Yahoo! and Yeehaw!

These are the sounds that could be heard as traders plunged sidelined cash into the merry market based upon solid numbers released by the Internet bellwether. Before we get too excited it is important to note that today's rally was concentrated among Internet stocks and was not particularly broad based outside of the technology sector. A rising tide will probably not lift all boats in this stock picker's environment and if you want to make money you better be in the right stock which is in the right sector at the right time.

A broad-based rally could ensue if resistance can be broken and enough individual stocks beat estimates and the PPI comes out benign on Friday. In addition, we are entering the most bullish period of the options expiration cycle, so check your charts and attempt to concentrate on those stocks that are seeing increases in volume and are closing in on or making new highs.

Brokerages joined Technology for a small rally of their own. The group received a huge boost when Switzerland's UBS said it will acquire Paine Webber (PWJ) for $10.8 billion in cash and stock. The deal could spark another round of consolidation in the brokerage and banking sectors. These stocks are also getting stronger because of the reduction of interest rate hike fears. The first earnings reports in the banking sector have been strong, which helped the financial stock laden Dow to rally today.

The flying Internets, with a little help from Semiconductors, propelled the NASDAQ (COMPX) 143.17 points higher to a close at 4099.59. A certain kind of manipulation occurred today, one that takes an Index to a close right at a psychologically and technically important number.

The close just a hair below 4100 could possibly indicate that there is just a hint of tentativeness about extending the rally. Volume was solid, especially for a summer trading day. 1.58 billion shares were traded and winners beat losers 24 to 16. In addition to Yahoo!'s (YHOO) $19.44 increase to $124.94, some of the other big winners include; Sonus Networks (SONS) which gained $24.00 to $201.00, Power-One (PWER) surged $19.88 to $135.13, Check Point Software (CHKP) which moved $17.31 to $231.69 and Qualcomm (QCOM) continued its comeback and had a nice increase of $8.00 to a close of $61.00.

The DOW (INDU) underperformed the NASDAQ a bit but the veteran stocks did post a decent gain of 56.57 points and closed at 10,783.76 which was about 50 points off its intraday high. Volume was improved, but unspectacular, with 909 million shares traded. Advancers beat decliners 16 to 13. Some of the better performers within the DOW where; J.P. Morgan (JPM) up $5.56 to $122.56, Citigroup, which was another beneficiary of the Paine Webber takeover, cashed in a gain of $1.13 to $67.13 and IBM moved up $2.25 to $104.44 as technology stocks enjoyed a positive day.

Since the markets are firming, now would be a good time to start perusing the new high tables to look for some possible momentum plays. Here is a partial list of widely watched stocks that made new highs today; Cigna Corp (CI), Citigroup (C), Forest Laboratories (FRX),Legg Mason (LM), Lehman Brothers (LEH), Merrill Lynch (MER), Micron Technology (MU), Northern Telecom (NT), Pfizer (PFE), Waters Corp (WAT), American Power Conversion (APCC), Black Box Corp (BBOX), Cor Therapeutics (CORR), Sanmina (SANM), Siebel Systems (SEBL) and Vertex Pharmaceuticals (VRTX).

Outside of the Internet and Brokerage stocks the two leading sectors were Semiconductors (SOX), which gained 36.7 points to 1158.78 and Banks (BKX), which registered a 2.48 increase to 800.74. Pharmaceutical stocks (DRG) failed to follow through into new high ground and fell 7.42 to 420.26. Oil and Gas stocks (XOI) dropped 9.78 to 509.95 and Biotechnology stocks also slipped 4.26 to 735.32.

Bond traders took the day off due to a lack of economic reports to influence trading. The 10-year Treasury note slipped a quarter point to a yield of 6.08% and the 30-year bond moved one sixteenth higher to a yield of 5.89%.

The rally may continue tomorrow based upon better than expected results from B2B leader Ariba (ARBA), which announced after the close. ARBA stated a 5 cent loss which was narrower than the expected loss of 8 cents. Traders are encouraged that Ariba may be fast approaching profitability. Perhaps even more impressive was the revenue increase from $11.9 million to $80.7 million. During today's market ARBA rallied $12.38 to a close at $103.50. In after hours trading the stock has tacked on another $10.75.

Another winner in the earnings lottery is Applied Micro Circuits (AMCC). Earnings for the quarter where 21 cents which compares favorably to the year ago earnings of 6 cents. Consensus estimates where for a 17-cent profit. AMCC gained $11.69 to $125.44 today and is currently adding another $3.50 in after hours trading. The earnings release could influence other semiconductor stocks during tomorrow's trading.

Motorola (MOT) also released earnings after the close that should have a positive influence on several technology sectors. The mobile electronics and semiconductor giant reported profits of 23 cents a share, which was inline with consensus estimates. In the same quarter a year ago Motorola reported 13 cents a share. The initial after hours market action was negative as the stock dropped $2.13 from Wednesday's close at $35.44. By all accounts Motorola's numbers were solid and as the details keep coming out later in the evening Motorola shares stand a good chance to recover the early stock price loss.

Another semiconductor company, Burr-Brown Corp (BBRC), posted solid earnings of 38 cents after the close and beat Wall Street's consensus estimates by 5 cents. Sales were $103.5 million, which was an increase of 52% over the same period last year. Furthermore, BBRC said that it expects to see sequential revenue growth of 10 percent over the next two quarters. The analog and mixed signal integrated circuit manufacturer finished the day up $1.13 to $85.00. The strong earnings report could be a positive influence on other semiconductor stocks tomorrow.

Let's see, B2B stocks should be strong based upon Ariba's earnings and Semiconductors should be strong as well, based upon Motorola's, Burr-Brown's and Applied Micro Circuits' earnings. How about software? Rational Software (RATL) is certainly doing its part to influence the software sector positively. RATL posted strong earnings and announced a 2:1 split after the close. Revenues for the quarter where $170.3 million, a nice increase over last year's $117.4 million and earnings came in at 27 cents a share which was 5 cents ahead of consensus estimates. RATL was only up slightly today but it has gained over $2.25 in after hours trading to $95.00.

Here are some of the earnings to watch for tomorrow: Black Box (BBOX), Fannie Mae (FNM), General Electric (GE), J.P. Morgan (JPM), Owens Corning (OWC), Altera (ALTR), Gateway (GTW), Iomega (IOM), Juniper Networks (JNPR), Dallas Semiconductor (DS), Mercury Interactive (MERQ), Microchip Technologies (MCHP), PMC-Sierra (PMCS), Powerwave Technology (PWAV), Redback Networks (RBAK), Seagate Technology (SEG), Sonus Networks (SONS) and Vitesse Semiconductor (VTSS).

The NASDAQ is starting to look very solid technically. The Index has already made a post-April high and it managed to climb above resistance at the 4070 level, helping to avoid the development of a double top. Momentum coupled with solid earnings reports after the close should enable the NASDAQ to climb over 4100. If the good news keeps rolling, 4300 or higher seems possible over the next several trading sessions. The MACD turned positive today and RSI has plenty of room before indicating an overbought condition. Sentiment from traders is quickly turning bullish which is very good in the short term but is possibly a contrary indicator down the road. Enjoy the run but do not be afraid to take some profits if some euphoria sets in.

The DOW is also looking good technically. A continued rally in Financials and Technology shares could enable the DOW to test recent highs at 11,100. The MACD has turned higher indicating that bulls could push stocks higher and the RSI is far from overbought levels. Although there are probably some very good trades among NYSE issues, it appears that the NASDAQ will outperform for a little while. This can change in a heartbeat. Either way, make sure that you are long the strongest stocks in the market and try and be disciplined by not holding stocks through their earnings reports. As we saw today there was plenty of money to be made by buying stocks within a hot sector that was going up because the bellwether reported strong numbers. Look for similar trading opportunities over the coming sessions.

Good luck! And may all of your trades be winning ones.

Jim Booth

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