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Market Wrap

Stocks post solid gains as big NASDAQ trades strong

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      12-04-2001          High     Low     Volume Advance/Decline
DJIA     9893.84 +129.88  9893.84  9743.05 1.31 bln   2185/ 928	
NASDAQ   1963.10 + 58.20  1963.22  1913.92 1.87 bln   2282/1324
S&P 100   585.63 +  6.97   585.63   577.90   Totals   4467/2252
S&P 500  1144.80 + 14.90  1144.80  1128.86             
RUS 2000  467.84 + 10.81   467.85   457.03
DJ TRANS 2534.85 + 51.79  2534.90  2478.78
VIX        25.33 -  0.67    26.92    24.78 
VXN        48.09 -  1.65    50.55    47.66
TRIN        0.65 
Put/Call    0.54

Stocks post solid gains as big NASDAQ trades strong

Stocks managed to show solid gains today with technology shares showing impressive results. The NASDAQ-100 (NDX.X) closed at a 2-month high as many of the larger capitalized technology stocks continue to show strength above their 200-day moving averages. The continued bullishness for many of the larger capped stocks is sign for many investors that a longer-term bull is beginning to grow horns and this looks to have bears eager to move to the sidelines with each pullback.

NASDAQ-100 Index (NDX.X) Chart -

The last time the NASDAQ-100 (NDX.X) closed above the 1,634 level was on August 13th, when the NASDAQ-100 finished the trading session at 1,653.27. The falling 200-day moving average will be closely watched as it is the longer-term moving average that many technicians monitor for a longer-term feel on "big tech" performance.

And "big tech" has been doing well. When we look at the NASDAQ- 100 trust (AMEX:QQQ) and some of the larger weighted components there, we see that Microsoft (NASDAQ:MSFT) accounts for an 11.97% weighting. Intel (NASDAQ:INTC) is weighted 6.08%, Qualcomm (NASDAQ:QCOM) is weighted 5.51% and Cisco (NASDAQ:CSCO) is weighted 4.02% in the trust. Right now, these are the "4 horsemen" and after today's action, all four are trading above their 200-day MA's. Qualcomm (NASDAQ:QCOM) got back above its 200-day MA just today.

Qualcomm (QCOM) Chart -

Retracement from $38.31 to $70.99 matches retracement almost identically as that found in the NASDAQ-100 chart. It's the current trading right near the 200-day moving average at $57.49 that has my interest. With Microsoft (MSFT), Intel (INTC) and Cisco (CSCO) trading above their 200-day MA's for more than 2- weeks, bears in Qualcomm (QCOM) should have some tight stops set just above the $60 level as risk from retracement becomes $64.74. A trader in Qualcomm will also want to monitor the NASDAQ-100 also to get a feel for any index trading above its 200-day moving average.

Will the fuse fizzle?

Equity bears have yet to see equity bulls throw in the towel and I think the action in the bond market helps keep tension high. Is it any wonder that we're seeing 100 point swings in the Dow Industrials (INDU) and good volatility in the NASDAQ? Was today's comeback in stocks another "look to the future" type of move in anticipation that bond market bears will begin selling the lower YIELDS and recent short-term gains found in that market as stocks hold tough? Today's lower YIELD in the 10-year ($TNX.X) came just above our key level of near-term YIELD support.

In recent commentary, I've been using a much "broader range" of retracement on the 10-year YIELD to get a "longer-term" perspective of the bond market's view by anchoring to the YIELD high found in January of 2000. Our "support for YIELD" from retracement work came in at the 4.621% YIELD level. Today's low YIELD on the 10-year was 4.624%. But lets also try and use the same retracement range as that from above in the NASDAQ-100 (NDX.X) and Qualcomm (QCOM), by anchoring to a recent relative high found on May 18th. In both of those charts, we anchored to the May 21st close and then the recent lows to "define the range." Let's do that now with the 10-year YIELD to get a different view and perhaps further insight as to "why" the 10- year YIELD action at current levels could play a big role in tomorrow's trading, if not this week's trading.

10-year YIELD Chart -

Equity bears that are trading the scenario of "lower YIELD bad for stocks" are going to have to hold their breath overnight. While the YIELD did fall today in the 10-year, it did not break the retracement level of 4.621% identified from longer-term retracement and it didn't break "conventional retracement" above. In fact, today's low YIELD trade came at 4.624%, which is right on conventional retracement as those ranges used for the NASDAQ- 100 and Qualcomm.

In recent commentary, I've said that "bears aren't out of the wood yet" and the YIELD chart and current stock market action gives hint that that's the right attitude to have up until tonight. Tomorrow morning, I'll be watching this bond's YIELD action closely. If we see any hint of higher YIELD during the opening of trading there, then I will be thinking higher stock prices.

The 10-year YIELD has seen buying for six straight sessions, yet the NASDAQ-100 has gained 15-points (+0.9%), the NASDAQ Composite has gained 22 points (+1.13%), the S&P 500 has lost 13 points (-1.13%) and the Dow Industrials has lost 89 points (-0.89%).

While last week I thought "something had to give" as it relates to stocks vs. bond YIELDS, that something should have been stock prices. We've yet to see that happen, so it is only fair to be able to turn the tables on things. Should we see a higher YIELD near the open of trading tomorrow morning we might see equity bears get squeezed and get a tradable rally for stocks.

NASDAQ-100 Index rebalancing

The NASDAQ-100 Index (NDX.X) rebalancing is expected to be announced on December 17th. Jefferies expects the following 14 companies to be removed from the index. XOXO, MFNX, MCLD, INKT, CMGI, BVSN, RNWK, ARBA, CNET, NOVL, COMS, PALM, PMTC, LVLT. Some stocks Jefferies feels are candidates to replace the aforementioned are APOL, IMCL, CHTR, CDWC, SYMC, SEPR, ICOS, IVGN, ESRX, CEPH, CYTC, PDLI, IDTI, SNPS. Traders may want to monitor the following for any suspicious volume spikes where bets are being taken by market makers with inventory positions.

Jeff Bailey

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