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Stocks hover near best levels of session

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After a mixed to higher open, stocks have neared their best levels of the session as the Dow Industrials (INDU) post a 140 point gain to 10,083, while both the S&P 500 ($SPX.X) 1,070 +1.5% and NASDAQ Composite (COMPX) 1,643 +2.63% build on earlier bullishness.

This morning's higher open looked to be in jeopardy early, but news out of Washington D.C. that the United States and Russia had agreed to a treaty that would reduce their nuclear stockpiles to a range of 1700-2000 warheads from approximately 6000, has stocks finding buyers. While this agreement had been anticipated, there was some doubt as to whether some crucial issues would be resolved in time to sign the treaty during President Bush's visit to Moscow.

The NASDAQ-100 Trust (AMEX:QQQ) $30.78 +4.05% has big tech on the mend as shares of semiconductor equipment maker Applied Materials (NASDAQ:AMAT) $25.60 +8% jumps ahead of tonight's earnings report. Earlier today, Goldman Sachs raised estimates due to 1) stronger than expected order recovery, 2) semiconductor April book-to-bill released this Thursday and 3) news, events, and price performance. Goldman raised FY02 estimates to $0.21 from $0.19 and FY03 to $0.85 from $0.75. Both revised higher estimates are above current consensus. AMAT is scheduled to report earnings after the closing bell with consensus currently looking for $0.02 a share.

The Semiconductor Index (SOX.X) 503 +4.63% leads sector gainers, with the GSTI Software Index (GSO.X) 124.78 +4.13% running a close second. Software giant Microsoft (NASDAQ:MSFT) $52.71 +5.29% has just traded its session high and is helping drive gains in both the GSO.X and QQQ.

Earlier today, Prudential came out in defense of Microsoft (MSFT) saying that it was skeptical about the Financial Times article this morning stating that Microsoft faces much harsher antitrust action in the EU than it does in the US. While Prudential does see Microsoft facing potentially serious penalties in Europe, the firm didn't give the thought of "harsher antitrust" a high probability of coming into play given the "truly extraordinary" amount of spin-doctoring and press manipulation being carried on both sides.

Treasury watch

As the session progresses, Treasuries continue to see selling as the YIELD on the benchmark 10-year ($TNX.X) jumps to 5.215%. Last week I felt a move above the 5.25% level could see stocks find some firming bids.

I'm looking for stocks to hover near current levels into the close. Bears may be a little edgy into tonight earnings from Applied Materials (AMAT) given what took place last week with Cisco Systems (NASDAQ:CSCO) $15.43 +0.05% earnings report.

While Tuesday's AMAT earnings will be closely monitored, Wednesday's IBM (NYSE:IBM) $81.48 +2.25% analyst meeting will also be closely monitored and have technology stock traders a bit edgy and bringing near-term volatility into the markets.

Jeff Bailey
Senior Market Technician
Option Investor

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