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Market Wrap

Get out the oxygen masks the Internet stocks have entered the stratosphere.

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Get out the oxygen masks the Internet stocks have entered the stratosphere

Not only the Internet stocks but the market in general started the Santa Claus rally early today. The tech sector roared ahead to a new all time high as the Nasdaq posted a +51.88 gain. (300 D.E.P) The tech blue chips posted strong gains. Dell +4 after announcing a deal to put AOL version 4.0 on its desktop PC boxes. AOL also gained on the possibility of gaining new subscribers by the thousands as a result of this deal. AOL +12.50. Cisco +4.25, IBM +5.06, hit new all time highs.

The chip makers continued to roll with INTC +2.69, RMBS +2.88 as the likely winners from the current PC boom.

The highest of the high of course was the Internet sector. Positive comments from a Morgan Stanley Dean Witter analyst in Barrons set off another feeding frenzy. The AOL/DELL deal did not hurt either. Onsale announced a deal with Yahoo to link their sites. You need a flow chart to understand all the linkages and cross platform dependencies but the key is added value.

Check out these stats:

AMZN +32.06 splitting soon
CMGI +26.06 splitting soon
YHOO +35.19 split candidate
EBAY +44.13 no options
ONSL +24.31 no options
BRCM + 7.88 group laggard
NSOL +43.00 no options

These gains are incredible but you have to have a Teflon stomach and a big checkbook to play. The best analysis of a real Internet play in our minds is CSCO. They were upgraded today as well. New price target is $120. Without Cisco there would be no Internet. Flash !! Cisco is actually making money. Real earnings! CSCO is a current play and a split candidate.

Investors celebrated the impeachment with a buying party. The "relief rally" was the result of the avalanche of support, gaining speed, for a censure not a trial. Rumors abound that the process will be thrown for a loss with a vote not to hold the trial. This vote only requires a simple majority of 51 votes. Republicans number 55 but some are rumored to be ready to jump ship to avoid a long, time consuming, battle.

The Dow jumped out of the starting gate today led by five components that set new highs today. IBM, T, WMT, MCD, GE broke the new ground.

The only sector not taking part in the rally was the already weak oil stocks. News that the bombing in Iraq had not stopped the flow of oil caused another drop in oil prices to the sub $10 level. Brent crude was trading at $9.85 per bbl at midday.

The rally was impressive until the last 30 min. We jumped to +160 at the open and held almost all day. The last 30 min saw a 50% drop as traders took money off the table prior to the Fed meeting tomorrow. While it would be a disaster and completely unthinkable for the Fed to raise rates, traders still hedge their bets by cashing in some of their chips in advance. There is still a 22% chance that they could cut rates again but nobody expects it to happen.

Volume was good today and considerably more than you can expect for the rest of the week. Trading closes early on Thursday at 1:PM but starting tomorrow the lack of traders will be apparent.

I still urge caution on starting new positions before Christmas. While it appears we are in full rally mode the advance decline line is still falling. Advances today barely outpaced decliners at 1771/1335. With the big jump on high volume we should have been at a 2:1 level for real confirmation. The Russell-2000 broke 400 again but still has not shown a positive trend. It appears to be ready to breakout but may hold until next week. Until we get confirmation of a small cap rally, as evidenced by a Russell rally, we do not have a real market advance.

After the move today I am going to set some buy orders on several stocks tomorrow. I am going to set my buys at -25% to -35% less than the close today. We call this "target shooting." If I get hit on any market pullback before Christmas then I am happy. If I don't get hit then I will replace them based on market conditions Monday. Either way, my risk is less and I am not buying in at the inflated premiums resulting from today's jump.

Good Luck

Jim Brown

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