You'll Get a Tummy Ache

Investors couldn't wait until tonight to collect sweets door to door, instead they gorged themselves on tasty treats that came in the form of beaten down technology shares. They ignored the age- old warning from Mom and proceeded to rip into the semis, the fiber opticals and the financials, barely coming up for air. When the frenzy finally settled at the end of the day, the DOW (INDU) and the NASDAQ (COMPX) both came out with nice triple digit gains. Let's just hope traders didn't over indulge and that they will come back for more on Wednesday.

The Halloween session never got any scarier than Casper the Friendly Ghost. We can all say merci beacoups to France's Alcatel (ALA) for getting the day off to a good start. The second largest telecomm equipment maker in Europe said that it beat profit expectations for the third quarter. It then put the icing on the holiday cupcake by raising guidance for revenues going forward into 2000 and 2001. This did wonders towards putting a net under the falling fiber optic and telecomm groups. Alcatel finished up $5.25 or 9.19%, to $62.38.

The only Freddie Krueger in techland turned out to be Rambus (RMBS). Rambus scared investors by tumbling $8.50 or 15.91%, to $44.94 on volume of over 30 million shares. The slide was initiated by repots in Electronic Buyers News that Intel (INTC) intends to drop certain Rambus DRAM products that are currently used in its computing platforms. Despite Rambus' fall, the Semiconductor Index (SOX) rallied to a 5.5% gain amid the broad tech-buying spree.

Investors also ignored reports from the Conference board this morning that said its Consumer Confidence Index fell to 135.2 from 142.5 in September. Most economists were expecting a reading of 140.2. Higher prices at the pumps and a wildly fluctuating stock market have consumers keeping a tighter grasp on their wallets. This may rear its head this holiday season, as consumers might just rein in their purchasing habits. Although, from Wall Street's reaction, you wouldn't think this to be true, as retail stock did well across the board. Wal Mart (WMT) closed up $1.63 to $45.38, Home Depot (HD) finished up $2.06 to $43.00 and Kohl's (KSS) gained $1.63 to finish at $54.19.

Tuesday's Happenings:

Just about every sector but cyclicals and drugs joined the Halloween party as the indicies posted strong gains. It has been a 9-day rally that has had many contributors.

The DOW (INDU) had its fourth straight up day in a row, rocketing 135.37 or 1.25%, to 10,971.14. We have rallied roughly 1,000 points in the DOW in just less than 2 weeks of trading. That calls for a WOW. WOW! Anyway, the DOW got within 5 points today of lapping 11,000, a level that most didn't think we would breach until next year at best. In addition, advancers whupped decliners 2053 to 886 on the big board, a very nice change. Volume on the NYSE came in at 1.3 billion shares traded.

The NASDAQ (COMPX) turned in an equally impressive day. The NASDAQ shot up 178.23 or 5.58%, to 3,369.63 on good volume of 2.1 billion shares. Sentiment seems to have shifted, as the rally in techs extended into even the beaten down speculative sectors like the internets. The volume on the day would also indicate that this was a little more than continued sector rotation, but money from the sidelines being put to work. This rally may just mark the end of mutual fund tax selling season and the beginning of the much heralded "no worries, be happy" November-January bullish season.

The broader market also put Halloween ghosts aside as the S&P 500 finished up 30.73 or 2.2% to close at 1429.39. It cruised through resistance at 1400 like a 10 year old through a Three Musketeers bar. It also broke through strong resistance at 1425 (barely) and will hopefully not look back Wednesday, as this level has offered strong support for the index as recently as this last September.

Turning to the treasury market, the shorter end of the yield curve performed better with the 2-year note up 2/32 to 99 22/32, the yield finishing at 5.91%. Traders indicated this was mostly due to the aforementioned Consumer Confidence number coming in low. The longer end of the curve, however, faltered as would be expected, with equities performing so well. The benchmark 10- year note finished down 7/32 to yield 5.76% and the 30-year bond fell 13/32 to yield 5.79%. With yields falling steadily since around May, treasuries are due for a little consolidation. We will keep an eye on the Fed funds futures and the yields on treasuries for hints as to the likely direction of interest rates. As of right now, the futures are still pricing in a better than even chance of a Fed easing.

Sectors and Stocks On the Move:

This section should have been titled "Sectors Not On The Move" today, as most all sectors posted gains on the session. In moving higher over the last 2 weeks, the market has been systematically rotating leadership, with one sector simultaneously attracting money flow that has moved out of another. Today, it was the cyclicals and the drugs losing out to anything having to do with tech and also the to the brokers and financials.

The cyclicals have enjoyed a run up over the past few weeks, so it makes sense that they would be ripe for some profit taking as investors decided that techs had suffered enough. Proctor & Gamble (PG) took a $5.44 hit, falling to $71.44 after meeting earnings expectations, but indicating sales growth might slow.

The internets did well today, with the Goldman Sachs Internet Index (GIN.X) up 9.7% on the day. B2B companies and infrastructure plays saw their share prices rise from the grave, as stocks like Purchase Pro (PPRO) up $6.63 to $27.00 and Exodus Communications (EXDS) up $7.31 to $33.56, bounced off key support levels.

The beaten down semiconductor sector (SOX), as previously mentioned, outperformed despite Rambus' demise. Applied Micro Circuits (AMCC) recovered $12.38 or 19.32%, to $76.44, Texas Instruments (TXN) added $2.38 or 5.09%, to $49.06 and Xilinx (XLNX) popped $5.56 or 8.32% to close at $72.44. As waxed so eloquently in these pages on prior occasions, we need the semis on board if this NASDAQ rally is going to get legs. Semis traditionally do better in the fourth quarter. We shall be watching to see if these semiconductor share prices have been sufficiently bruised by the stinging rhetoric of analysts to merit their current accumulation on the grounds of, well, "they're cheap now".

To add to the bullish mix, financials and brokers did well today. This sector generally does better in a non-inflationary environment. By bidding these shares higher, Wall Street may be saying that rates may be going lower. Lower rates are just what could take this market out of the doldrums with authority. Some of the sector's winners included Merrill Lynch (MER) up $2.19 or 3.23%, to $70.00, J.P. Morgan (JPM) up $6.13 or 3.84%, to $165.50 and Charles Schwab (SCH) up $1.56 or 4.66%, to $35.13.

Looking Forward, Always Forward:

After a day like today, what more can we ask for? How about another day like today? Well, we deserve it after suffering through uncertainty, downgrades, earnings warnings and piles of tech wrecks. OK, so it would be unreasonable to expect a point gain like today, but lets just keep the advance/decline line going up, the new lows list dwindling and the money flow positive for the next week.

Wednesday brings with it the NAPM (National Association of Purchasing Managers) number. Estimates are for the figure to come in at 49.5% for October. Anything under 50% is a sign of protracting growth at the producer level.

Turning to the charts, the COMPX is butting up against resistance at 3,376, created by the gap down on 10/25. It is the third attempt by the COMPX to get through this level. A close Wednesday above this level on good volume and good breadth would lighten the mood for many NASDAQ investors.

The DOW has been in party mode since 10/19 and is probably due for a siesta. It is in overbought territory and will need another good surge to get it over the 11,000 hurdle and to keep it over the 11,000 level. It would actually be healthy if the DOW allowed the NASDAQ to play catch up for awhile, so that some big stocks like J.P Morgan (JPM) and Boeing (BA) might go through some constructive sideways base building from which they can launch future bull runs.

Despite the rosy write up and the positive action in key sectors today, this Halloween reveler is not certain we are out of the woods yet. We still have scary things under the bed, like Cisco's (CSCO) earnings on November 6th to concern us. We also would like to see more than 2 days of gains in a row in the COMPX and for the breadth to keep improving. That being said, keep your stops tight and don't be afraid to buy in smaller lots and average up as your stocks show improved strength.

Trade Smart!