcoming week or so. There are a
number of signals telling us we are setting up for a
correction/short-term selloff.

1. The VIX
(
$VIX.X |
Quote |
Chart |
News |
PowerRating) is at better than four-month lows. There
are four CVR
sell signals for early in the week. The VIX has also been under
its 20-day MA for more than two months, a level rarely sustained. The
last time it did this was in late April/early June, when we saw an
800-point drop in the Dow. Also, the OEX put/call price ratio indictor
(ratio of out-of-the-money put prices vs. out-of-the-money call
prices) is at extended lows. All these things tell us loud and clear
that the fear is gone and complacency is high…two things that nearly
always occur before a sell-off.

2. This past Friday was the first time in months we have seen the
market shrug off good news. Remember in October we talked about how
the market kept shrugging off bad news? That was the signal that the
market was likely heading higher. (“If bad news can’t knock it
down, what will?” was the question asked.) This past week, we saw
the opposite. Solid (very solid) economic news, and the market shrugged
it off. It may very well have been because of the holiday week and no
one cared. But it concerns me a bit that they did not spike the market
higher on Friday’s reports.

3. We are going into Monday morning with a 3-point discount on the
S&P futures
(
SPH2 |
Quote |
Chart |
News |
PowerRating) to cash. We also have a healthy discount
on the Dow futures
(
DJH2 |
Quote |
Chart |
News |
PowerRating). I don’t know if this means much for
Monday (which will likely be quiet again) but you would prefer to see
them closing these things with a premium, not a discount, especially
when we are so overbought.

For those of you who want to take advantage of this, the OEX
(
$OEX.X |
Quote |
Chart |
News |
PowerRating)
options (puts) are cheap. If prices drop, you’ll likely get a nice
boost in your options, as price and volatility will be in your favor.

Nearly every year, a few well-meaning money managers have an urge to
buy some thinly traded stocks near the close on the last day of
trading for the year. These are usually money managers who have both
large mutual funds and small hedge funds. And usually around 2:00 pm (ET) they put in
“buy” and “buy market on close” orders on stocks
that they URGENTLY NEED TO OWN MORE OF in their mutual fund. And
coincidently, these stocks are also owned by their hedge funds (of
which they get 20% of the profits at year’s end). And when you put in
a market-on-close order on a thinly traded stock on New Year’s Eve,
you tend to move that stock up 5%-15% in a matter of minutes (and make
your hedge fund’s performance and your payout higher for the year).
Before I go on, I will not tell you that this is anyone’s intent.
Coincidences happen. But, according to my TV schedule, there will be a
small window of time in-between games on New Year’s day, and you may
want to do some homework and find Monday’s biggest winners. Some of
these may be very nice shorts for Wednesday and Thursday. Also, in a
few weeks, the same scenario will apply to the Barron’s Yearly
Round Table discussion. Lots of good stocks mentioned, but the
opportunities lie after they “pop” the thin ones.

On The TM Front

1. TradersWire
Interactive is expanding this week. We are adding hourly audio
reports, expanding into the news analysis area and Duke Heberlein,
TWI’s editor, will be conducting weekly newcomers’ classes, to teach you
how to take advantage of the TradersWire in your trading. Stay tuned
for details.

2. This week, we are launching a once-to-twice-a-week live feature called
TraderTalk. Each week we will be conducting live classes, where you can
learn directly from a guest. This week, I’ll launch the class at 4:30
pm (ET) on Wednesday, Jan. 2. I’ll teach you how my VIX indicators work and
then I’ll answer your questions. Each week’s session will last 45
minutes to an hour. Keep an eye on our What’s
New at TradingMarkets page for the updated schedule and how to log
on.

We here at TradingMarkets, like many other companies, lost a family
member. George Morrell, Kevin Haggerty’s brother-in-law and a
shareholder of TM, was in the WTC at Cantor Fitzgerald when the plane
crashed. I never met George, but I know him well through Kevin. And I
know him better because of a story the New York Times wrote mentioning
him in a front-page column. It turns out when the previous WTC attack
occurred in the early ’90s, George put his own life in danger and
helped carry a stranger down more than 50 flights of stairs, saving
this gentleman’s life. Guys like this are few and far between.

They say that one is never tested until one has been in battle. Many
New Yorkers, like the Morrell/Haggerty family, and many Americans,
were tested this year. This is a battle that no one wanted. But it’s a
battle that has proven just how strong people can be. And it’s a
battle in which good will always prevail over bad.

Again, I wish you a very happy New Year, and let’s have a great 2002.