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Techs Lead Again

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     01-07-2004            High     Low     Volume Advance/Decline
DJIA    10529.03 -  9.63 10539.46 10466.29 2.23 bln   1502/1359
NASDAQ   2077.68 + 20.31  2078.09  2047.02 2.27 bln   1819/1282
S&P 100   559.31 +  1.56   559.31   554.35   Totals   3321/2641
S&P 500  1126.33 +  2.66  1126.33  1116.45
RUS 2000  574.62 +  4.73   574.62   567.84
DJ TRANS 3034.06 -  3.20  3038.90  2999.97
VIX        15.50 -  1.23    16.75    15.50
VXO        14.85 -  0.49    16.14    14.75
VXN        21.91 -  0.85    23.01    21.81
Total Volume 4,903M
Total UpVol  2,859M
Total DnVol  1,958M
52wk Highs     812
52wk Lows       13
TRIN          0.86
PUT/CALL      0.69

Techs Lead Again
By James Brown

The Santa Claus rally has morphed effortlessly into a strong "January effect" and the trend from mid-December remains unbroken. Charging to the forefront was the NASDAQ composite, which closed at 29-month highs (best since August 2001) on the backs of strong gains for the networking and disk drive sectors. Lending strength to the Dow and the NASDAQ 100 was component Intel, which jumped 3.3% on an upgrade. Bonds rallied as well after comments from US Treasury Secretary John Snow rallied the dollar, if only for the day.

Market internals were mostly bullish. The NYSE saw 15 advancers for every 13 decliners. On the NASDAQ there were 18 winners for every 13 losers. Up volume outpaced down volume and overall volume remained relatively strong with more than 2 billion shares trading on each exchange. Disk drives and networking stocks saw the heaviest buying today but airline stocks also turned in a good performance. Out performers also included defense issues, biotech stocks and broker-dealers. I did note that European bourses were mostly negative as was the NIKKEI but the Hang Seng posted another triple-digit gain. Profit taking also slowed crude oil, which slipped 8 cents to $33.62 a barrel and February gold futures, which dropped 90 cents to $422.30 an ounce.

Chart of the DJIA:

Chart of the NASDAQ:

Intel was one of the market leaders today and shares added $1.09 or 3.3 percent to close at $33.99. The move was powered by positive comments from an analyst at Sanford Bernstein. The firm upgraded the stock from "market perform" to "out perform" and raised their 2004 earnings estimates from $1.20 to $1.27 and its price target to $42. They believe that seasonal price swings in chips will lead to a better than expected first half in 2004. Combine these comments with growing expectations for semiconductor sales to soar 17% to 20% in 2004 and it's easy to see why investors are moving money into the group. On a side note, Intel announced this morning that it would be investing $200 million into a fund designed to "accelerate" digital home innovation.

Another tech stock leader today and responsible for the strong gains in the NWX networking index is Nortel Networks (NT). Shares of NT soared 19 percent on volume of 138 million shares (average volume is just 17 million). Driving the rally was an announcement that Verizon Communications (VZ) had chosen NT to equip them for VoIP (Voice over IP), the next big thing in telecom this year. Dollar amounts were not disclosed but the huge move today is clear evidence that the markets are excited about VoIP and happy to see businesses spending money again. The news prompted Merrill Lynch, Smith Barney and UBS to upgrade shares of NT.

The markets were also encouraged by positive comments from personal products producer Procter & Gamble (PG) who announced that Q2 earnings (quarter ending Dec. 31st) would be above current analyst estimates by high as 4 cents a share. The surge in profits is due to the early flu season and higher sales of cold remedies in their Vicks and NyQuil lines. Current consensus is for net profit of $1.26 a share and PG will announce their results on January 28th.

Disappointing investors today was software company JDA Software (JDAS) who warned that last quarter's earnings would miss. Estimates had been for $0.10/share and now the company expects to break-even or maybe hit $0.01/share due an inability to close some deals before the quarter ended. The stock fell 16.5% to close just above its simple 200-dma. Earnings are expected around January 20th.

Meanwhile Circuit City, the No 2 consumer electronics retailer, announced more bad news with total December sales falling 1 percent and same-store sales falling 2 percent. The company continues to fall behind larger rival Best Buy despite a three- year restructuring program to make them more competitive. Traders following the story can look for BBY to report on their own December sales tomorrow.

Elsewhere in the business world today the financial media was abuzz with conjecture that Andrew Fastow, the former CFO for Enron Corp, and his wife Lea would cop a guilty plea. Prosecutors are hot after Jeff Skilling and Ken Lay and the rumor mill is suggesting that the Fastow's would plea bargain for lighter sentences in exchange for their testimony. Plus, word was circulating on Wall Street that NY State Attorney General Elliot Spitzer would sue former NYSE head Dick Grasso for part of his outlandish $140 million pay package.

Tomorrow investors will get to see just how strong the 2003 holiday season was when retailers turn in their December same- store sales figures in the morning. Economists will also be looking for the weekly jobless claim numbers. Last week's figures were lower than expected so current estimates are for a small rise to 345,000. Thursday night will be the official launch of earnings season with Dow component Alcoa (AA) who is estimated to earn 34 cents, up from 16 cents last year.

Meanwhile the real event this week has yet to occur with the December jobs report due out on Friday. Economists are looking for a gain of 148,000 new jobs, up from 57,000 in November. Unemployment is expected to hold steady at 5.9 percent.

Barring any huge surprises in the Friday jobs report don't be surprised to see the current trends remain intact. Investors are holding on to their positions until earnings season hits full swing next week. That's when we can worry about any "sell the news" reactions.


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