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Buyers Return! But Will It Last?

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        07-19-2000        High      Low     Volume Advance/Decline
DJIA    10843.90 +147.80 10874.60 10700.70 1.06 bln   1698/1137
NASDAQ   4184.56 +128.93  4184.56  4106.63 1.70 bln   2214/1773
S&P 100   812.99 + 10.04   814.73   802.71   totals   3912/2910   
S&P 500  1495.47 + 13.51  1501.92  1483.90           57.3%/42.7%
RUS 2000  534.75 +  6.89   534.82   527.86
DJ TRANS 2794.06 - 11.67  2841.03  2789.27
VIX        22.06 -  0.46    22.80    21.41
Put/Call Ratio       .46

Buyers Return! But Will It Last?

The markets rallied today, but a fresh dose of earnings reports after the market today may bring post-earnings selling back on Friday. Check out some of the names that turned in their report card after the close...AOL, SUNW, BVSN, INKT, SCNT, TQNT and SDLI. And some of numbers were impressive to say the least, especially from the big boys like AOL and SUNW which we will cover in more depth below. Today typically puts us over the hump relative to the number of major companies left to report and brings about the mid-July slump. It's time to see if this trend will hold once again. So far we've had a sideways-to- up market for the past two months and have been able to avoid the major dips. The question on every traders mind...Can we avoid a major dip in the next couple weeks?

Alan Greenspan spoke before Congress today and markets didn't seem to mind. His comments again suggested that inflationary expectations remain modest outside of energy prices and that demand is moving more into line with supply, suggesting that imbalances in the economy are being corrected. He said, "Aggregate demand may be moving closer into line with the rate of advance in the economy's potential." But we aren't out of the woods just yet because Alan loves to sit the fence as he does with this statement..."it is much too soon to conclude that these concerns are behind us." All in all, the comments were mild and the markets didn't use it as a reason to sell-off.

In fact, investors decided to end the two-day slide on the Nasdaq and turn in a 3.17% rally. The Composite finished at 4184.56, up 128.93, on good volume of 1.70 billion shares. Most of the gains took place in the first hour, but it managed to hold those gains for the entire session, slowly moving higher, and end right at the day high. This puts the index back above the all major moving averages after a successful bounce off the 100-dma on Wednesday. It's nice to see those gains come on stronger volume as well. The challenge now will be to see if the techs can rally this index past resistance between 4215 and 4290. A move over 4300 would be shocking and would have to be considered bullish. Some analysts are sticking out their necks, saying the Nasdaq will rally to the April 10th high of 4475. A move over 4290 and that could easily be tested. Although, you are likely to find a barrage of sellers at that higher level.

The Industrials also took to the skies today on the Greenspan comments, back over 10,800 again. This index has alligator's blood of late as it continues to rally. It has only had two down days in the past ten sessions. Today saw a gain of 147.79 to 10,843.87. Volume crept over 1 billion shares too. I am hesitant to scream bull market knowing where we are in mid-July, but you have to be impressed with the DJIA lately. The chart below shows today's close is actually above the closing highs of early June. This is a bullish sign for the big 30, which was helped to gains today by a positive move in IBM and the Financials.

Another major story that helped to lift the markets today was JDS Uniphase, which was added to the S&P 500. This helped the stock surge by 20% during today's trade. They will be replacing Rite Aid after the market close on the 26th. This helped SDLI (who JDSU is acquiring) put on a cool $68.44 to end at $428.06. SDLI also reported earnings after the market close today and beat the street by reporting $0.33 cents a share. The stock was trading down slightly after-hours to $423.

SUNW appears to be the big earnings winner. The estimate was for $0.33 and they turned in $0.39. That is a whopper of a number and SUNW is rallying sharply after the regular session close of $98.06. You know our rule of never holding over earnings because seven out of ten companies will drop. Well, this is going to be one of the three that likely go up tomorrow. SUNW is currently at $103.88. "In every important metric, including market share gains, we had in incredible quarter," said Scott McNealy, Sun's chairman and chief executive in a statement. "Sun's position as one of the Internet's leading innovators has never been stronger."

America Online was a close second though as they reported numbers that pleased most analysts. AOL reported net income of $334 mln, or $0.13 cents a share, surpassing estimates of $0.11 cents. That's also up from 7 cents a year ago and 11 cents in the previous quarter. There were some cause for concern though as ad and commerce revenue came in below the highest expectations. But AOL did add 992K net new subscribers, slightly ahead of Henry Blodget's forecast of 987K. AOL was down from it's $61.56 close to about $59 in post-session trades.

Unfortunately for Agilent Tech, there is always a daily loser. They get to wear the crown today with an earnings warning released after the close. According to a company statement, demand is extremely strong, but the company does not have the capacity and parts to fulfill the demand. The company also said demand in the healthcare-solutions business remains weak, particularly in the U.S. patient-monitoring market. "Results in our healthcare business are simply unacceptable," said Robert Walker, executive vice president and CFO. "Overall market demand continues weaker than we anticipated, and we're not expecting near-term improvement in market conditions. While we've taken some actions already, it's clear that additional actions are required, and we'll be making announcements in this area in the next few weeks." That is not the most inspiring comment to ever flow from a CFO's mouth and the stock will likely get whacked tomorrow. The current indication is for Agilent to open around $55, down from a close of $73.

I could go on and on about the earnings reports tonight, but there are just too many. We will just have to see how all these numbers shake out in the morning. SUNW will have the greatest impact to the upside if it holds some of these after- hours gains, as much as $7 at one point. But AOL is dipping slightly after their good number. My feeling is we will get a mixed response amongst the individual stocks, but Nasdaq may come under selling pressure again. Remember, seven out of ten of these companies reporting will drop, if only for a couple of days. That gives us the downside bias.

The Industrials are another story. This index doesn't seem to care about what it is "supposed" to do. Onward and upward is it's motto of late. Fair enough, we won't argue the trend. Besides it is only 30 stocks. Hopefully though, it's strong sentiment will bring investor attention back to the markets and carry the Nasdaq higher (the market we really care about).

The VIX closed again near the low end at 22.06. It has been holding down near the sell signal for a couple weeks, which is interesting in that it did the same thing last year right before the market rolled over into a major decline. The VIX quickly spiked up to 30 by months end. We could have the same thing setting up again. Don't get too comfortable with it being able to sustain this level. Tomorrow should be a key day to see how stocks react on July expiration. I will be taking the market at face value. A sell-off being negative for next week and a rally being somewhat positive, with the former being more likely. Prepare a plan and trade accordingly.

Ryan Nelson
OI Editor

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