WELCOME TO THE NASDAQ DECEMBER DISCO

Just when you think the music has stopped, someone steps up and throws another coin in the slot. You can thank Microsoft for the coin that saved this party, at least for today. Don't worry about paying them back though, they added $50 billion to their market cap today, so they're good for it. That's right folks, $50 billion. Mr. B. Gates added a cool $7.7 billion to his personal fortune. Not bad for a day's work. And they say professional athletes are overpaid! So, why the sudden surge in fortune? The stock added $9.56, closing above $100 at an all-time split-adjusted high of $108.25. Next logical question- why? Could it be the rumors that surfaced yesterday regarding a deal soon to be forthcoming with the Justice Department? Maybe, but probably not. Could it be the deal announced with Excite@Home (ATHM) regarding Excite's development of broadband and portal applications for the Microsoft TV platform? News of this type comes out of the Redmond, Washington-based Company on a daily basis, so that couldn't have done it. That leaves the little announcement concerning Windows 2000. Windows 2000 is the newest MSFT product set for use in business networks and workstations. The new software will eventually replace Windows NT. In addition to the normal office environment, Windows 2000 is targeted at the "dotcom" Internet companies, hoping that the operating system will be embraced, thus allowing MSFT into one of the few software markets it doesn't already dominate. The release is a year late, but investors didn't seem to care, as their buying propelled the Dow and the Nasdaq composite to .5% and 1.4% gains respectively. They needed the boost, as this is a crucial time for the entire market after the last several trading sessions. Many investors were starting to seriously question whether we were on the verge of a pre-Christmas correction and money was starting to run scared. It might be premature to say this, but the MSFT news, along with a few other juicy news items (we'll get to them later) might have saved our widely anticipated holiday rally. If so, the music will go on and everybody is free to carry on with the dance.

Speaking of the Nasdaq, it proved itself today with another bounce off a crucial support level. That's right, it bounced off the 3500 level 90 mins into trading, further solidifying that level as key support. The move down and back up was led by the high techs, in particular the semiconductors (SOX), which reversed the recent slide of almost 15% to finish up for the day almost 3%. In terms of the final numbers, the COMPX closed up +50.27 at 3621.93. Volume was heavy once again at 1.6 billion, and decliners managed to beat out advancers 24-18. The advance/ decline continues to weaken, as does the new-high/new-low (90-181). You've heard it before, but we will say it again. This is troubling and will eventually lead to a problem if the rally doesn't broaden out. Winners for the day (aside from MSFT) included; ORCL +13.44, INTC +6.50, DELL +2.13, ATHM +1.25, CHKP +7.56, AAPL +2.13, ALTR +2.25 and MXIM +4.44. On the flip side, shares of SUNW, YHOO, CMGI, WCOM, AMAT and CSCO all failed to participate in the rally.

As for the Dow, it finished up 65.15 to close at 11,130.51. Volume was strong at 1.03 billion shares. This marks the third time in history that we have had back-to-back billion share days on the NYSE. The increase in volume recently can be tied to money flow into the market to some extent, but is probably due more to the fact that we are approaching a triple witching Friday later this week, so traders are actively unwinding positions, causing a surge in volume. All in all, despite the up day, breadth remained negative, with decliners beating advancers 14-16. New-highs/new- lows (49-365) maintained their negative pattern. The up vs down volume continues to point to narrow leadership as well. As for the leaders, you guessed it, MSFT and INTC led the way. Also helping the cause were companies like HD +1.00, EMC +1.63, LU +0.06, MU +3.63, GM +0.88, AA +4.31 and IP +1.56. Keeping the winners in check were; HWP -2.25, IBM -2.63 and AOL -1.44.

The other indices did well too. The S&P 500 was up 9.86 to 1413.03, while the Transports and Utilities managed gains as well. The SOX added +17.54 and the Russell 2000 came in slightly lower, down -1.44. Bond traders appeared to take a rest for the day after yesterday's selloff, despite the fact that the Industrial Production and Business Inventory numbers were positive. The bond price finished down -8/32 with a yield of 6.33%.

On to the other news that helped today's rally. INTC was up on news that they will soon be releasing a faster Pentium III chip to combat AMD's Athlon chip. The bigger news was that coming out of Oracle (ORCL). They released their earnings after the market yesterday, beating expectations by $0.04. Shares soared in the aftermarket, continuing into today's trading. They received several upgrades as well as having Merrill Lynch revise their price target on the stock to $100 from $85.

Having a negative impact on the Nasdaq were shares of Cisco (CSCO) after a report came out on the wire indicating that the Company had warned of slower growth in the future. This in fact had been taken from the Company's 10-Q filing, and is more or less a statement of indemnification often found in such filings. Despite this, traders were spooked, selling the stock early, before a number of analyst and the Company clarified the mistake. The stock traded off heavy in the morning before recovering to finish down -2.06 for the day.

Another Company suffering a hard day was Verity. They were cut in half today after missing both earning and revenue numbers in their Q2 earnings report late yesterday. This brought on multiple downgrades and left shareholders with lighter pockets. VRTY closed down $22.88 to $26.13.

On a more positive note, CMGI, the Internet VC firm announced earnings this afternoon, posting a top line of $123M vs. a consensus estimate of $46M and a year ago number of $37M. This prompted several upgrades, which the Company trumped by announcing the anticipated 2:1 stock split. Despite finishing the day down -6 at $199.75, shares traded as high as $232 in the aftermarket.

As for tomorrow, there are numerous companies reporting , the most notable of which are; APOL, AIR, BMET, JBL, ADBE, FDX and NKE. On the economic front, the Trade Balance report and initial jobless claims numbers are due out. A combination of bad earnings and economic numbers could definitely reverse today's gains in the market.

So, where are we after today? It is hard to tell whether today's action was the disconnect between the bond and equity markets we spoke about earlier this week or not. If it is, this market went a long ways towards reassuring investors for the short term that the current (crucial) support levels are indeed intact and strong, especially in the Nasdaq. This will give us the holiday rally if it proves to be true. If the fear continues to linger regarding what would seem an inevitable move on the part of the Fed after the New Year, then today's level will be tested once again. If this occurs, we may not have another MSFT ready to step up to put another coin in the jukebox. For now, we continue to hear the music and the "Nasdaq disco" remains open for business.

Louis Horkan
-Chief Editor