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DJIA: closed at 9274.89; down 0.3% for the week, up 1.0% YTD S+P 500: closed at 1230.13; down 0.7% for the week, up 0.1% YTD NASDAQ: closed at 2321.89; down 2.2% for the week, up 5.9% YTD Russell 2000: closed at 398.44; down 3.5% for the week, down 5.6% YTD 30 Year Treasury Bond Yield: 5.43%, up from 5.34% last week OK, who ordered the spicy stock market with extra volatility? Whoever you are, I hope you're enjoying your meal. The market couldn't make up its mind this week, vacillating between huge gains one day and precipitous plunges the next. On Monday, the S+P 500 Index was up a respectable 0.4%. On Tuesday, the market dropped 2.2% and things got a little scary. (At that point, we issued a flash update and urged caution, while adjusting the model portfolio to eliminate all leverage.) Wednesday's market was up 0.6%, as investors started to "buy on the dips". On Thursday, the market roared back and rocketed skyward to the tune of 2.5%. The battered tech stocks fared even better, with the NASDAQ having its greatest daily point gain in history. But just when things seemed to be turning around, the market sharply reversed itself yet again. On Friday, the market was down 1.9%. In total, it was a pretty flat week, with the S+P 500 down just 0.7% for the entire five day period. Despite the relatively small weekly loss, it was quite a bumpy ride. Tech stocks seemed to alternate between upward pyrotechnics and stomach churning downdrafts. After Tuesday's "Tech Massacre", there was a great deal of talk about sector rotation out of technology and into cyclical stocks. The Internet stocks, which were already renowned for their volatility, took the term "gyration" to a new level that only a day trader on Prozac could love. Inflation fears continued to rear their ugly heads, with a pair of strong domestic economic reports and a Japanese central bank rate cut. Investors increasingly believe that the Fed will eventually have to raise interest rates in order to cool down the unexpectedly hot US economy and thereby forestall an increase in inflation. As bond prices dropped during the week, yields on the long term Treasuries climbed to 5.43% (the highest level in almost six months). If this trend toward higher rates picks up steam along with the recent heightened volatility in the equity market, bonds will begin to become relatively more attractive than stocks on a risk-reward basis. Significantly higher interest rates could have a chilling effect on this overpriced market. As we pointed out in Tuesday night's flash update, this is no time to get greedy or to go out on a limb. The DJIA is now off its high by 5.0%, while the S+P 500 is down 4.2% from its previous top. The situation is worse for the tech-heavy NASDAQ, which has now fallen 8.4% from its peak level. Small caps continue to languish, with the Russell 2000 Index down a whopping 19.1% from its record. We'll continue to stay fully invested for now, but without any leverage and only in the quality large caps of the well-diversified S+P 500. Stocks: Bullish Bonds: Bearish Gold: Neutral Please note that we've turned bearish on bonds, given the specter of rising interest rates. We're also now neutral on gold, in that precious metals might benefit slightly from an inflation resurgence and/or market correction. Short term momentum is indecisive, to put it mildly. We could either be in a trading range, as the market consolidates on its way up, or we could be at a frothy market top, just before a strong correction or even a bear market. Both the S+P 500 and the NASDAQ seem intent on testing their 50-day moving averages. While the S+P dipped below this intermediate term technical indicator during the week, Thursday's rally put both indexes back on top for now. Although the NASDAQ and the S+P are still well above their long term (i.e. 200-day) moving averages, both indexes are overextended and fundamentally overvalued. Stay fully invested but remain vigilant. As you know from the flash update, we've reallocated the model portfolio in order to reflect our "nervous but still bullish" view of the market. Since the close on 02-10-99, the model portfolio is as follows: 100% in the ProFunds Bull Fund -John Adams johnjadams@mindspring.com © Copyright 1998, Business Financial Network. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of Business Financial Network. The content provided within Business Financial Network's web sites is provided for informational purposes only, and should not be construed as investment advice. At no such time should information contained on Business Financial Network be considered an offer to buy or sell securities. This analysis is based on publicly-available information, and is in no way warranted by Business Financial Network as to accuracy or completeness. Business Financial Network does not guarantee to advise you as to any change in this information. Business Financial Network owners, editors, management, and contributors may currently be stockholders in this Company as the result of purchasing its stock on the open market. Business Financial Network may from time to time purchase or sell this Company's securities on the open market. Business Financial Network otherwise has no affiliation with this Company. Business Financial Network is not compensated by the in any way whatsoever by the company for issuing or distributing this report. |
