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Market Wrap

Striking Distance

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     11-12-2003            High     Low     Volume Advance/Decline
DJIA     9848.83 +111.04  9859.34  9729.42 1.66 bln   2182/ 644
NASDAQ   1973.11 + 42.36  1973.11  1935.86 1.84 bln   2330/ 784
S&P 100   524.19 +  5.53   524.76   518.56   Totals   4512/1428
S&P 500  1058.53 + 11.96  1059.10  1046.57
RUS 2000  540.66 + 12.09   540.66   528.57
DJ TRANS 2953.20 + 25.96  2953.95  2923.80
VIX        16.75 -  0.79    17.85    16.55
VXO        16.99 -  1.01    18.56    16.79
VXN        25.55 -  1.00    26.81    25.32
Total Volume 3,854M
Total UpVol  3,263M
Total DnVol    543M
52wk Highs     586
52wk Lows       26
TRIN          0.60
PUT/CALL      0.80

Striking Distance
By James Brown

It appears that word of the rally's demise has been premature. Buyers came back into the markets with a vengeance. The S&P completely erased the last three days of losses while the Dow and the NASDAQ Composite came close to accomplishing the same feat. Buying was strong in technology stocks as semiconductors, hardware, Internets and software all posted strong gains. Yet even the fervor for tech issues couldn't out pace the rally in gold. December gold futures shot up nearly $7 to $395 an ounce. The last time gold came close to the $400 mark was March 1996.

World indices were mostly positive but none of them put in the same kind of performance that U.S. stocks produced. The DJIA gained 111 points (+1.14%) to close at 9848. The S&P 500 added 12 points (+1.15%) to close at 1058 putting it within four points of its 52-week high. The tech-heavy NASDAQ added more than 2 percent to close at 1973 and within striking distance of NASDAQ 2000. It was a very broad based rally with nearly every sector index closing in the green, several up two percent or more, except for the UTY utility index, which dropped fractionally. Advancing stocks outnumbered decliners almost 22 to 6 on the NYSE and 23 to 7 on the NASDAQ. Up volume outpaced down volume 5-to-1 on the NYSE and 8.5-to-1 on the NASDAQ. That's not quite the bullish internals that Jim was looking for in his wrap last night but they're close.

Chart of the DJIA:

Chart of the NASDAQ:

Wednesday was filled with a multitude of headlines. Most of them positive and they fueled the rally through out the session. The move in gold was a big one. Oddly, the rally in gold isn't necessarily a "plus" for stocks in general as it is typically seen as a defensive play against bearish markets and a weak dollar. The $6.90 jump in December gold futures put it close to the $400 mark and pushed the shiny metal to levels not seen in seven years. The dollar's strong drop against the euro powered the move in gold and many are expecting it to break the $400 mark soon. Goldbugs have been "predicting" such an event would occur for months and a close above the $400 level would be a huge psychological breakout. The hunger for the commodity pushed the XAU gold & silver index up 5.57% to 101.86. The XAU index hasn't traded this high since October of 1997.

Bonds were also making headlines. The bond market was closed for Veteran's day yesterday and traders were interested to see how the market reacted to Wednesday's $16 billion 5-year note auction after Monday's 3-year auction turned out mediocre. Fortunately, there was strong demand for the new 5-year notes. Some suspect it was safe-haven buying as things heat up in Iraq again. By the end of the day bonds were higher across the board, which pushed yields lower. Tomorrow we'll see the government auction off another $17 billion in 10-year notes. After today's auction demand is expected to be strong.

There were dozens of individual stories driving stocks higher and as expected most of them sprang from the tech sector. Semiconductor stocks got another shot in the arm after Gartner Inc said their forecast predicted global chip sales to rise 20 percent next year. The SOX semiconductor index rose 3.36% to its best closing high in over a year as all 18 components closed with a gain. We may see the rally continue tomorrow. After the bell today Applied Materials (AMAT), the world's biggest chip equipment maker, announced earnings that beat estimates by a penny. Net income may have dropped 90 percent from a year ago but the company says it's turning a corner and orders for next quarter should rise 20%. New orders rose strongly last quarter and the company's book-to-bill ratio hit 1.05-to-1 for the first time in a year. The stock was trading higher after hours.

Tech investors also heard good news from IBM's CEO Sam Palmisano. In an analyst meeting today Sam said he was "very optimistic" about the long-term growth for IT. Shares of IBM rose 1.48% to close back over the $90 level. Another hardware stock making headway was Lexmark Intl (LXK), the computer printer maker. LXK was upgraded from a "neutral" to a "buy". The UBS analyst also raised their price target for LXK from $80 to $88. Shares surged over 4 percent and broke resistance at $75. Yet another bullish development for technology investors was news that Cisco Systems (CSCO) would buy Latitude Communications (LATD) for $80 million. Companies tend to hold on to cash unless business conditions are improving (not that $80 million is a lot of cash to CSCO).

One technology stock forgotten in all this enthusiasm is Microsoft (MSFT). Shares of MSFT, while closing 18 cents higher today, have really under performed its peers in the GSO software index as well as its fellow Dow components. Some suspect the recent weakness could be some of these troubled funds trying to raise cash for redemptions and the easiest place to do that are highly liquid stocks like MSFT. The ongoing anti-trust suit that MSFT continues to face with EU regulators is just a good excuse take money out.

Another Dow component making headlines was drug giant Merck & Co (MRK). Shares of MRK were hit with new selling this morning after the company disclosed it would cease research for its MK-0869 compound, better known as "substance P", which was being developed for depression. MRK said Phase III trials had failed to prove the treatment performed any better than the placebo. Major Wall Street analysts were split on their opinion of how this would affect MRK going forward. Surprisingly, shares of MRK were positive by the closing bell.

Traders have a lot to look forward tomorrow and Friday. Thursday will bring economic reports on import/export prices, trade balance and the weekly initial jobless claims, which are expected to come in near the 365,000 mark. We'll also hear from the largest retailer on the planet Wal-Mart (WMT), who reports earnings before the opening bell. Estimates for WMT are 47 cents a share. Thus far WMT's weekly sales figures have been tracking inline. WMT's rival Target (TGT) will also be announcing earnings tomorrow morning. Estimates for TGT are 33 cents a share. One of the higher profile earnings announcements tomorrow will be Dell (DELL). DELL announces after the closing bell on Thursday and estimates are for 26 cents a share with revenues close to $10.5 billion. What DELL has to say about business going forward could have a big impact on tech stocks for Friday. Friday will bring the Michigan Sentiment numbers and the PPI report. One comment on the AMAT earnings tonight...normally, with the chip group so overbought one can expect a sell the news reaction but with the NASDAQ so close to 2000 it may be just the excuse traders need to finally tag that psychological level.


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