The Giants are Starting to Rumble

For years, the health of the market has been defined by the strength of these leaders who have lagged recent advances. This is today's perception, and it can change in a heartbeat. As of now, it definitely appears that the market has stabilized.

Overall market sentiment is being helped by the strength of the Bush-Cheney ticket in the polls. Oddly, markets historically have been stronger in election years when the incumbent party is leading the polls because markets hate the uncertainty inherent in new political leadership. This year, it seems quite clear that people believe Bush is likely to be a much more business friendly than Al Gore.

The NASDAQ (COMPX) continued its recent winning ways by tacking on another 75.63 points to close at 3862.99. A few of the technology leaders that are slated to post earnings soon posted solid gains. Cisco Systems added $0.69 to $66.25, Dell Computer (DELL) added $1.31 to $42.69 and Applied Materials (AMAT) gained $2.19 to close at $69.94.

Although Sun Microsystems has already posted their earnings, they were also a very strong performer, gaining $5.13 to $111.75. Some of the other big winners include Ariba (ARBA), up nearly 11 points to $135.00, Sanmina (SANM), also up nearly 11 points to $108.94, Plexus (PLXS) increased $10.75 to $111.38 and i2 Technologies (ITWO) picked up $17.31 to $143.38. The buying was a bit light however with volume only coming in at 1.06 billion and breadth was only slightly positive with winners outpacing losers 21 to 18.

The Dow Jones Industrial (INDU) had a very solid day, finishing up 100 points to close at 10,867.01. The DOW was also led by technology shares, as Honeywell (HON) moved higher by $2.13 to $35.69. Microsoft (MSFT) rallied $0.88 on the news that the Company will begin a share repurchase program to keep up with employee option plans. Hewlett Packard (HWP) also moved higher by $3.56 to close at $115.31.

Some of the other widely watched market indices had the following results: The S&P 100 (OEX) gained 7.86 points to 803.72, the S&P 500 moved up 16.35 to 1479.3, the NASDAQ 100 (NDX) posted a plus move of 91 points to 3710 and the Russell 2000 (RUT) enjoyed the rally and picked up 6.24 to 509.87.

There is evidence that some day traders are back because two of their favorite sectors led the market today. Semiconductors (SOX) rallied 33 points to 954 and Biotechs (BTK) added 25.3 points to 690.18. The Pharmaceuticals (DRG) slowed their recent advances by dropping a modest 1.16 to 408.34 and Banks (BKX) were modestly higher by 1.86 to 866.94. One Index that staged a huge rally but usually does not get much press is the Utilities (UTIL), which gained 7.15 to 354.04. Utility stocks have traditionally been a forecasting sector and their strength bodes well for the market 3-6 months down the road.

Treasuries were decidedly weak as the 10-year Treasury note was off 13/32 increasing the yield to 5.96 and the 30-year bond also fell, losing 20/32 and is now yielding 5.755 percent.

In stock news, Barnesandnoble.com (BNBN) announced that it is teaming up with Microsoft (MSFT) to open the first major online store to sell digital books. The concept will allow consumers to either download a copy of a book and read it on their computers or order a paperpack copy that will be immediately printed and mailed. BNBN increased $1.94 to $5.44 and Microsoft (MSFT) added $0.88 to $70.00.

Henry Blodget, the well respected Internet analyst at Merrill Lynch, squished a few of the stocks in the sector with a relatively sweeping downgrade of the sector. He cited, among other concerns, that the sector may soon enter a more mature age which could see some major consolidation as well as some Internet companies disappearing altogether. Some of the specific downgrades include EBay (EBAY), which was down $0.75 to $50.00; DoubleClick (DCLK), which actually rallied $3.44 to $38.63; and 24/7 Media (TSFM) fell $1.38 to $10.06.

Labor strife has hit newly formed Verizon (VZ). The wireless services company that was formed by the GTE/Bell Atlantic merger saw 87,000 workers walk out on Sunday, as the groups were unable to hammer out a new contract. For now, the damage appears slight and there are hopes that a new deal is immediately forthcoming. Although the stock was actually up $0.94 today to $47.88, it will likely drop if a new agreement is not reached soon.

Compaq (CPQ) received a boost from Barron's over the weekend when an article about the Company cited several analyst upgrades following CPQ's earnings release. There is a growing consensus that Compaq is undervalued at current levels especially when one considers the value of their growing enterprise application server market. One of the most advertised resistance points for any stock I can remember is the $30 wall that CPQ keeps running into. What a surprise then that the good news took CPQ right to $29.94 today.

Here is a partial list of some of the key earnings reports due tomorrow. As always, this is an incomplete list so if a stock you are looking for does not appear on this list please contact the company you are interested in to verify when they will report their earnings.

Before the open; Cephalon (CEPH), Dollar General (DG), Office Max (OMX), PSINet (PSIX), Titan Corp (TTN) and Verizon (VZ). After the close; Cisco Systems (CSCO), Lernout & Hauspie (LHSP), Voicestream (VSTR) and Waste Management (WMI).

Note: Another key report for technology stock followers is Dell Computer (DELL) which is reporting after the close on Thursday.

The key economic report due tomorrow is 2nd Quarter Productivity. The consensus estimate is for the number to come in at 4.5%.

The NASDAQ has enjoyed a sharp reversal from Thursday's intraday lows. Technically speaking, this reversal, especially with the high volume move on Friday, is an indication that another short term bottom was established. The bottom of a trading range could be the Thursday low of 3521, which is close enough to the pyschological, 3500 support to be significant. The MACD has been meandering but it does appear likely to turn up and give us a buy signal soon. Consequently, we may have a few more days for this rally, especially if the critical earnings reports due later this week come in strong. 4000 has proven to be an important resistance and support level for the past few weeks and it will probably prove to be significant again. A close above 4000 and we may test 4300 soon. Failure to take out 4000 and we will probably slip back into the middle area of the two-month trading range.

The DOW has turned up nicely and is knocking on the door of resistance at 11,000, which was established in July. Although it appears unlikely that a major move is pending, considering that we are entering what is historically the slowest time of year, we could see some more gains if the DOW can close above 11,000. Otherwise, look for a continuation of the trading range which is defined by support at 10,350. Because of the financial components in the DOW, look for economic reports to be influential ahead of the next Fed meeting towards the end of this month. The DOW is a little stronger than the NASDAQ and this is evidenced by a positive MACD and a RSI that is rising towards an overbought signal although it currently has some upside potential.

The trading ranges are powerful and well defined. It seems like it would be imprudent to chase stocks towards the higher ends of the trading ranges. If you are long now, great, but do not be afraid to start considering taking profits soon. In trading range markets such as these, it is usually a good idea to keep utilizing hedging and trailing stop strategies to lock in profits.

Good Luck! And may all of your trades be winning ones!

Jim Booth
Research Analyst

Over 150 readers attended the free one day seminar in Orlando yesterday and were treated to a full day of information overload by Preferred Trade, DTN/IQ and OptionInvestor. We are having another free seminar day on August 8th in Dallas. Come be our guest for a free breakfast and lunch along with a presentation of the Preferred Trade execution system, the newest features of real time quote systems by DTN/IQ with a Nasdaq level two demonstration. Chris Verhaegh will fill your afternoon with trading strategies that will improve your profitability with both stocks and options. For more information:http://www.optioninvestor.com/seminar/dtn

Aug 10-12 Orange County 3 day NEW !!!!!!!!!!!!!!
Aug 17-19 Orlando 3 day
Aug 24-26 Dallas 3 day
Aug 28-29 Detroit 2 day

Australia coming soon!

Has the market been beating you up? Did you give back your gains from April? Would you like to understand all the technical indicators our writers use? Does the alphabet soup of technical terms like RSI, DMA, MACD, ROC, Stochastics, Bollinger bands, sound like Greek to you? You can learn from the experts how to interpret all these indicators, read charts, pick stocks and which option strategies to use on those stocks for less than the cost of one bad trade. Reserve your seat now for one of our regional seminars. Click here for more info:

http://www.splittrader.com/seminar/seminar.asp