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Market Wrap

Caveat Venditor

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        06-07-2001        High      Low     Volume Advance/Decline
DJIA    11090.74 + 20.50 11100.04 11008.95 1.09 bln   1585/1464	
NASDAQ   2264.00 + 46.27  2264.58  2205.85 1.63 bln   2093/1649
S&P 100   658.59 +  3.52   658.59   651.93   totals   3678/3113
S&P 500  1276.96 +  6.93  1277.08  1265.08           54.2%/45.8%
RUS 2000  514.77 +  2.19   514.95   511.52
DJ TRANS 2916.30 + 17.91  2921.12  2884.91
VIX        21.61 -  0.77    22.68    21.57
Put/Call Ratio      0.45

Caveat Venditor

The Nasdaq Composite (COMPX) is on the verge of testing its relative highs and rejecting its pesky head-and-shoulders top. And the driving force behind the Nasdaq's recent advance: The Philadelphia Semiconductor Index (SOX.X).

In Wednesday's Market Wrap, we touched upon the earnings warning delivered by Broadcom (NASDAQ:BRCM). The company reported late that night that its revenues would fall further than previously expected for the current quarter. More importantly, however, its officials hinted towards stabilization in business during the second-half of this year. The market received that news rather well Thursday morning as shares of Broadcom advanced sharply from the opening bell. The news from Broadcom inspired buyers to step into the broader semiconductor sector early Wednesday, who carried the SOX past the 665 resistance level we addressed in Tuesday's Market Wrap.

Later Thursday, National Semiconductor (NYSE:NSM) reported its quarterly earnings and added to the momentum in the SOX. Although National Semi warned of continued weakness in its next quarter, the company echoed Broadcom's views of signs of recovery in the near future. National Semi's guidance further inspired the bulls, who ran the SOX up to the critical 700 level (actually 697) into the close of trading.

Thursday's close placed the SOX right at a key resistance level that we've been focusing on this week. To reiterate, the 700 level is a BIG area of congestion. For one, it's a psychological level that participants seem to gravitate to. In addition, the point & figure chart has a bit of supply around that level. And the SOX's 200-dma moving average currently resides at 695.81. If the SOX does clear 700 Friday (Judging by the news after hours, it will) there's only a small amount of congestion in the 710 vicinity. From there, we could see the SOX slowly migrate up to 750.

The news I referred to in the above paragraph was obviously Intel's (NASDAQ:INTC) mid-quarter guidance. The event was much awaited by market participants, who have been searching for signs of a bottom in the tech business. Intel officials gave guidance for revenues within its previous range of $6.2 and $6.8 billion, which appeased investors in the after hours session. Shares of Intel added $1.74 in the after hours session. Keep in mind that Intel is the largest component of the SOX.

The strength in the SOX Thursday finally boosted the COMPX back above the 2250 resistance level, on a settlement basis. By now, we've addressed the head-and-shoulders (H&S) in the COMPX several times. And with Thursday's advance and Intel's news, the pattern should be completely rejected Friday, allowing for the COMPX to test its relative highs around the 2300 level. That level is a pretty significant resistance point, in and of itself. But, if the COMPX can decidedly clear 2300 Friday, we should see it work up to 2400, where I think it makes sense to take profits. For one, 2400 marks the 61.8 percent retracement level of the bracket we've been using. Second, 2400 is the site of the COMPX's descending trend line on the point & figure chart. So, although both the SOX and COMPX have staged quite an advance over the past two weeks, I think there may be one more trade left to the upside before the tech bulls take profits and pull 'em back. The catalyst in the very short-term could be a combination of those longs afraid of missing the move and any shorts remaining in tech scrambling to cover.

Over on the Dow Jones Industrial Average (INDU), dip buyers stepped in at the 11,000 during midday trading to prop the blue chip index higher into the close. The 11,000 level continues to act as a magnet, not allowing the Dow to work higher. Perhaps part of the Dow's inability to advance in recent sessions stems from the weakness in the financial space, particularly the bank sector. The KBW Bank Sector Index (BKX.X) bounced off the 900 support level Thursday, which was the key breakout level in mid-May. I have to admit that the banks' collective inability to trade well is my only real cause for concern. Indeed, shares of large money centers such as Citigroup (NYSE:C) and J.P. Morgan Chase (NYSE:JPM) continue to trade miserably. It is my belief that the bank sector is an integral part of the broader market, and it must firm up if the Dow, S&P, and to a lesser extent the Nasdaq, are ALL going to work higher.

Nevertheless, it was encouraging to see buyers step into the Dow at the 11,000 level. In the short-term, as it turns out, the 11,200 level is the site of resistance that the Dow needs to clear if it's going to work towards relative highs. And, of course, 11,000 is the BIG support level to monitor.

There's not much in the way of scheduled news Friday morning. And barring any major earnings warning, the broader markets are poised to rally off of the Intel news. Of course, there's the possibility that profit taking could set in as early as Friday morning. But beyond those two possibilities, things look good from where I sit. So if there are any bears still out there, you've been warned.

Questions are welcome: Contact Support

Eric Utley

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