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Market Wrap

Bulls Stampede Pushing NASDAQ Over 2000

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     06-07-2004            High     Low     Volume Advance/Decline
DJIA    10391.08 +148.26 10391.15 10243.31 1.45 bln   2331/ 516
NASDAQ   2020.62 + 42.00  2020.62  1991.42 1.46 bln   2181/ 874
S&P 100   555.69 +  8.61   555.69   547.08   Totals   4512/1390
S&P 500  1140.42 + 17.92  1140.54 1122.50 
RUS 2000  578.90 + 11.15   578.91   567.75
DJ TRANS 3040.11 + 49.16  3040.15  2992.55
VIX        15.39 -  1.39    16.70    15.33
VXO        14.67 -  1.84    15.87    14.61
VXN        22.65 -  1.19    24.21    22.52
Total Volume 3,339M
Total UpVol  2,886M
Total DnVol    404M
52wk Highs     244
52wk Lows       64
TRIN          0.38
PUT/CALL      0.85

Stocks were off to a strong start this morning but not before Wall Street honored the passing of President Reagan with two minutes of silence. The rally slowed a bit during the lunchtime lull but picked up speed again heading into the afternoon. Analysts are pointing to the renewed confidence in the U.S. economic expansion, the pull back in crude oil prices and OPEC's promise to pump more, and the positive numbers from last Friday's non-farm payrolls report as the fuel for Monday's global market rally.

Asian stock exchanges witnessed a big rally in equities with the Japanese NIKKEI adding 311 or 2.8% to close at 11,439. It was the NIKKEI's largest one-day percentage in six months. The Hong Kong Hang Seng index followed with a 304-point gain to close at 12,326. The South Korea and Taiwan exchanges also turned in big moves with 3.68% gains for the session. European stocks shadowed their Asian counterparts and closed in the green. The German DAX jumped 1.4% and broke through resistance at the 4000 level. The English FTSE added 37 points to close at 4491 and the French CAC rose 23 points to close at 3722.

Here at home the rally was very broad-based with the BTK biotech index as the lone sector closing in the red. Investors were pouring money into interest-rate sensitive and growth sectors like homebuilders and tech stocks. The DJUSHB home construction index soared 5.24% to breakout over the 600 level and its simple 50 and 100-dma's. There were plenty of new five-week highs mirroring the gains in the major indices and several sectors broke out over significant resistance. The DFI defense index and the RLX retail index hit new all-time highs.

The 3.67% rally to 487.93 in the SOX semiconductor index is important because the chip sector tends to lead the NASDAQ higher or lower. Today's gain in the SOX put it just over its simple 200-dma but still under resistance at the 490 level and its simple 100-dma. Any follow through tomorrow would be good news for tech stocks. Hopefully, investors will choose to interpret Texas Instrument's (TXN) mid-quarter update in a positive light. TXN held its conference call after the bell tonight and gave a modestly up beat forecast. The chipmaker narrowed its revenue forecasts from $3.09-$3.33 billion to $3.17-to-$3.29 billion. Earnings per share are expected to come in at 24 to 26 cents per share. Last year TXN earned 7 cents per share on $2.34 billion for the second quarter. This year analysts are expecting 25 cents on $3.21 billion.

Chart of the SOX semiconductor index:

The 1.64% jump in the Dow Jones Transportation index (TRAN) is important because traditional Dow Theory believes that we can't have a meaningful rally in the Industrials without participation by the transports. The recent drop in oil plays an important part in the Transports strength. The July crude oil contracts did trade lower on Monday and broke support at $38.00 a barrel before rebounding in the afternoon to close up 17 cents at $38.66.

Chart of the Dow Jones Transportation index:

Market internals were very bullish. Advancing stocks flattened declining stocks 23 to 5 on the NYSE and almost 22 to 9 on the NASDAQ. Up volume was more than 11 times down volume on the NYSE and up volume was six times down volume on the NASDAQ. These are very big ratios and a positive sign for the bulls. Unfortunately, overall volume for the session was still somewhat light at less than 3 billion shares for both exchanges.

Thankfully the technical picture has improved. The Dow Jones Industrials' 148-point gain is a breakout over the 10,300 level and its simple 100-dma. The Dow is right at its descending trendline of resistance from February and poised to breakout above 10,400. In the weekend wrap Jim outlined the 2000 and 2020 levels on the NASDAQ as crucial levels of resistance. Today's 2.12% gain is a major breakout over the 2000 level, its simple 100-dma and its descending trendline of resistance. Plus the NASDAQ managed to close just over the 2020 mark. This should put bears on the defensive and give the NASDAQ room to run toward 2050. Jim also listed the 1130 mark on the S&P 500 as an important level to watch. Monday's 1.59% gain to 1140 is a convincing breakout and should give bulls a chance to run toward the 1150 level of resistance.

Chart of the Dow Jones Industrials:

Chart of the NASDAQ Composite:

Chart of the S&P 500 Index:

What should really encourage traders is the fact that a Reuters' story reported a new threat by Al-Qaeda to use U.S. based passenger jets to strike at U.S. targets yet the markets hardly seemed to acknowledge it.

Speaking of airplanes, Dow-component Boeing Inc (BA) made headlines and a 52-week high (+2.6%) after reporting that Singapore Airlines is considering an order to buy 50 planes from either BA or its rival Airbus. Company officials also announced over the weekend that orders for their new 7E7 model could top 200 planes by the end of 2004. Meanwhile Lehman Brothers upgraded the stock from "equal-weight" to an "over weight" and raised their long-term price target on Boeing.

Dow-components General Motors (GM) and Home Depot (HD) also made headlines with their new push into China. Actually, GM's presence in China isn't new. The company plans to spend $3 billion to double its manufacturing ability in China in an effort to capitalize on the phenomenal growth in car sales. Industry experts already label China as the fastest growing market and expect China to become the second largest market for vehicle sales this year. Meanwhile HD announced its plans to expand into China but failed to say when their first store would open or how many stores it was planning to build in China.

Biotech stocks were getting a lot of press today due to the massive American Society of Clinical Oncology conference (ASCO) in New Orleans this week. Unfortunately for many biotech firms investors seemed to be selling the news. The BTK biotech index was the only sector-specific index to close in the red on Monday. Bucking the trend was Imclone Systems (IMCL), which added 12.2% to close at $81.38, a new four-year high and a breakout over resistance at $80. Shares of IMCL soared on another round of positive news for its Erbitux treatment and an upgrade from Smith Barney from a "hold" to a "buy". Traders shrugged off disappointing news that IMCL's Phase III trials for its small cell lung cancer treatment failed to hit the study's primary goals.

It wouldn't be a Monday without some merger news. Last Friday shares of Mandalay Resort Group (MBG) soared from $54.62 to $60.27 on what many believed was the company's outstanding earnings report. The company did announce earnings on Thursday night and beat estimates by 18 cents. Yet now many suspect there was a leak of the upcoming merger announcement. Late Friday night MGM Mirage (MGG) issued a press release with its bid to buy MBG for $7.65 billion, which includes MBG's $2.8 billion in debt. The unsolicited $68 per share bid would make the combined company the largest casino-gambling operation on the planet with ten casinos on the Las Vegas strip, 33,000 hotel rooms and 2.5 million square feet of convention space. Surprise, surprise...shares of MBG soared to $72.80 before drifting back to close at $70.23 (+16.5%) on Monday indicating that Wall Street believes the bid is too low. MBG's management said they would evaluate the offer.

Most of today's news was focused on a tribute to America's 40th president Ronald W. Reagan. Reagan passed away on Saturday at 93 years of age after a ten-year battle with Alzheimer's disease. To honor the former two-term president Friday has been chosen as a national day of mourning. Reagan's body will be flown to Washington D.C. for the first state funeral in over three decades. Security will be very high with numerous world leaders flying into the country to pay their respects. Reagan is to receive full military honors while current President Bush gives a eulogy for Reagan. Non-essential government services will be closed on Friday and the financial markets have also elected to close on Friday in honor of the president. The Labor Department has chosen to move its May PPI index release from Friday morning to Thursday afternoon at 3:00 P.M. ET. Meanwhile the Senate Banking Committee has rescheduled Alan Greenspan's confirmation hearing for his fifth term as Federal Reserve Chairman from Thursday, June 10th to Tuesday, June 15th.

We will still hear from Greenspan this week as he speaks tomorrow at the International Monetary Conference. We'll also hear from Fed governor Hoening tomorrow. Tuesday will launch the three-day G8 summit in Georgia with leaders from Britain, Canada, France, Germany, Italy, Japan, Russia and the U.S. Talks are set to focus on the global economy, oil prices, rebuilding Iraq and violence in the mid-east.


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