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Market Wrap

Two Markets Under One Roof

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        05-02-2002        High      Low     Volume Advance/Decline
DJIA    10091.90 + 32.30 10117.50 10040.10 1363 mln   1831/1291
NASDAQ   1644.90 - 32.71  1695.07  1640.80 1849 mln   1705/1783
S&P 100   537.53 -  1.00   541.66   534.65   totals   3536/3074
S&P 500  1084.56 -  1.90  1091.42  1079.46
RUS 2000  513.37 +  2.54   514.17   509.80
DJ TRANS 2749.51 +  5.85  2773.98  2736.55
VIX        22.38 +  0.18    22.99    22.10
VIXN       44.52 +  0.70    45.03    43.11
Put/Call Ratio      0.93

Two Markets Under One Roof
by Leigh Stevens

The S&P Market began on a quiet note but tech fireworks in Nasdaq came shortly after. Two markets under one trading roof, sort of. There was a definite pause to blue chip buying of the past two days, as the market waited for further news on the business and economic front. It was touch and go as to whether key technical support in the S&P 500 (SPX) and S&P 100 (OEX) Indexes at 1080 and 545, respectively, would be broken - they were not. Nor was 100 in DJX. Meanwhile, the Nasdaq indices were down from the opening, falling to and beyond recent intraday lows.

While the overall volume level was less than the two preceding up days, much of what there was of volume, was declining volume. On the Nasdaq downside volume ran 6 times that of advancing volume. On the NYSE it was about 50/50. Because of the lopsided volume measures, there were also high readings, indicating heavy selling pressures (above 1.50), in the Arms Index or TRIN (for TRading INdex) on the NYSE. Nasdaq was the winner in HIGH Arms Index reading, advancing to a closing level of an extreme 5.65. The Nasdaq Arms Index was well above 3.50 most of the afternoon.

GENERAL NEWS and INFLUENCES -
The morning's batch of economic numbers signaled that conditions in the labor market continue to be challenging. The market is looking to get a better read of the job market with the release of the April employment report on Friday. The overall market early caught strength from retail, paper and brokerage sectors, with brokerages getting some mileage from some positive press from a Street Analyst report that was circulating. Imagine, someone still listens to these folks -- and, about their own industry to boot! No conflict of interest there.

ECONOMIC FRONT -
Reports that first-time filings for state unemployment benefits fell 10,000 to 418,000 in the week ending April 26th put new claims to the lowest level since mid- March. However, a consensus figure had economists predicting a lower initial jobless claims figure, more like 407,000.

The four-week unemployment first-time filings average, which smoothes out the week-to-week numbers, fell to 435,750, from 454,250. The number of workers continuing to collect unemployment benefits rose to 3.77 million, up from 3.69 million.

Semiconductor stocks rallied early, falling after that -- the early influence was from the Semiconductor Industry Association (SIA) reported that worldwide sales of computer chips rose 7.2 percent in March from February levels. SIA reported that this was the highest monthly sequential increase since April 1986. The SIA also assessed that the growth in sales indicates that inventory build-up has been worked through and that product demand is now beginning to pick up.

STOCK/COMPANY EVENTS -
The boost from the upbeat chip report was not enough to help boost the "big 3" of tech: Intel (INTC), Cisco (CSCO) and Microsoft (MSFT) - MSFT popped up early, but couldn't keep a rally going. Cisco is not attracting buying interest ahead of its earnings release next week. Qualcomm (QCOM), another NASD biggie, was trapped in listless trade - no help in techland from this one and NOT from Oracle (ORCL), which continued lower, losing a few more percentage points. The best that can be said for ORCL is a technical note, as the stock is approaching minor support implied by the low end of its downtrend channel at 8.6.

Xerox (XRX) fell sharply after Moody's cut its credit ratings late-Wed. on concerns over "free cash flow generation in its core non-finance business, relative to its debt burden". Xerox responded by saying this cut was not consistent with their progress and sales momentum.

The brokerage group saw some upside action after Salomon Smith Barney upgraded Lehman Brothers (LEH) and Merrill Lynch (MER) to "buy" ratings from "outperform" and changed Goldman Sachs (GS) to a "buy" from a "neutral." Showing that the Street still "listens to its own" - these stocks rallied today and with them the Securities Broker Dealer Index ($XBD.X).

Procter & Gamble (PG) continued to rocket higher, as did Philip Morris (MO) -- consumer stocks like PG, MO and KO (Coca Cola) have been in great favor. So much money out of tech, so much into the consumer - we can still count on their spending, goes the thinking, can't we?

TRADING STRATEGY -
Today's trade had the appearance of a consolidation in the NYSE side of the market ahead of a possible move higher. Impressed a lot of traders - two back to back strong up Dow days -- followed by a slightly higher close in the Dow. No rout to the downside for the Standard & Poor type stocks. Nevertheless, even the high cap/blue chip averages are looking for a catalyst that could spark them higher.

In the Nasdaq, continued selling in the biggest stocks in those indices, continues to pull it lower. The Nasdaq indices are again near lows at the bottom of their hourly downtrend channels. From these lower levels, these indices may again rebound, but selling pressure may continue so great that it continues to knock down minor rallies, as even slightly higher price levels attract abundant selling, which sinks the index again.

The close was positive in the big cap S&P and Dow Indices. There were a few dips under key support levels, but SPX, OEX and DXJ were still positive technically at the close. They are also in minor oversold territory in terms of the hourly stochastics. Calls bought in the S&P, OEX and DJX could be kept, anticipating a further move higher.

However, tech weakness in the big cap Nasdaq stocks, especially in the semiconductors, kept the Nasdaq Composite and the 100 (NDX) and QQQ under pressure, with all falling to a new low close for the week. Those with puts can maintain a buoyant feeling in this down market. Swim with the tide, up or down.

There were two small rallies for call players in Nasdaq indexes this week, but nothing more extended like in the S&P. For Nasdaq index traders with any long calls remaining, bought near price channel lows as identified here, exit on any rebound that generates overbought stochastic readings in the next couple of (trading) days.

The underlying strategy for longer-term trend traders remains unchanged. Keep some puts in play and use rally failures at the resistance levels in Nasdaq to add to positions. The 1106-1110 area in S&P 500 continues to look like the high end of the near- term trading range, with a slimmer outside potential to the 1145- 1150 area.

KEY SUPPORT/RESISTANCE AREAS & TRADING IDEAS FOR THEM:

S&P 500(SPX) Daily/Hourly:

S&P 500: Key near support - 1080; exit calls on its break; main support 1055
Resistance levels: 1100; 1103; 1106 -- sell in 1103 area and above;
Stop puts at daily SPX close above 1106.

S&P 100:
Key near support: 535; exit calls on break
Near resistance: 544-545 - sell in this area

Dow Industrial Average (INDU); (also, DJX) Daily/Hourly:

DJX:
Key near support: 100; near resistance: 101
Target to 103 area, as long as above 100
Below 100, support: 97.4

Nasdaq Composite Index (COMP) Daily/Hourly:

Nasdaq Composite:
Key near support: 1644; next lower support: 1608
Resistance levels: 1695; then 1724; 1728 is area to sell.

Nasdaq 100 ($NDX.X):
Near support: 1200
Near resistance: 1280-1288; 1320 is area to sell

QQQ - Nasdaq 100 Tracking stock daily/Hourly:

QQQ - Nasdaq 100 tracking stock:
Estimated support: 30
Minor resistance at 32; sell in 33 area

Leigh Stevens
Chief Market Strategist
Click here to email Leigh

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