The Storm Clouds Dissipated

Impatient bulls crawled out of the "Bushes" today, as the Supreme Court issued a statement that can be best interpreted as a small victory for the George W. Bush.

The Supreme Court has decided to set aside the Florida Supreme Court's decision to allow a recount of some of the ballots and basically asked the Florida Supreme Court to reconsider their decision. Although the Supreme Court's actions today leaves the door open for this charade to continue, the sun is clearly starting to set on the Gore campaign. If the recount stands, Bush leads Gore by 537 votes. If the recount is rejected, Bush will lead Gore by 930 votes.

The Dow Jones Industrial Average (INDU) rallied strongly on the news. The average peaked with a gain of over 200 points and finished up nicely with an increase of 187.13 points to 10,560.67. The NYSE saw good volume of 1.07 billion traded shares. It was pretty much a dead heat between advancers and decliners. There were 91 new highs and 122 new lows.

Not surprisingly, cyclicals ruled the day on the Dow. Dupont (DD) gained $3.06 to $45.88, which was an unusually huge move for this company. Minnesota Mining and Manufacturing (MMM) was up a solid $5.38 to $105.00. It was rumored that W. James McNerney, a GE executive who was passed over for GE's CEO position, will assume the helm at MMM when the current CEO retires this summer. Alcoa (AA) picked up $2.00 to $31.00 and Caterpillar (CAT) gained $2.63 to $43.31.

Retailers on the Dow also did well. Home Depot (HD) rallied $1.81 to $40.75 and Wal-Mart (WMT) continued its Christmas rally with an increase of $2.63 to $53.81.

The NASDAQ (COMPX), after an initial rally, slid for most of the day, as earnings concerns continued to bite into any bounce play enthusiasm. The low for the day was 2,567. An attempted rally to take the index positive was abandoned and the COMPX finished the day off 29.54 to 2615.75. Volume was decent with 1.8 billion shares traded. Decliners outpaced advancers by a ratio of 12 to 7. There were a paltry 23 new highs compared to an astounding 427 new lows.

NASDAQ leaders were mixed. Stalwarts like Cisco Systems (CSCO) and Intel (INTC) were down $2.69 and $1.19, respectively. CSCO closed at $45.81 and INTC closed at $32.94. Veritas Software (VRTS) was a volume list loser, as it fell $8.19 to $100.75, which is possible psychological support.

Some of the more active winners included Oracle (ORCL), which picked up $1.75 to $28.19. JDS Uniphase (JDSU) continued Friday's decent bounce with a gain of $2.38 to $58.56. Sun Microsystems gained (SUNW) $1.94 to $78.88. Ciena (CIEN) had a good day with a gain of $3.25 to $80.19.

Qualcomm (QCOM) had a solid day, as its on again-off again relationship with China took a positive turn. China confirmed its commitment to Qualcomm's CDMA technology to build its wireless infrastructure. Shares of QCOM were up $7.00 to $90.00.

TriQuint Semiconductor (TQNT) gained $6.56 to $41.94 due to positive comments about the wireless industry from Merrill Lynch, while fellow chip concern PMC Sierra (PMCS) increased $4.00 to $100.06.

I2 Technologies (ITWO) was slammed $11.38 to $88.00. Mercury Interactive (MERQ) joined the losing list with a drop of $9.31 to $70.81. Micromuse (MUSE) joined its Internet software peers with a decline of $8.63 to $70.81. Protein Design Labs (PDLI) led Biotechnology stocks lower with a drop of $10.94 to $73.56. The stock was followed by Millenium Pharmaceuticals (MLNM), which lost $5.75 to $47.75. MLNM did have some good news after the close concerning positive results from Phase I trials of one of its cancer fighting drugs.

The bond market slipped today after October new home sales fell percent to an annual rate of 928,000. Expectations were for a greater drop to 909,000. Bonds may have also dropped because stocks were strong. The 10-year note fell 1/32 to a yield of 5.52% and the 30-year bond lost 10/32 to a yield of 5.66%.

On the earnings front, Xilinx (XLNX) issued a warning after the close. Although the announcement was anticipated after its competitor Altera (ALTR) warned last week, the news cannot help technology stocks attempts to recover. The company lowered its sequential quarterly growth estimate to 5 to 7 percent. Previously, the Company was looking for growth of around 12%. Xilinx reports earnings in the middle of January and the stock closed at $41.69, up $1.69 for the day. It is currently halted during after hours trading.

Xilinx was not alone, as 3Com (COMS) announced that slower- than-expected sales will hurt the Company's results. The Company expects second quarter losses in the 19 to 32 cent range. Previously, losses were expected to be in the 7 to 9 cent range. 3Com said that the revenue drop stems from declining orders from their telecommunications partners. In after hours action, shares of COMS were down $3.50. COMS finished today's regular trading session with a gain of $0.44 to $13.38.

PepsiCo (PEP) won the bidding war for Quaker Oats (OAT), which owns the desirable Gatorade beverage line. Pepsi will spill out $13.4 billion to acquire Quaker. In a conference call with investors, the CEO of Pepsi admitted that the deal may only add about one percent to the companies combined sales and earnings growth. The deal values OAT shares at $105 each. There is a provision that OAT can drop out of the deal if shares of PEP drop below $40. If OAT does not pullout of the deal, then OAT shares will be valued at $92.00. Shares of PEP closed up $1.44 to $43.81. OAT stock gained $2.44 to $91.06. Based upon Friday's closing prices the deal is valued at $97.46 for each OAT share.

There are a couple of mildly influential economic reports due tomorrow at 10:00 AM EST. NAPM (National Association of Purchasing Managers) Services, expected to come in at 57% and Factory Orders, expected to decrease 2.5%.

Despite the court victory for Bush that may get us closer to actually electing a President, NASDAQ shares are likely to be flat and maybe a bit weaker in the early going due to the Xilinx (XLNX) warning. Actually, it will be very interesting to see what happens. If they cannot knock semiconductor stocks lower on the bad news, then it is very likely that we have reached the bottom for this decimated and high profile sector.

Today's low of 2567 is the support to watch, if it can hold in the early going, we may see an afternoon rally. There is major support at Thursday's high volume (2.7 billion) capitulation sell-off bottom of 2523. Resistance was found at today's high of 2671 and the next resistance is 2750. The MACD is still in serious decline, but it looks like this indicator has reached a triple bottom. The recovery may grow some legs if this indicator can turn back up. The RSI confirms that the NASDAQ is severely oversold.

Despite the solid rally in the INDU today, the average had an inside day, meaning that it traded within the high and the low from Friday. This is further evidence that the DOW is still in consolidation mode. A move above Friday's high of 10,695 (call it 10,700) would be bullish. On the downside, 10,250 is pretty good support, as it is at the bottom of the recent consolidation range. One positive for the INDU is the fact the MACD is about to go positive. This indicator is very good for determining index trends.

The bottom line is that this market will not be able to stage a major advance until the Presidential mess clears up, the Fed becomes more inclined to ease and there is confidence that the bulk of earnings warnings are behind us. In the meantime, traders must be content to keep looking at the strongest sectors while long-term investors can cautiously start picking up some of their favorite companies.

Good Luck! And may all of your trades be winning ones!

Jim Booth
Research Analyst