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Market Wrap

Two out of Three

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     03-29-2004            High     Low     Volume Advance/Decline
DJIA    10329.63 +116.66 10350.45 10212.91 1.65 bln   2139/ 710
NASDAQ   1992.57 + 32.55  1996.23  1975.43 1.69 bln   2232/ 899
S&P 100   550.46 +  6.94   551.65   543.52   Totals   4371/1609
S&P 500  1122.47 + 14.41  1124.37  1108.06 
RUS 2000  583.39 + 10.47   583.47   572.92
DJ TRANS 2885.91 + 50.01  2891.38  2837.86
VIX        16.50 -  0.83    17.17    16.29
VXO        16.23 -  0.98    16.70    15.80
VXN        23.16 +  0.12    23.66    22.74
Total Volume 3,761M
Total UpVol  3,197M
Total DnVol    506M
52wk Highs     359
52wk Lows       28
TRIN          0.36
PUT/CALL      0.67

Two out of Three
By James Brown

Buyers returned refreshed and ready for a new week and sent the Dow Industrials to their second triple-digit gain in the last three sessions. The NASDAQ and the S&P 500 joined the rally with the S&P moving back into the green for 2004. Fueling the fire was another round of upgrades for blue chip stocks and more merger and acquisition news.

The rally was fairly widespread. Oil service and homebuilders were the only groups to turn lower and then only with mild losses. The buying was very strong in tech-related sectors. The GHA hardware index charged higher for a 2.35% gain after Hewlett Packard (HPQ) got some positive coverage from Barron's magazine over the weekend. HPQ, a Dow component, jumped 3.6% on the session as investors speculated that the company would use its $6.5 billion in cash to bump up its cash dividend or its stock buyback program. Networking stocks (NWX +1.92%) enjoyed a strong session after President Bush pledged to "universal, affordable access" to Internet broadband by 2007. His rival Kerry has hinted at similar ideas.

The semiconductor sector continued its bullish push higher with a 1.73% gain in the SOX after the CEO for STMicroElectronics (STM) told the press he expects worldwide chip sales to jump 20% in 2004. This is not a new prediction. The Semiconductor Industry Association is forecasting 19% growth and the Gartner group is forecasting more than 20% but it doesn't hurt investor sentiment to hear the positive forecast again. Unfortunately, while Monday was a strong session the SOX remains just under resistance at the 490 level.

Tech stocks were also boosted by a 6.2% rally in Qualcomm (QCOM). The $3.85 jump to $65.61 sent QCOM to new 2 1/2 year highs after Schwab SoundView upgraded the stock from "neutral" to "out perform" and raised their price target from $55 to $75. Schwab believes that QCOM has significantly improved its position in the handset market and is gaining on the industry leader Nokia (NOK). Meanwhile blue chips enjoyed a number of positive upgrades with General Electric (GE) sent higher after UBS raised their outlook for the stock. Beverage-maker Coca-Cola (KO) was upgraded to "out perform" by Bear Stearns while Prudential upgraded Citigroup (C) to "overweight".

It wouldn't be a Monday without some merger news and today didn't disappoint. Lyondell Chemical (LYO) declared that it would buy Millennium Chemicals (MCH) for $1 billion in stock. According to the news this would make the combined company the No 3 chemical producer in N. America behind Dow Chemical (DOW) and DuPont Co (DD). Shares of LYO dropped 3.45% while MCH gapped higher to end the day with a 20% gain.

Amgen Inc (AMGN), the biggest component in the BTK biotech index, also got in on the M&A activity when it announced it would buy the remaining 79% of Tularik (TLRK) it didn't already own. AMGN will spend $1.3 billion in stock, which values TLRK at $25 per share. Tularik doesn't currently have any drugs on the market but is in the late stage clinical trials in a treatment for liver cancer. Shares of TLRK rallied 44% to $24.53. AMGN added 2.5% by the close and the BTK rose 2.32% while the DRG drug index climbed 1.47%.

Overall it was a very positive session. Market internals for the U.S. exchanges showed advancing stocks sprinting past decliners 3-to-1 on the NYSE and 22-to-9 on the NASDAQ. Up volume was very strong over down volume at 7.7-to-1 on the NYSE and 6.6-to-1 on the NASDAQ. European stocks also reported a very strong day with bullish trifecta in the British FTSE, German DAX and the French CAC indices.

Technical traders should also be excited to see the bullish breakouts over horizontal resistance in the NASDAQ Composite, the NASDAQ-100 (NDX) and the Russell 2000. Now if we can just get the NASDAQ composite back above the 2000 level we might really send the bears back into hibernation for spring. Today's rally also pushed the GHA hardware index, the INX Internet index and the BKX banking index above their 50-dma's. Currently trading right under resistance at their own 50-dma's is the Dow Transports (TRAN), the GSO software index, the BTK biotech index, the CYC cyclical index and the IUX insurance index.

The late day bounce from the 10,300 level in the Dow Industrials is pretty encouraging. It would also be great to see the S&P 500 breakout over the 1125 level. However, even if we see a little bit of profit taking tomorrow, which should not be a surprise after the bounce from last week's lows, I think the stage has been set for an up week. Investors are focusing on what should be a positive jobs number on Friday and what should be another positive earnings season that begins in two weeks.

Chart of the Dow Industrials:

Chart of the NASDAQ Composite:

Chart of the S&P 500 Index:

Tuesday might be a little quiet with very little corporate earnings news and only the Consumer Confidence number that comes out after the opening bell. As long as the confidence number isn't a disaster the bullish tone should remain. Wednesday brings the Factory Orders and the Chicago PMI report.


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