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Power surge has Industrials above 9,400

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While there were no circuit breakers needed in today's session, traders returned from a 3-day weekend, in part due to Thursday evenings blackout which had many traders taking Friday off, to push the Dow Industrials above 9,350 resistance and to a new 52- week closing high as chip-giant Intel (NASDAQ:INTC) $26.19 +4.55% lead the Dow component gainers list, which had the Philadelphia Semiconductor Index (SOX.X) 414.85 +5.15% also closing at new 52- week highs.

While volume levels doubled from Friday's 620 million share rate at the NYSE and NASDAQ's 630 million shares, which were the lightest volumes of the year due to remaining power outages, there were few sellers to be found in today's session, with only the AMEX Gold Bugs Index ($HUI.X) 177.86 -2.39%, Utility Index (UTY.X) 272.13 -0.6% and Pharmaceutical Index (DRG.X) 310.32 -0.06% posting losses.

Optimism in Japan toward a recovering U.S. economy boosted the Nikke-225 above the 10,000 on a closing basis for the first time in over a year and helped give lift to broader technology here in the U.S. with the Semiconductor Index (SOX.X) 414.85 +5.15% leading gains, Disk Drive Index (DDX.X) 117.37 +3.84%, Networking Index (NWX.X) 192.23 +3.49% and CBOE Internet Index (INX.X) 141.32 all higher by more than 3%.

Today's gains were not just among technology sectors as the Morgan Stanley Cyclical Index (CYC.X) 555.98 +1.63%, which has set 3 consecutive 52-week highs did so again today, with Dow components General Motors (NYSE:GM) $38.05 +2.56% and DuPont (NYSE:DD) $44.75 +2.56% matching each other's percentage gains with some analysts mentioning both stocks as more stable ways for investors to play a longer-term trend in alternative power and fuel cell technologies.

More speculative names like Ivanhoe Energy (NASDAQ:IVAN) $1.70 +68%, which provides technology to convert natural gas to liquid form, along with Beacon Power (NASDAQ:BCON) $0.92 +142%, which develops and provides power for communication networks, computers and commercial facilities exploded on heavy volume with Ivanhoe trading 43.6 million shares, just under one-half its public float of 99.4 million shares, while Beacon Power challenged Intel (INTC) and Lucent (NYSE:LU) $1.88 +1.62% for today's most active with 49.4 million shares traded, enough to have that stock's public float of 42.4 million shares and total shares outstanding of 42.8 million trading hands in a single session!

The consumer-sensitive S&P Retailing Index (RLX.X) 357.07 +1.95% rose to another 52-week high and closes in on the 365 level, which this sector hasn't seen since March of 2002. Retailing giant and Dow components Wal-Mart (NYSE:WMT) $58.92 +1.41% gained 82 cents, moving to a 52-week high after saying a strong back-to- school shopping season may have its same-store-sales for August showing the biggest gain in 14-months, and while last week's blackouts across Northeastern parts of the U.S. and Canada had 200 of its stores closing at the height of the power failure, those closures would not hurt its sales or profit results. Rival Target (NYSE:TGT) $38.72 +2.37% also said same store sales at its discount stores were tracking above its August plan for a gain of 4% to 5%.

Tomorrow's University of Michigan sentiment survey for August will be scrutinized when it is released at 09:45 AM EST tomorrow morning. Investors and economists hopes it will add to a picture of improving economic fundamentals. The survey was originally due last Friday, but was delayed due to the blackout that affected parts of the United States last Thursday. Economists are forecasting a reading of 91.5, which would be above July's final reading of 90.9.

Other economic data scheduled before tomorrow's opening bell comes in the form of July Housing Starts (1.790 million annual rate forecast) and July Building Permits (1.803 million annual rate forecast). Then at 02:00 PM EST, the Treasury budget is expected to show a deficit of $53 billion in July, with outlays rising 9% from a year ago due to increased defense and unemployment spending, while receipts are forecasted to fall 7% versus year-ago levels given tax cuts and reduced payroll withholdings.

Despite expectations for a growing deficit, the U.S. dollar was strong against major foreign currencies with the U.S. Dollar Index (dx00y) 97.36 +0.73% looking to challenge its summer highs of 97.55. The September euro futures contract (eu03u) 1.1138 - 0.92% fell to its lowest level since mid-July, while September yen futures (jy03u) 0.008374 -0.23% slipped more fractional as Japanese investors look less willing to relinquish Japanese assets on thoughts of an improving economy in the U.S.

Treasuries also found buying with the shorter-dated 5-year YIELD ($FVX.X) falling 3.9 basis points to 3.359%, with its September futures contract (fv03u) 111'215 +0.16% gaining 6/32. The benchmark 10-year YIELD ($TNX.X) fell 5.1 basis points to 4.477%, with its September futures contract (ty03u) 111'030 +0.33% gaining 12/32, while the longest-dated 30-year YIELD ($TYX.X) slipped lower by 4.3 basis points to 5.361% as its September futures contract (us03u) 105'24 +0.62% gained 21/32.

Pivot Analysis Matrix

Many of the Dow Industrials (INDU) 9,412.45 +0.97% old economy, or deeply rooted cyclical stocks trudged higher in today's session, and has the Dow Industrials breaking out of its recent 2-month range. In my opinion, this will have investor optimism also breaking out of a range and at 52-week highs. As it would relate to any of the levels in the pivot matrix, in pink I've highlighted all of our MONTHLY R1 pivots in the various equity indices as being in play. The S&P Banks Index (BIX.X) 305.16 +0.13% traded a 52-week high of 317.94 on July 14th.

The only sign of bullish caution I saw today was that financial sectors lagged today's move higher, with more notable weekly lagging among the two banking indices. However, just as we've seen the NASDAQ-100 Index (NDX.X) 1,284.81 +2.48% and its Tracking Stock (AMEX:QQQ) $31.97 +2.56% rebound strong from last week's relative lows, giving some power surge to the SPX/OEX and Dow Industrials, a break above BIX.X 307.60 might be a shock that bears can't withstand, even if market volumes are light. I currently consider the S&P Banks Index (BIX.X) 305.16 +0.13% as having support at the 297-298 area, with resistance at MONTHLY Pivot of 307.60 and WEEKLY R1 of 306.75.

Dow Industrials (INDU) Chart - Daily Interval

While the stronger dollar would tend to hurt some of the Dow Industrials that have been benefiting from the weaker dollar in recent months, its would certainly appear its this very index and stocks within it, especially the deeper cyclicals that may be attracting the bulk of foreign capital that has been coming back into the U.S. markets.

It would be evident by today's trade and break to new highs that higher Treasury YIELDS have had little negative impact on investors hunger for many of the Dow components and while light volumes give hint there's little interest in stocks at current levels, the price action unfolding gives me the observation that any disinterest is among sellers.

Today's trade saw no net change in the very narrow Dow Industrials Bullish % ($BPINDU). Still holding "bull correction" status at 80.00%.

S&P 500 Index (SPX.X) Chart - Daily Interval

The SPX challenged the psychological 1,000 level all afternoon and if not for some lagging in the financial sectors, most likely would have closed the 1,004 level.

At the end of this weekend's "Ask the Analyst" column I posted some data I had gathered from the Mortgage Bankers Association and weekly mortgage survey statistics http://www.OptionInvestor.com/ask/ask_081703_1.asp . Now, I would think that the data shown in July, and slight drop-off in mortgage applications, but still strong purchase index reading for the MBA's July 16 and 23 reports may already have been factored into tomorrow's releases of July new home starts and for any type of indication of a NEGATIVE response to that data, the SPX would have to fall back under the WEEKLY Pivot of 989.

Today's trade saw a net gain of 1 stock to a point and figure buy signal in the broader S&P 500 Bullish % ($BPSPX) as it inches higher at 74.8%. Still bull correction, but edging up from its recent relative low reading of 73.4% set on August 7th and 8th.

S&P 100 Index (OEX.X) Chart - Daily Interval

Today's close above a downward trend we've been using for several weeks gives a bullish look to the OEX. The last time the OEX was able to close above the 502.63 level came on July 25, when the OEX faltered back to 497, made a spike move higher to 506.65, just above our new WEEKLY R2, then got hit back lower to the recent lows near MONTHLY S1 of 485.34. With this past trade action, I would now have to deem the WEEKLY R2 of 506.08 as a rather critical near-term level of resistance for bears, if not my recent thoughts that the SPX/OEX are to show a 1.5 step back for every step forward. Today's trade in the Dow Industrials already has me questioning this type of move lower as many of the deeply rooted economic sectors continue to power higher.

Today's trade saw no net change in the narrower S&P 100 Bullish % ($BPOEX). Status remains "bull confirmed" at 82% for a third- straight session, and would still take a reading of 78% to slip lower into "bull correction" status.

NASDAQ-100 Tracking Stock (QQQ) Chart - Daily Interval

I was much more amicable to a bullish trade in the QQQ from the $30 level in "bear alert" status with the thinking the Q's were near-term oversold and that some strength in the INDU/SPX/OEX might have the QQQ getting a bounce back near $31.00, but $31.97!? No way! I checked NASDAQ to see if I could get an up- to-date reading on short interest, which had been building to this year's high of 250 million shares. While very hesitant to trade the Q's bullish here, an aggressive bull looking for some short-squeeze potential, with the Dow Industrials (INDU) breaking to new highs would look for further bullishness in the Dow to lend to positive market psychology, play the QQQ long above $32.15, but follow with a trader's stop at $31.55, which would be snug below this week's R1 of $31.63, where I was looking for FIRM resistance.

Bears looking for renewed weakness would also be looking for bearish entry back at $31.55, with a stop just above $32.15.

In after-hours trade, the QQQ has been creeping higher, with last tick at $32.05.

Today's trade saw a net gain of 2 stocks to point and figure buy signals in the narrower NASDAQ-100 Bullish % ($BPNDX). Still "bear confirmed" at 67%, but off its recent August low readings of 64%. It would currently take a reading of 70% to reverse up into "bear correction" status.

Jeff Bailey

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