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Index Wrap

Here I Go Again!

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       11-29-2001           High     Low    Volume Advance/Decline
DJIA     9829.42 +117.56  9829.42  9691.39  1.3 bln   1961/1155
NASDAQ   1933.25 + 45.28  2933.46  2889.29  1.9 bln   2271/1394
S&P 100   585.28 +  6.36   585.39   577.13   Totals   4232/2549
S&P 500  1140.20 + 11.68  1140.40  1125.51
RUS 2000  463.33 +  9.63   463.33   453.70
DJ TRANS 2485.60 + 27.65  2489.20  2459.56
VIX        26.26 -  1.49    28.56    25.89
VXN        48.95 -  3.26    53.27    48.95
TRIN        1.29
Put/Call Ratio       .78

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Rant! Well, not really. I could talk a blue streak about the state of the economy, weak earnings with no visibility, stock market bubble, unemployment, corporate accounting hocus-pocus in defiance of GAAP, bubble-brained analysts, the prospect of deflation, over-extended debt loads, and the Fed's flood of liquidity with induced irrational exuberance, but I won't. Of course, now that you mention it, I already have!

Anyone not reading this column for the first time today would immediately recognize the above as the rambling of Fundamentals Guy, who has had to condition himself to ignore fundamentals in the day to day trading environment in order to make a buck - no easy task. Divorcing what we see from what we believe and trading the former is one of the hardest things we must do as traders. But that is what buys the groceries. In the words of the late, great J.D. Rockefeller, "It is better to consider evidence than to defend a position". Thus, no long rants tonight about what I believe. Rather here is what I see.

In a sentimental sense, there were two forces at work today in the early going that kept the markets pretty flat. The first economic number to be released prior to this morning's open was the initial jobless claims figure at 488K, which was about 58K more than expected. Apparently business and production was tougher than anyone thought and the continued claims reached a new 18 year high at over 4 million in search of a job - big negative, as both argue for continued upward trend in the recession.

But never fear. As traders, we were happy to simultaneously note that durable goods orders were up a whopping 12.8% compared to estimates of an anemic 1.8% gain. Most of the gains came from commercial aircraft orders, defense spending, and new car sales, all in the wake of the 9/11 attacks.

Those two tended to counter each other in the early going. While new home sales also came in higher at 880K (30K higher than anticipated), that had little affect on the market following its 10:00 a.m. release. Equities remained positive with slight a bullish bias that resulted in gains across the board today.

But it was not until the final half hour that the combined effects of short covering, program buying, President Bush's positive comments on the war front, and even the realization of limited exposure noted by most companies in relation to the Enron financial implosion yesterday, sparked a rally that took the indexes to the highest points of the day. Final score: Dow +117 to 9821; NDX +42 to 1598; and SPX +11 to 1140.

Conclusion: Rumors of the bulls' death based on yesterday's selling are greatly exaggerated. When the market's failed to break down from yesterday's closing levels - they had all day to do so - shorts rightly realized that their day of sunshine had not yet arrived and ran for cover despite the bulls' weak hand of yesterday. A breakout of today's trading range into the close accompanied by strong volume supports that theory.

We'll get to the charts in just a minute, but keep this thought in mind as we do that. Yesterday's selling had most candles reaching down to touch their ascending bullish trendlines, which I outlined in the Sector Spotlight. Today was the make or break day. Bears itching for a pound of sirloin to grind went short in the belief that they would get their breakdown today - sort of the opposite of catching the falling knife. Toward the end of today when the anticipated breakdown had not arrived, they began to cover proving once again that bulls still control the battle of sentiment, irrational though it may be.

As Jeff Bailey notes frequently, "Trade what you see, not what you believe". We know what we believe. Now what do we see? There is a common theme here - the ascending trendlines and 20-dma's continue to act as support. Take a look.

Dow Industrial - daily/10-min (INDU):

Well how about that - the ascending daily trendline held intact once again proving the bulls are in control. Not only did it nail the line almost perfectly, it simultaneously used the 50% retracement as a springboard. That is the broader prevailing trend despite a falling stochastic. The 10-min chart for the traders among us showed a neutral wedge formation that promised a breakout, though we did not know just when. The short cover rally gave us our answer and only those quick on the trigger got to play the breakout.

Bulls should not get complacent though. While the trend may continue as it has for the past eight weeks, not far off on the daily chart is the descending 200-dma, the negative sloping upper Bollinger band, and the 62% retracement - a triple whammy that promises thick resistance all around 10,100 - 10,175.

NASDAQ-100 - daily/10-min chart (NDX):

The NASDAQ tells the same story on the daily chart - ascending trendline holds, as does the 50% retracement bracket. The 10-min chart here is anything but neutral though, thanks largely to gains in the technology issues stemming from the CSFB conference. Personally, I'm leery of much further gains here because the SOX components have an elephant in their cherry tree. Namely, issues have been bid up in anticipation that INTC will deliver a warm, fuzzy analyst update on December 6th that is pre-supposed to surprise to the upside. Meanwhile the only component getting whacked today was BRCM who gave a very frank appraisal of industry economics, and could offer no guidance contrary to expectation going into the presentation. That major disappointment among analysts took BRCM from $48 to $44 in about 40 minutes. But I think BRCM is a barometer for the whole semiconductor industry.

The point is that semis could easily drag this index back down in short order since a big player in the industry is telling it like it is. However, anticipated puffery from INTC could keep things moving until December 6th when they must have their smoke and mirror show perfected. But that's all fundamental stuff, so take it with a grain of salt. Charts say that bulls still rule.

S&P 500 daily/10-min chart (SPX):

SPX, the broadest index is quite similar to the Dow - support held at ascending trendline and 50% retracement. Neutral wedge resulted in a short covering breakout and prevented bears from getting traction. Overhead is a ways off at the 200-dma, upper Bollinger band, and 62% retracement, all around 1175. There is room to run.

So what of tomorrow? VIX hovering around 26 means nothing except to say there is still mild skittishness by historical standards, which in a broad brushstroke should keep the bulls climbing a wall of worry. Adding to that, techs could remain strong as the CSFB conference provides a soapbox for traveling snake oil salesmen pitching the benefits of "sure thing" recovery in 2002 full of EBITDA, pro-forma earnings, and one-time charges - nothing more than a cloak for "losses", but investors want to believe those soothing words right now. So why fight it? Trade it!

Let's not forget either that the Fed has a policy announcement on December 11th, which is likely to spawn more rate cuts in light of the economic weakness outlined in the beige book. In short, the bull escaped the jaws of the bear and the bear slunk back to its cave at the close today. Choppy with a bullish bias looks to be the order of the days to come. Still a daytrader's and not a long-term investors market. Trade to win and avoid the temptation to hold overnight.

See you at the bell!

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