market Summary January 04, 2001 Posted Daily Between 5 and 6:30 PM EST by Lance Lewis Reversal Day? Asia was mixed last night as Hong Kong rose 4 percent and Japan fell a percent. Europe was up a percent in front of our open. The futures traded higher early this morning but slipped as we got closer to the open. We opened flat and basically drifted sideways most of the day as it looked to me like there was enormous distribution taking place. In the last 3 hours or so we started slowly leaking to the downside and closed near our lows. Volume was HUGE (2.1 bil on the NYSE and 2.6 bil on the Naz.) Breadth was slightly positive on both casinos. Big winners were in the airlines as the XAL rose 4 percent. Big losers were in the biotechs as the BTK fell 7 percent. Early on, tech was mixed. We had a couple warnings last night from various tech shares, and they were trashed on the news but there was no real collateral damage that I could see. As the day wore on, the selling seemed to pick up and big rallies everywhere had turned into losses with many shares ending on their lows of the day. Once again, today was complete and total chaos with no real theme that I could detect. It continues to be about general liquidation. Financials on the other hand had some things to say. The BKX banking index closed up a percent after trading higher early on. The XBD brokerage index gapped up several percent but retreated to close up only a percent, near the low for the day. Credit insurers were crushed for between 5 and 7 percent, presumably on the realization that EIX and PCG will soon be filing for bankruptcy (more on that later.) FNM and FRE were also busted for 5 percent. Clearly, there is some sort of derivative problem out there, which could very well have been what drove Uncle Al to hit the panic button yesterday. The easy answer is that it is related to the CA utilities that are headed for Ch7, but thats been out there for so long that I find it hard to believe thats the only reason we re seeing this selling. Its possible, as we have seen in tech, that you had to put things up in neon in order for the market to act on it. Today, that neon sign was several brokerage firms saying "gee, we think these utilities might go bust." Recall we discussed this very issue almost a month ago. So, who knows whether there is another big blowup out there or not, but I tend to think there most definitely is. Speaking of utilities, they were smashed today. Not only did PCG and EIX break to new lows, but the Dow Utilities continued their 3-day crash from their recent peak, falling another 6 percent. Strangely, this didnt seem to bother anybody. All I saw talk of was the glorious rate cut and how we were headed for the moon. It is truly a bizarre environment. Elsewhere, the Dow Transports were in melt-up mode, rallying 4 percent. Why you ask? More "Fed has saved the day" believers thinking transports are the place to be I suppose. That and there were likely some shorts that were blown out. The drugs and consumer shares continued to collapse as people sold those to buy tech, with both the DRG and CMR falling around 3 percent. I dont think theres anything to draw from these wild moves at the moment. Its just another sign of a distressed marketplace. The market is in the midst of a derivative dislocation as the liquidation of the market continues to cause problems. Uncle Als rate cut yesterday may have in fact made things worse by simply blowing out more participants when they were caught the wrong way when Al tried to slap a band-aid on the market. Today was simply once again symptomatic of a deeply sick market as far as Im concerned. Oil rose 14 cents on more rumblings out of OPEC that they will cut production. The XOI fell a percent, and the OSX fell 2 percent. Gold fell 90 cents. The XAU fell a percent, and the pure gold index, the HUI, rose a percent. The dollar was hammered as the US dollar index fell more than a percent, wiping out virtually all of yesterdays rate cut gain. The ECB chose to take no action this morning, and the euro rallied sharply on the news back up over 95 cents after rallying some overnight as well. The yen was the one currency to trade lower against the dollar as it broke to a fresh low for the move. More than likely, Japan has some derivative problems of her own. On her first trading day of the year last night, they couldnt even muster a positive day after our virtual melt-up over here. The Nikkei is not too far from breaking its 1998 lows, and I think we may see that soon. Treasuries bounced back a little after yesterdays drubbing as the 10yr fell in yield to 5.04%. Tomorrows trading is hugely important I think. Todays epic volume and close near the lows after trading higher earlier in the day could represent a massive reversal that is setting up a collapse tomorrow and next week. Then again, the bulls will likely say that it was the accumulation phase before tomorrows melt-up. Whichever way we go tomorrow, it will likely be a very large move I think. The unemployment number is in the morning, and I think it will be interpreted negatively no matter what it is. If it shows a big fall in employment, they will say Al must have panicked about something else because this number didnt warrant a cut. If the number shows a large jump in unemployment, theyll probably say that the economy is slowing even faster than they imagined. Wage data could also be key. It doesnt really matter what the data is though. As always, its only the reaction that matters. If stocks and the dollar are sold hard and we wipe out Wed.s rally, which I think is likely, we could well be on our way to a complete disaster next week. The bulls must take us higher tomorrow, or face certain extinction in my opinion. The forces of liquidation continue to push on stocks and the currency, and the bond market has likely now topped out as well, which means it will be under liquidation now too. The best the bulls can hope for is another sharp short squeeze to buy themselves some more time in order to try and put Humpty Dumpty back together again. I dont think theyre going to get it, but well see. Crash helmets remain on www.prudentbear.com _______________________________________________ Crashlist resources: http://website.lineone.net/~resource_base To change your options or unsubscribe go to: http://lists.wwpublish.com/mailman/listinfo/crashlist
