CAUTION: HIGHLY FLAMABLE

This morning, Chairman Greenspan put a match to the powder keg of sidelined cash. With comments that came without the usual "Greenspeak", the Chairman of the FOMC clearly stated that he does see signs of "excessive softening" in the economy. That's all it took for the market to explode upward in a much- needed display of frenzied buying.

Stop, drop and roll. The market was on fire today. By signaling that the Fed will diligently guard against a recession, Greenspan essentially laid to rest the biggest single factor that was keeping the market depressed. With fear in the markets out of the way (for the most part), greed took over as investors scooped up large cap tech shares with a vengeance not seen since early March.

Adding to the positive slant on the session was the fact that Xilinx (XLNX) and 3Com's (COMS) warnings after the bell on Monday did nothing towards derailing rallies in their respective sectors. Xilinx actually added $1.88 to $43.63 after shaving its sales growth estimates from 12% to the 5-7% range. The Philadelphia semiconductor index moved up 55.93, or 9.98%, to 607.41 despite this news.

3Com also warned of slower sales but also revised its earnings outlook to a negative $0.19-$0.23 a share from an expected $0.07-$0.09 a share. Unlike XLNX, 3Com stock could not hold up under the news, losing $3.34 to $10.03. However, the networking index (NWX.X) staged a party anyway, rising 85.43, to 912.23, a better than 10% move.

As we have been saying all along, even the likelihood of lower interest rates puts many of the big cap tech companies back in line with (what are in most cases) lowered earnings estimates. Adding to this is the fact that in Greenspan's speech to bankers today, he mentioned that they should ease on their strict lending policies so as to not choke off their best customers. If more capital is going to be available to companies they will spend it on improvements, or at least that's what all the tech CEO's are asking Santa for this year.

Tuesday's Happenings:

The NASDAQ (COMPX) rocketed to its single biggest point gain and percentage gain ever today. It shot up 274.05, or 10.48%, to 2889.80! I'm pretty stingy with exclamation points as you have noticed, but today's NASDAQ performance certainly warrants one. The glamour tech stocks posted substantial gains and took the whole NASDAQ on their backs for the ride towards 3,000 (the right direction for once). Most of the big caps ended the day at or near their highs of the day. Advancers walloped decliners 2782 to 1201 and volume was a heart warming 2.4 billion shares.

The DOW (INDU) also donned a rally cap, as it experienced its own impressive ascent. The average gained 338.62 points, or 3.21% to close at 10898. Contributing to the nice move were shares of J.P. Morgan (JPM) up $13.13, to $151.63 and 3M (MMM) up $11.63, to $116.63. JPM moved higher on the prospects of an interest rate cut and 3M announced that it would name General Electric executive James McNerney Jr. chairman and CEO of the company. Advancing issues on the NYSE beat out declining issues 2076 to 841. Volume came in at a healthy 1.4 billion shares.

The broader market was all smiles today, with the S&P 500 shining brighter by 51.57 points to 1376.54. This represented a 3.89% move and confirmed that big cap stocks in just about every sector benefited on the day.

Treasuries reacted positively to Greenspan's comforting words and to economic reports out today that showed that October factory orders fell by 3.3% versus expectations of a 2.1% drop. The benchmark 10-year bond rose 29/32 to yield 5.43% and the 30-year note moved up 1 2/32 to yield 5.59%.

Stocks and Sectors On the Move:

Ringing in from the bottom rungs of the ladder today were the reeling internet stocks. Internet stocks across the board saw gains but most of the heavy buying was focused upon the B2B sector. Ariba (ARBA) mushroomed $17.75, or 28.89%, to close at $79.19. Shares of Commerce One (CMRC) ballooned $8.25, or 29.06% to finish the session at $36.13. Keep in mind, however, that many of the internets will need many more days like today to get them back in fighting shape. Many are off upwards of 90% for the year.

As mentioned, the Semiconductor Index (SOX.X) performed nicely today, even as Xilinx's warning was accompanied by LSI Logic's (LSI) declaration that earnings and growth would suffer in the fourth quarter due to inventory build up. LSI finished up on the day, climbing higher by $2.61 to close at $20.80. Texas Instruments (TXN) turned around by $6.06, to close at $45.69. Applied Micro (AMCC) put in a good day, closing higher by $11.81, to $62.25. Many of the semi stocks broke down trends today and started some constructive chart repair. Many charts in the semiconductor arena looked as if they were heading for the basement. Although one day does not make a turnaround, we will watch for this important sector to at least base for the near term, to confirm the markets health.

We were firing on all cylinders today, as even the wireless sector had good news to report. Nokia (NOK) rang up nice gains after it confirmed that revenues for its first quarter 2001 would be in the upper end of its projected 25-35% range. It also made some positive comments about wireless handset demand being strong for 2001 and beyond. The stock closed up $6.81, or 15.29% to $51.38. Ericsson (ERICY) also rallied smartly, gaining $1.31, or 10.66%, to close at $13.63.

Of course, with Greenspan soothing credit quality issues and hinting at shifting the Fed bias to neutral, financials and brokers closed well into the black. The Bank Index (BKX.X) continued rising off its bullish double bottom formation, closing up 41.24, or 3.7%, to 846.76. The Broker Index (XBD.X) shattered its downtrend line by gained 7.3% on the session, closing up 45.39 to 540.46.

In after hours news today, Apple Computer (AAPL) turned rotten on news that it would post its first operating loss in three years due to a slowdown in sales. The company warned that it would fall well short of already lowered earnings estimates of $0.03 a share. I guess the real test will be if the market can shrug this one off tomorrow. In a sense, investors had to know that Apple would have a tough time meeting estimates after the Dell (DELL) debacle. We shall see if this causes more damage to an already bruised PC sector and if the news will have any ramifications for the rest of the NASDAQ. Nobody said this was going to be easy. Just wait until pre- announcement season really gets going next week.

Looking Forward, Always Forward:

Wednesday brings with it the release of the revised 3rd quarter productivity numbers and the Beige Book, neither of which matter too much to the Fed. They will be focusing on the Friday release of the November payrolls and jobless rate.

Today's stellar move, while encouraging, can only be labeled as an over reaction. While the likelihood of the Fed going to a neutral stance is psychologically important to the market, let us not forget where we are and what we are emerging from, if in fact we are emerging.

I believe we are still in a market where investors can and will get spooked. We are entering pre-announcement season where companies will guide analysts towards more realistic outlooks. Remember that we are coming off six rate hikes and that these hikes take some time to effect the market. The same can be said for rate cuts. They will take time to work their magic upon the economy. Realistically, a rate cut might (that's might with a capital M) come in the second quarter. Add six months to that and you can see that the coming quarters (Q1 and Q2) are influenced by the previous rate hikes, not the potential rate cuts. What this all means is that investors will likely get caught up in the near term outlook for companies, when faced with bad news. Translation, more market volatility as investors weigh current product demand with product demand a year down the road.

Having said this, I believe we still are going to have a tradable rally on our hands going into the end of the year. The NASDAQ 3,000 level will probably pose the next hurdle, but in the mean time, we will be looking for a confirmation day in the NASDAQ within the next 2-4 sessions accompanied with high volume.

We are seeing split action heat up again and more tech stocks are making it onto our Watch list and Candidates list. This is a good sign that we may be on the way to a shift. Keep your eye on our new Watch List as these are the stocks and sectors that are heating up for the next run. We are not out of the woods yet, so please keep those stops tight for the time being.

Good Luck and Happy Trading!

Craig Seidler
Assistant Editor