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Index Wrap

Happy Days Are Here Again!

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       10-16-2001           High     Low     Volume Advance/Decline
DJIA     9384.23 + 36.61  9411.14  9298.70  1.2 bln   1965/1139
NASDAQ   1722.07 + 25.76  1722.85  1690.54  1.8 bln   2169/1434
S&P 100   564.14 +  3.71   566.83   558.74   Totals   4134/2573
S&P 500  1097.54 +  7.56  1101.66  1087.13
RUS 2000  434.53 +  4.44   434.54   430.09
DJ TRANS 2297.72 + 34.46  2302.68  2262.94
VIX        35.04 -  2.32    37.91    34.95
VXN        64.01 -  2.23    67.52    63.98
TRIN        0.90
Put/Call Ratio       .70

Happy Days Are Here Again!
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Well, not really, but it sure feels good to see the black sheep NASDAQ close at 1722, its highest level since September 5th. All the better for bears ultimately waiting to short it. Still, it may be a bit of a wait despite overbought chart signals, as bullish percent charts went "bull confirmed" today. From that, unusual as it sounds, many will become dip buyers again and become profitable in the process. But it will not last forever.

As for the broader markets and to some extent, the NASDAQ-100 too, action has chopped and flopped sideways this week making it tough to profit by anyone but a nimble daytrader able to beat the bid/ask spread on both puts and calls. With two "inside" days in a row on the Dow, it has been tough even for them.

What is precipitating this lack of movement? The obvious answer is indecision. But Why? Amidst the backdrop of the lowest production utilization since 1983 and the longest production decline on record since 1944-1945, the "bad" is countered with in- line earnings, more or less, on companies airing their quarterly laundry. There have been no drastic surprises as the bar has been set pretty low.

While Caterpillar (CAT) and Wells Fargo (WFC) were issuing downside surprises, Maytag (MYG), Johnson & Johnson (JNJ), Kraft (KFT), and Schwab (SCH) were issuing upside surprises of their own to counter the negative.

Of course, there was also the uncertainty of earnings from IBM and INTC tonight that slightly dulled any bullishness in the markets. Speaking of which - IBM reported earnings in-line with estimates but to their good fortune noted that international orders were surprisingly strong. To boot, while acknowledging that Q4 would be tough, they affirmed guidance (a silly notion since they invented the number in the first place) and added that their software division was gaining market share. Overall, positive conference call with IBM trading over $106 following a close at $102.11. If that sticks by tomorrow morning, that will be good for 20 points of gain on the Dow at least and more from whomever else it can drag up the charts on its coattails.

INTC, sorry to say, but not surprisingly, did not fare as well. Lipstick for the pig anyone? On the conference call, they noted only moderate anticipated shipment growth in microprocessors but stressed they needed 30-45 days of time to become more confident. Translation: We have no clue how we'll do.

Also from the call, it offered revenue guidance at the low end of consensus range but added that expectations have been tempered further by flagging consumer confidence and a weak economy. Translation: Again, we have no clue how we will do.

Oh yes, it also noted that its chipset and processor inventories are below targeted levels and that they were working to bring them back up to prescribed levels. Sounds good until we consider that INTC has been dumping P3 chips so they can really push the new P4 (at higher prices), which does not offer an appreciable difference in performance over the P3 for most users. Translation: "We are working hard to fill our warehouses with product we will have a hard time selling."

It's akin to the old metaphor about the Chicago Fire of the early 20th Century and asking, "Other than that Mrs. O'Leary, how is your cow?"

In the overall scheme of things, futures are up to 1104, four points over fair value largely on the strength and coattails of IBM. But there is a lot of dark before the dawn. While we may see a opening pop tomorrow, charts are mixed and closer to overbought than oversold and stand a fair chance of falling from there in a classic pop and drop from the morning open.

What do the charts say? The same. Mixed short and long-term indicators are telling us direction is fleeting, long-term up, but tiring. Meanwhile volatility remains high as measured by the VIX at a very steady 35.02.

Dow industrial chart (INDU):

Weekly still shows an up-trending candle pattern confirmed by rising stochastic - resistance at 9500. Daily too has shown a stair-step rising pattern - note the green circles on the daily candles indicating consolidation for a few days followed gains to the next level. The danger here is that it finds resistance at the upper Bollinger band though it is 225 points away - bullish for now but closer to the end of the cycle. 60-min chart is a bit more interesting - indecisive but moving up to oversold. It broke its declining trendline showing some bullish fortitude but has again found resistance at the historical resistance line (both in red). Yet, we can see a contradicting bear flag forming by the lines in green indicating a near-term drop in the not so distant future. Analysis paralysis? It is not just us, the market says so too.

NASDAQ-100 chart (NDX):

Same story but a little more overbought here on the NDX. Same consolidations and quick moves up followed by more consolidation. Bear flags are forming at resistance as oscillators meander toward overbought on shorter-term charts. Still, daily and weekly candles display a bullish pattern that say (dare I say it?), "Buy the dip". Your time horizon will depend on how you play this one. Short-term looks down, Long-term looks up.

S&P 500 chart (SPX):

For the SPX, probably the best measure of the broad market, the same. But note weekly candle resistance at 1100 as the stochastic still says bullish - tug of war here. Daily candles say bullish stair step up. Yet we see inklings of bearish divergence even though the upper Bollinger band appears willing to accept higher candle levels. Meanwhile short-term charts suggest a breakdown as foretold by historical resistance in red and a bear flag in green. Even that conflicts with the meandering but rising stochastic for the same time frame.

Anybody confused yet? Here's a summary. Long-term charts still have room to run if intermediate resistance levels can be cleared. Stochastics suggest that is likely. The daily charts stepped increases suggest that too, but not without some relief of the overbought condition of corresponding stochastic. Even daytraders are faced with conflict given the chance of a pop on IBM's coattails vs. a possible downward move indicated by bear flags on the 60/30 charts. In short there are plenty of technicals that could cause traders to line up on either the side of the bulls or the bears.

One thing is for sure - volatility is the order of the day and will make for a drastic move or two before the end of the week as 5/10 min oscillators are played for 200-500% gains or 100% loss by those willing to venture into trading expiration week. This is the OK Corral - bring an itchy trigger finger and the ability to dodge hot lead!

See you at the bell.

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