Not So Super Tuesday

The elections took center stage today as traders chose to watch the polls instead of stocks. The market vacillated between both sides of "unch" on anemic volume. All in all it felt like a Friday in mid-summer, as investors wait to see where the last pieces of the market puzzle will fit.

We put a key puzzle piece in place last night with the announcement of Cisco's (CSCO) earnings. This hurdle that everyone thought Cisco would stumble over, turned out to be a hurdle for everyone but Cisco. Cisco's stock emerged unscathed today as they beat earning's estimates of $0.17 by a penny (the stock closed up $1.63 to $56.75 today). Cisco has topped analyst estimates for 14 straight quarters in a row. But, in announcing record earnings, CSCO stated that they had semiconductor equipment collecting dust in their warehouses. This obviously did not bode well for the semiconductor chip stocks today, with many of stocks in the group taking double-digit hits.

We won't get to put the biggest puzzle piece in place until late tonight, however. The question is, will this puzzle piece be a wooden piece, or will it be an "oil-based" plastic piece. The market is waiting with bated breath, but in reality, not too much in the markets should be disrupted unless we get the same party with a majority in both Houses. The market does not like change, and is long as we don't get a "ruling" party, we should see more of the same; that being political grid-lock.

Of course, we have some side bar issues going on within particular sectors that could be affected by which candidate wins. Drugs and oils should do better under Bush and environmentally sensitive stocks (like the fuel cells) should do better under a Gore administration. Gore is also seen as being friendlier to the bond market as he is more devoted to the debt buy-back program that has given a boost to treasuries.

No matter who has their victory party tonight (please, no more Fleetwood Mac music) the market will probably go through its usual pricing-in-of-new-information dance, then go about its business of climbing the wall of worry that every bull market must mount. We have most definitely gone from "irrational exuberance" to "yeah right, prove it". These puzzle pieces being put in place over the last few days have created a picture left open for interpretation. We still have missing pieces that must found and inserted into their places before more investors can agree upon what the puzzle depicts.

Tuesday's Happenings:

As mentioned, the markets were undecided upon which direction to head today and instead just basically ran in place. Traders echoed the indecisiveness of most voters today.

Turning to the DOW (INDU), the index once again decided to wait on the whole "DOW 11,000 thing", not wanting to steal any thunder from the presidential/congressional candidates. The DOW eased 25.03 or 0.23%, to end at 10,952.18. The DOW could use a rest after camping out at the 10,000 level just 3 weeks ago. Volume came in very light on the NYSE at just 876 million shares. Advancers managed to beat out decliners, however, 1463 to 1324.

The NASDAQ (COMPX) had a slightly more volatile day. The index, with nothing better to do, essentially mirrored the action in Cisco shares. Just like Cisco, the index gapped down in the morning, then reversed sharply to trade around break even for the rest of the day. On the positive side, the NASDAQ did make a good run in the last hour to try and finish in the plus column, but came up just short, finishing down 0.42 to close at 3,415.79. Also on the positive side, the index closed just above its 5-dma, which has provided support throughout the recent run from the 3100 level.

Treasuries ended the day mixed, as traders grappled with the most likely outcome of the elections. The benchmark 10-year note finished off 8/32 to yield 5.88%, the 30-year bond was down 5/32, to yield 5.90%, while the shorter end of the curve (2-year note) finished up 1/32, to yield 5.98%. Economic data is sparse this week, with nothing but the Producer Price Index having the potential to move the market. Look for this report to come out on Thursday, before the market open. Economists are forecasting a gain of 0.2% in both the PPI and the core PPI for October.

Sectors and Stocks On the Move:

The sound you heard on Wall Street at around noon was tons of pet food hitting the floor in one gigantic crash. Yet another internet company is calling it quits. Pets.com (IPET) announced today it is closing up shop, laying off 255 of its 320 employees and selling off its assets. The stock plummeted 66.67% or $0.44, to close at $0.22 a share. Like most internet companies, IPET was not turning a profit and failed to procure financing that it had been pursuing since last summer. It is now trying to fold up operations with the intent of getting something (anything) back to shareholders.

In sector news, the slow advance in the Semiconductor Index was halted today as the index slid 30.19 to close below its bottom trend line at 715.58. The short circuit in the sector was brought on by the news of decreased spending on semiconductor equipment by Cisco. A hand full of chip stocks took the brunt of the blow with PMC Sierra (PMSC) finishing down $25.94 to $127.88, Broadcom (BRCM) down $34.38 to $176.63 and Vitesse (VTSS) off $7.38 to $73.00.

Most other sectors sat out the action, with Biotechs the only other stand out on the day. The Biotech Index (BTK.X) opened up and stayed in positive territory all day. The sector has displayed great relative strength and continues to impress, with very few stocks breaking below long up trend support. Immunogen (IMGN) broke out and notched a new closing high of $41.56, ratcheting up $2.44 on the day. Vertex (VRTX), which is very close to breaking out of a cup and handle formation, finished up $5.17 to $96.86.

Looking Forward, Always Forward:

With the election results due out tonight, emotions will take over in the morning and predicting the market reaction tomorrow becomes like predicting the outcome of a llama race. Whatever the market does, all we can do is let it react (if it does at all) and read what it is telling us. The best way to do this is through our trusty charts.

The NASDAQ (COMPX) is still working on climbing out of a double bottom formation and is in the midst of a small up trend comprised of the last 7 trading sessions. We would ultimately like to see the COMPX break the 3500 level that it has been having problems with, but would be satisfied in the near term if we just get some constructive sideways action. It is certainly positive action that we held above the 5-dma today (barely) and look to the 10-dma for support if the 5-dma is broken.

The DOW (INDU) appears to be working on a bullish flag formation. This formation represents a brief pause in an otherwise strong upward surge. We will look for a break of the 11,000 to signify a breakout of the flag and a continuation of the up trend. We will look for the bottom of the flag (10,800) to offer support.

While standing in line to vote this morning, I got to thinking about how every time we hit the buy and sell order buttons, we are essentially voting for or against the continued success of publicly traded companies (this became brutally clear with the folding of Pet.com today). It is sometimes forgotten, in the grand scheme of the trading game, that collectively, we as traders are effecting the operations of whole companies and their human employees. Cool, isn't it? What a great country.

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