The Pause That Refreshes?

After finishing higher 14 out of the past 15 trading sessions, the old-economy geezers finally decided to take a breather. I suppose we should forgive them. After all, the Dow Jones Industrial Average (INDU) only surged ahead 1,200 since cratering to 9,670 back on October 18, while its counterpart, the newbie-laden Nasdaq Composite Index (COMPX), added only 300 points over the same period.

To be fair, the discrepancy between the two major market barometers isn't as bad as the point spread suggests. Looking at percentages, the INDU advanced 12 percent, while the COMPX advanced 9 percent.

Today, though, the INDU was certainly in no mood to add to its point total. The blue-chip average opened the day at 10,966.21, five points lower from yesterday's close of 10,971.14, and then kept trading lower for most of the day to bottom at 10,838.04. From there, the INDU rallied 60 points in the final hour of trading to close at 10,899.47, down 71.67 points, or 0.65 percent, for the day, ending a four-day winning streak. Leading the way down was the Charlie Brown of the telecom sector AT&T (T), which slid $1.19 to $22.00. If you bought AT&T back when Y2K was all the rage (January 1), you'd be 76 percent poorer today.

Despite today's respite in the old economy, it has been refreshing to see INDU stalwarts Philip Morris (MO) and International Paper (IP) move to the front of the line. Over the past two weeks, International paper has advanced 38 percent to close Wednesday at $36.06, while Big MO has added 16 percent to close at $36.56. Compare this to COMPX fiber optic gen-X'ers JDS Uniphase (JDSU) and Ciena (CIEN), which over the same fortnight, have lost 15 percent and 10 percent of their value, respectively.

As much as I wanted to use the word "divergence" to describe today's trading action, it just wasn't meant to be, for the COMPX also finished the day in the red. The new-economy index gapped down at the open to 3,316.51 and then continued to trade lower over the first 30 minutes to its intra-day low of 3,289.46. But unlike its old-economy brother, the COMPX quickly made an about-face and was soon trading at its intra- day high of 3,394.72, just 3.28 points shy of resistance at 3,400. Of course, it's not called resistance for nothing. From 3,400, the COMPX faltered to eventually finish at 3,333.39, down 36.24, or 1.08 percent, for the day.

Like the INDU, the COMPX suffered from telecom problems. WorldCom (WCOM) disconnected $5.38 to close at $18.38 and was the most-actively traded stock in the U.S. today, with 163.2 million shares changing hands, making it the fifth most- actively traded stock ever. The huge sell-off was instigated by WorldCom reporting that it expects fourth-quarter earnings of $0.34 to $0.37 a share compared to the First Call estimate for $0.49 a share. The No. 2 U.S. long-distance phone carrier (AT&T is cursed with No. 1) cited increased competition and spending and unfavorable foreign exchange rates for the downward earnings revision.

Adding insult to injury (and I do mean insult), WorldCom also said it will split its business into two separately traded tracking stocks, WorldCom and MCI. The WorldCom tracking stock will represent WorldCom's data, Internet and international business segments, while the MCI tracking stock will be saddled with WorldCom's long-distance and Internet services for consumers and small businesses. Shareholders will get 1 MCI share for every 25 WorldCom shares they own.

With any luck, investors will give WorldCom's attempt at financial alchemy the cold shoulder. Tracking stocks are horrible deals from an investor's perspective because they bestow very few common shareholder rights. WorldCom and MCI will undoubtedly fall under the aegis of WorldCom's CEO and Board of Directors, while WorldCom the holding company will retain ownership of both entities' property. In other words, investors in these instruments will have little recourse if management continues to perform poorly.

In other stock news, earnings issuers keep hogging the headlines, and for all the wrong reasons. AstroPower (APWR) tumbled $11.38 to $46.88 after this maker of solar power cells said it earned $0.05 per share in the third quarter, $0.04 shy of what First Call was expecting.

Also walking around with its pants down today was semiconductor maker Altera (ALTR), which slid $8.19 to $32.75 after stating sales growth in the fourth quarter will be at the low end of the 12 to 15 percent range that the company forecast last month. Of course, at least one analyst had to extrapolated Altera's misfortune to its chief competitor Xilinx (XLNX), which fell $5.06 to $67.38 after W.R. Hambrecht cut the stock to "neutral" from "buy."

Semiconductor-equipment stocks also fell after Morgan Stanley analyst Jay Deahna cut four companies to "outperform" from "strong buy" and lowered his forecast for chip-industry capital spending next year by 30 percent. Among the companies nicked today, were equipment making powerhouses Applied Materials (AMAT), which lost $2.75 to $50.38, and KLA-Tencor (KLAC), which dropped $1.31 to $32.50. Both companies have lost more than half their value since peaking in April.

On the economics front, Wednesday gave us the National Association of Purchasing Management Index (NAPM), which fell to 48.3 percent in October versus the previous September's 49.9 percent reading. This suggests a mild contraction in the manufacturing industry in October and continues a downward trend that has been ongoing since the index peaked last fall.

Looking ahead, tomorrow gives us the weekly jobless claims report (look for something around 300,000). Then on Friday, we get the week's most significant data set with the government's employment report. According to the folks who make a living predicting this stuff, the unemployment rate is expected to have risen slightly from its 29-year low of 3.9 percent in September to 4 percent for October.

Don't expect either data set to have much influence on investor trading, unless of course, they are unexpectedly bearish, meaning the unemployment ranks have swelled precipitously over the past week. The fact is the Federal Reserve is out of the picture until January. The federal funds rate futures contract is currently priced for the fed funds rates to average 6.47 percent in January, which translates into roughly a 12 percent probability of a Fed move on interest rates over the next three months.

So with the Federal Reserve out of the picture for the time being, we are once again left with earnings and pre-earnings announcements to guide the market, which isn't necessarily bad. Granted, analysts recently surveyed by First Call expect companies to report earnings growth of 12.4 percent in the fourth quarter, 19 percent less than the 15.5 percent earnings growth they were forecasting at the beginning of October, but this leads me to believe the worst earnings announcements are behind us.

More good news for traders is the fact that November, December and January have historically been the best months for the stock market because selling usually reaches an apex (which not so coincidently means markets hit a base) in late October due to end-of-the-year tax selling by the major mutual funds.

Speaking of hitting a base, the COMPX tested its low support level around 3,100 four times during October, which has me thinking that 3,000 is the absolute bottom support level, so there isn't much downside risk from here. However, on the upside, resistance is still at 3,400. The COMPX has had trouble filling October 25th's 50-point gap.

If the COMPX can manage to break out of this narrow 300-point range it's been stuck in over the past six trading days, it should be clear sailing to 3,500. More importantly, though, a break through 3,500 will clear the path for a move back to 4,000.

Equally channel-locked (at least more recently) is the INDU. The average has intermediate support at 10,600 and immediate support at 10,800. At both support levels, though, resistance remains at 11,000, so the index could trade within a 400- or a 200-point range. Still, I guess we shouldn't complain. After all, a little consolidation isn't the worst thing that could happen to an average that has moved nearly exponentially over the past two weeks.

Don't be surprised if the COMPX and INDU remain range-bound for the next few trading sessions. My hunch is that the market is going nowhere until after Tuesday's election.