The Big D

Many traders will be spending Thursday evening on a couch watching football with their belt buckles undone. Although Thursday marks a much-needed respite from a market that just won't cooperate to the upside, don't leave the thinking caps at the dinner table. While watching the overpaid warriors battle it out on the gridiron, focus on what the defense is doing out there, because that is all that has been working in the market lately.

Defensive issues in sectors such as the food and beverage group, energy and tobacco outperformed again as investors continue to seek out stocks with proven and predictable earnings. Budweiser (BUD) continued to breakout to new highs today, closing up $1.75 to finish at $49.81. Right on its heels was Coors (RKY), rocketing $2.88 to notch a year high at $75.06. The food group also posted nice gains, with Kellogg's (K) closing $0.94 higher to $28.44, Wrigley (WWY) finishing up $2.06 to $89.44 and Hershey (HSY) sweetening by $0.50 to close at $59.56.

All this buying in the defensive stocks points to the fact that the market is losing faith in the ability of the Fed to bring this market in for a soft landing. It's not that these defensive issues would benefit form a hard landing, it's the fact that they would be hurt less.

A higher than expected trade deficit reported today also served to discourage traders. The deficit figure came in at $34.26 billion versus a consensus estimate of $30.6 billion. Demand for imported goods and fuels (natural gas and oil) were heavy. The currency problems that many countries are now enduring are making imports relatively cheap for U.S. consumers. This again is a manifestation of the tight money policy that the Fed has instated with its 6 previous interest rate hikes. The lack of dollars abroad is having a depressing effect on the currencies of countries with whom we commonly trade.

Tuesday's Happenings:

With the entire tech sector undergoing a reevaluation, and with the big cap tech stocks falling to near "pre-bubble" prices, investors are waiting for a catalyst in the sector before jumping on board.

The NASDAQ (COMPX) fell 4.19 to 2871.45 amid continued earnings and election uncertainty. The session was volatile, with positive news out of the telecom sector pushing from one direction and foggy outlooks pulling in another direction. Volume came in just above 1.7 billion shares and decliners beat advancing issues 2485 to 1433.

The DOW (INDU) was boosted by gains in the energy and drug arenas, closing up 31.85, or 0.30%, to 10494.50. Within the DOW, ExxonMobil (XOM) lifted $1.75 to close at $93.13. Merck (MRK) was up $1.63 to close at $92.00 and Boeing (BA) closed at a new 52-week high of $68.63, after climbing $3.06 on the day. On the NYSE, decliners beat advancers by a narrow margin of 1465 to 1382. Volume was moderate at 1.1 billion shares traded.

Treasuries were little changed on the day. The 30-year bond closed up 9/32, the yield falling to 5.74% and the 10-year note finished up 2/32, the yield dropping to 5.665%. No economic numbers are due out Wednesday.

Stocks and Sectors On the Move:

It was a seesaw day for the telecom sector as one widely held stock disappointed and one reassured. Lucent (LU) fell $3.38, or 16.12%, to close at $17.56 after the company announced some revenue recognition problems. The big telecom equipment maker said that due to the accounting oversight, that it will revise fourth-quarter earnings estimates down by $0.02. In addition, it can no longer confirm its previous guidance for 2001. This comes at a time when the new CEO, Henry Schacht, is trying to right the ship.

Nortel (NT), on the other hand, came out and reassured investors that it would meet its numbers. NT is also projecting revenue growth in the 30-35% range. The stock was lifted by $2.94, or 8.33% to close at $38.19. It still has a way to go before it goes green on the year, but this news may go a long way to improve the chart.

Agilent Technologies (A) gained ground today on some blow out earnings that were reported after the close Monday. Agilent came in with earnings of $0.69 a share, handily whipping estimates of $0.53 a share. The company also said it is comfortable with year 2001 guidance of 20% plus revenue growth. Salomon Smith Barney upgraded the stock from "neutral" to "outperform".

The semi conductors (SOX.X) headed lower as one of LSI Logic's (LSI) top executives exited stage left. LSI lost its CFO and Executive V.P. with the resignation of Douglas Norby. Byron Look replaced him. On the news, Merrill Lynch downgraded the stock. LSI fell $5.81, or 20.22%, to close at $22.94.

Other semiconductor stocks fell in sympathy. Xilinx (XLNX) dropped $6.06, or 9.93%, to close at $55.00. Vitesse (VTSS) fell $3.63, or 5.67%, finishing the day at $60.31. Bucking the trend was Intel (INTC), which closed up $1.50 to $42.63. This is a perfect example of bad market sentiment taking center stage over valuations and business models. I don't feel that LSI's competitive advantage rested within the dynamic managing skills of the CFO. Nothing that Mr. Norby was doing at LSI was so special that another semiconductor company could not duplicate it.

Continuing on with the tech wreck theme, Internet issues experienced renewed selling pressures today after influential Internet analyst Mary Meeker made some mixed comments on Yahoo (YHOO). She mentioned that although her estimates for revenues are conservative, that there is about a 30% chance that Yahoo would still miss the mark. In response, Yahoo fell $7.81, or 14.71%, to close at $41.69. The ripple effect hit shares of America Online (AOL), pulling the stock back $4.09, or 8.69% to $43.00. Also caught in the crossfire were shares of CMGI, falling $1.13, or 9.33%, closing at $10.94.

Looking Forward, Always Forward:

With the remainder of the week exemplified by the lack of economic reports and the lack of volume, we can expect a whole lot more of the same. Of course there is the wild card of a decision coming out of the Florida Supreme Court but that is looking very doubtful.

So, as always, we as traders have to look at what is working. There is a bull market currently raging within the defensive sectors of food, beverage and consumer stocks. Until the market tells us otherwise, these areas represent some of the best risk/reward scenarios. Let the charts tell you what to buy and where to set your stops.

Am I still bullish on the NASDAQ? Does a turkey have two drumsticks and two wings? You bet. I am going to stray from the daily and weekly charts today to illustrate an important point. Turning to a monthly chart of the NASDAQ,we can see that we are right back to the indices' long-term up trend line.

If we did not have the speculative bubble that started to build up in late 1999, we would be right where we are today. If today marked the end of the year, even given this years' negative 27% return on the NASDAQ, for 5 years we are still averaging about 26% per year in the NASDAQ. This is still well above historic levels of 10-12%. Given the recent "popping of the bubble", tech stocks are more reasonably valued given the projected slowing revenue growth. Even though revenue growth is slowing, it is not coming down to unreasonable levels. That being said, I believe we may be primed for slow steady returns in the NASDAQ for 2001.

Since I am not writing tomorrow, may I wish you and yours a very happy and safe Thanksgiving.

Trade Smart!