More Of The Same

Last week most of the market prognosticators said the major market indices would trade flat this week. For once, most of them were right.

On Wednesday, the Nasdaq Composite Index (COMPX) added 21.64 points, or 0.53 percent, to close at 4,103.81 - the first time it has closed above 4,100 in over a month. For most of the day, the COMPX traded between 4,070 and 4,090, where it appeared to be hopelessly stuck. But then a late-day surge in B2B Internet stalwarts Commerce One (CMRC), Ariba (ARBA) and Internet Capital Group (ICGE) help lift the tech-heavy index permanently over the 4,100 mark. Still, despite reaching a new monthly high, the COMPX has traded narrowly between 4,050 and 4,100 for most of the week.

But where the newer issues traded mostly flat, the older issues traded mostly down. The Dow Jones Industrial Average (INDU) opened the day at 1,209.01 and then slowly skidded lower for the rest of the session before finishing down 112.09 points, or 1.00 percent, to 11,103.01, closing below its 10- dma for the first time since August 1.

Pressuring the INDU was two of its largest components. International Business Machines (IBM) fell $2.56 to $130.31, and was responsible for 15 points of the average's 112-point loss, while all-purpose conglomerate General Electric lost $2.38 to close at $57.50.

As for the broader and smaller markets, they, like the COMPX, went nowhere fast. The S&P 500 Index (SPX) fell through the psychologically significant 1,500 by closing down 12.71 points, or 0.84 percent, to 1,497.13. Meanwhile, the pee-wee- ladened Russell 2000 Index (RUT) added 2.70 points, or 0.51 percent, to close at 532.33. The RUT has quietly posted eight straight winning sessions.

As for market volume, it was respectable. 817 million shares were exchanged on the NYSE, the highest volume for the week (still, it's been nearly three weeks since the NYSE posted a billion plus day). However, down volume eased ahead of up volume by a 4-to-3 margin. The action was decidedly livelier on the Nasdaq, where 1.51 billion shares were exchanged and where up volume dominated down volume by a 3-to-2 margin.

As for market breadth; it was mixed. Decliners outpaced advancers by a 15-to-14 margin on the NYSE, while advancers beat out decliners by a 21-to-19 margin on the Nasdaq.

In sector news, the big winner here was the Internets. The CBOE Internet Index (GIN) jumped ahead 4.40 percent thanks to a resurgence in some formerly downtrodden issues. B2C king Amazon.com (AMZN) added $3.31 to 42.94 and was the third-most actively-traded issue on the Nasdaq. Goldman, Sachs Internet analyst Anthony Noto repeated his "trading buy" rating (whatever that means) on the company, adding Amazon should benefit from its partnerships with Microsoft (MSFT), Toys-R-Us (TOY) and Hewlett-Packard (HWP).

Other Internet companies making hay today included I2 Technologies (ITWO), which rose $11.13 to $168.75 after announcing that Sears, Roebuck (S) will use its software to manage its product repair and home improvement businesses. Other B2B companies posting strong gains include CMGI (CMGI), which gained $5.19 to $45.81; FreeMarkets (FMKT), which rose $6.88 to 81, and has now gained 47 percent in a week; and Clarus (CLRS), which jumped $8.13 to $58.13.

Brokerage stocks also gained ground today thanks to a convoluted acquisition deal involving Donaldson, Lufkin & Jenrette (DLJ). The investment bank advanced another S2.38 to $88.38 after soaring $18.19 yesterday. The news broke on Tuesday afternoon that DLJ would be acquired by CSFB, a unit of the Swiss investment bank Credit Suisse Group. It seems CSFB will purchase DLJ from French financial giant AXA financial (AXA) for $13.4 billion in stock and cash that comes to roughly $90 per share. However, it appears that DLJ's online brokerage, DLJDirect (DIR) was left out of the deal, which sent that stock free-falling $2.31 to $8.69.

Of course, once traders are chummed by one deal, they immediately start looking for blood in other potential candidates. Bear Stearns (BSC) added $2.13 to $65.25, Morgan Stanley, Dean Witter (MWD) added $1.38 to $105.88 and Raymond James (RJF) added $1.00 to $29.88.

In stock news, broadband enabler Broadcom (BRCM) lost $13.50 to $238.44 after chip-making giant Intel (INTC) filed a patent infringement lawsuit charging the company, claiming Broadcom infringed on its cable and high-speed networking technology.

Another litigant victim was virtual chipmaker Rambus (RMBS), which fell $4.44 to $76.19 after Hyundai Electronics Industries said it's suing the company for patent infringement. This is the second suit against Rambus in three days. On Monday, Micron (MU) announced it was suing Rambus for patent infringement, too. I've got a feeling it's going to be awhile before investors see $127 again on this stock.

On the brighter side, shares of Corning Glass (GLW) soared $15.38 to $325 after Merrill Lynch raised its price target to $400 from $375 following a presentation by company executives at an industry conference.

Another winner was biotech Geron Corp. (GERN), which closed up $5.44 to $34.31 after it and Merix Bioscience jointly announced that researchers at Duke University Medical Center demonstrated the companies' antigen, Telomerase, was shown to inhibit tumor growth in animals. But it's not just Fido who can have his tumors shrunk; the drug kills human tumor cells as well.

In earnings news, Comverse Technology (CMVT) fell $2.00 to $87.56 after reporting that second-quarter earnings came in at $0.36, handily beating the First Call estimate for $0.26 per share.

In the credit arena, bonds continue to surge. The 10-year Treasury note added 2.32 to yield 5.80 percent and the 30-year Treasury added the same to yield 5.75 percent. With the Federal Reserve firmly out of the picture (at least until December), yields have fallen to their lowest level in nearly a year.

It was another slow day on the economic front. Wednesday's lone piece of economic data was July's leading economic indicators, which edged down 0.1 percent for the third straight month. The news doesn't get much more exciting tomorrow, either. Thursday will see the release of weekly initial claims and July factory orders. The consensus is for a decrease of 6.80. The only piece of economic data likely to move the markets is Friday's employment report.

As for trading for the rest of the week, I still believe that the INDU will remain within a 11,000 to 11,200 range (okay, so it made a liar out of me on Monday by trading above 11,300). Today's 100-point sell off appears to be proof that the INDU wants to remain range-bound through the holiday. Contributing to this belief is the fact that the Relative Strength Indicator (RSI) and Stochastic Oscillator are both stuck in nowhere land.

As for the new economy, trading could be a little more interesting. A few market watchers noted today that the COMPX crested its 50-percent retracement from its May low to its March high, which could mean that the index is ready to make a go for its 38-percent retracement of 4,300.

Admittedly, that's going to happen, but it's just not going to happen this week. Pre-holiday ennui has me thinking 4,100 might be the limit.

S.P. Brown
Assistant Editor