A Resolution Is Near

The U.S. Supreme Court heard arguments from the lawyers representing both presidential candidates today. At the time of this writing, a decision had not been rendered. Nevertheless, the market appears to be convinced that the high court will rule in George W. Bush's favor.

With that in mind, the NASDAQ Composite Index (COMPX) spent most of the day in rally mode, bolting ahead 97.67 points to close at 3,015.1. NASDAQ trading volume was very heavy with 2.42 billion shares changing hands. Moreover, advancers beat decliners by a margin of 23 to 17.

There were solid gains in many large-cap NASDAQ issues today. Cisco Systems (CSCO) picked up $2.44 to $54.81. Intel (INTC) rallied $3.44 to $37.44. Dell (DELL) started a comeback by rising $1.50 to $20.06. Oracle (ORCL) staged an advance of $1.88 to $31.94. Applied Materials (AMAT) soared $6.75 to $50.94.

Sandisk (SNDK) enjoyed a huge day, as it rallied $15.69 to $68.00. The move can be attributed to Sandisk joining the S&P MidCap 400 Index. Traders also snapped up shares of Broadcom (BRCM). The stock finished with a gain of $14.63 to $142.81 on the news it was entering into a networking agreement with 3Com (COMS) today.

Sun Microsystems (SUNW) was the most active NASDAQ stock of the day, with over 51 million shares traded. The stock was hit due to cautious comments about the company's upside potential from Goldman Sachs and Bank of America. SUNW finished the day down $4.94 to $34.00. Of course, persistent accounting irregularity rumors didn't help matters, either

Profit taking placed Emulex (EMLX) onto the biggest decliners list as the stock fell $10.81 to $169.13. PMC Sierra (PMCS) slipped $6.50 to $130.50. However, JNI Corp (JNIC) was the biggest decliner of the day, as the company issued an earnings warning. JNIC believes that earnings will be around $0.18 to $0.22 a share. The consensus estimate is for $0.20. As innocuous as the warning seems, shares of the fiber optic channel manufacturer were nevertheless pounded $28.25 to a close of $34.75.

In the old world, the Dow Industrial Average (INDU) climbed slightly, as the blue-chip barometer appeared to take a break from recent advances. The INDU finished the day up 12.89 to 10,725.8. The Dow had traded as high as 10,791.78 before pulling back. There was good volume today, with 1.21 billion shares traded. Advancers beat decliners by a ratio of 17 to 12. Breadth was strong with 162 new highs and only 48 new lows.

Microsoft (MSFT) helped the Dow today with a gain of $3.63 to $58.06. JP Morgan (JPM) led a strong financial sector by rallying $9.50 to $156.75. Citigroup (C) was also strong with an advance of $1.38 to $52.88. American Express (AXP) rounded out the financial triumvirate with a gain of $1.69 to $56.50.

Hurting the Dow was the drop in Wal-Mart (WMT), which fell $3.06 to $51.38 after another slow weekend of holiday sales. Coca-Cola (KO) was also weak, as it dropped $2.56 to $58.31.

The broader markets also moved higher today. The S&P 500 (SPX) gained 10.3 to 1380.2. The S&P 100 (OEX) picked up 6.92 to 733.98. The NASDAQ 100 (NDX) surged 78 points to 2973. Even the small-cap Russell 2000 (RUT) staged a nice rally of 8.16 points to close at 487.23.

The PHLX Semiconductor Index (SOX) shot up 44.4 points to 682.75. Biotechnology stocks were also strong with the BTK moving up 17.12 to 702.8. Bank stocks (BTK) soared 23.72 points higher to 873.76. Brokerage stocks (XBD) were similarly strong and posted gains of 23 points to 585.64.

In other stock news, Shire (SHPGY), a British pharmaceutical company, announced the acquisition of Canada's BioChem Pharma (BCHE) for $4 billion in stock. The combination of Shire's marketing strengths with BCHE's research capabilities could be a good mix. Based on Friday's close, the deal places a value of $37.00 a share on BioChem. BCHE finished the day up $2.50 to $29.00 on heavy volume of 8.25 million shares.

The technology stock earnings warning parade continued after the close. Advanced Micro Devices (AMD) advised that fourth quarter earnings are likely to fall into the $0.50 to $0.60 range. Analysts had been looking for $0.68. The company made the now quite familiar observation that PC sales are slowing. In addition, Dallas Semiconductor (DS) claimed that sales in the third quarter will be 5 to 7 percent below expectations. The result should be earnings in the $0.34 to $0.37 range. Analysts had expected profits of $0.44. Despite the disappointment, AMD finished Monday's trading with a gain of $1.25 to $17.31 and Dallas Semiconductor closed the day with a gain of $2.00 to $34.00.

Another continuing story has been the harm declining ad sales has had on the Internet sector. The latest victim is DoubleClick (DCLK). After today's close the company said that it will fail to obtain its goal of becoming profitable this quarter and will likely post a loss. DoubleClick traded down $0.06 to $11.94. The stock's 52-week high is $135.25.

Tomorrow's trading could be dicey. It is hard to predict what the reaction will be once the Supreme Court decision is handed down. Today's earnings warnings did not really hurt the market, as the news was anticipated. If the NASDAQ can continue to ignore earnings warnings, hold above 3000 and re- establish this price as major support, then the rally may extend for the rest of the week.

Longer term, we like what the NASDAQ's MACD is telling us, as this indicator is in recovery mode and has been a good recent indicator for predicting market swings. The RSI is currently neutral, as it has come substantially off its oversold indication. If 3000 holds, then 3200 could be the next challenge.

As for the Old Economy, the DOW is still the stronger of the two widely watched indices. The DOW is in consolidation mode between 11,000 and 10,500. A retest of the bottom of this range could occur if the DOW slips below support provided by today's low of 10,670. A move above 10,800 could result in a test of the 11,000 resistance. Just like the NASDAQ, the DOW's MACD is rising and looks pretty good for longer-term bullish prospectors.

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

Jim Booth
Research Analyst