Nasdaq gains for the 3rd session in a row, as the Dow and S&P slip
The tech-laden Nasdaq Composite (COMP) enjoyed its third consecutive close in positive territory, as the rest of the major indices failed to hold onto their gains. Positive economic data shoved the market into the green -- third-quarter productivity came in better than expected, and productivity rose 2.7 percent higher, (analysts were expecting two percent). Wage inflation also remained in check for the quarter -- labor costs grew by 1.8 percent -- the lowest increase in five quarters.

The blue-chip-laden Dow Jones Industrial Average (INDU) briefly pushed above its September 10 close in the 9605 area for the first time since the terrorist attack. The Dow shed 0.38 percent, mostly on Microsoft weakness. Also losing ground today were Boeing, Honeywell, United Technologies, and Wal-Mart. In the broad market, oil services, brokers, gold and airlines hung onto gains while healthcare, insurance, and utilities sunk lower.

Whether to Chase or Not?
"The key question here is whether you should chase the market higher.  The answer can only come after you define what your time frame is.  If you a trader type, I wouldn't chase an overbought market that is up 10% in six days with little change in the fundamental backdrop.  If you are an investor, any pullback should be minor and limited."
-Tony Dwyer, Kirlin Securities

Market Stats

Market	NYSE	Nasdaq
Total Volume	1,423.61m	2,045.05m
Up Volume	616.46m	1,352.42m
Down Volume	786.08m	665.42m
Advancers	1,601	1,669
Decliners	1,526	1,921
New Highs	116	63
New Lows	34	42

Outperforming Sectors
CBOE Internet Index (INX)
PHLX Oil Service Sector Index (OSX)
AMEX Securities Broker/Dealer Index (XBD)

Underperforming Sectors
AMEX Morgan Stanely Healthcare Payors Index (HMO)
S&P Insurance Index (IUX)
PHLX Wireless Telecomm Index (YLS)

2nd and 3rd batters up?
Bank of England and the European Central Bank both follow the Fed's lead and cut rates ½ point.

-DIS to report earnings today; Consensus is for 7 cents, as the company's theme parks attendance fell off a cliff in the wake of September 11th. Reduced number of airline flyers -- and even less vacationers -- will test the companies balance sheet.

-MSFT States Split Evenly on Microsoft Settlement, Starting Final Court Round, Public Review

Led by California, half of the 18 states in the Microsoft Corp. antitrust case rebuffed last week's Justice Department settlement, forcing the three-year-old case into a final round in federal court. California Attorney General Bill Lockyer said: "I would prefer to settle -- but litigation is better than surrender.''

-ENE Enron was the most active stock on Instinet in the extended session, as investors sent the shares of the energy merchant fractionally higher on rumors that DYN Dynegy might be considering a takeover or merger at around $8B or $10/share.

-WMT opening 5 stores in China over the next year

-MER could receive a credit downgrade from Moodys; Also, Jim McCall, manager of Merrill Lynch's sputtering Focus Twenty and Premier Growth funds, has stepped down. As we previously discussed, McCall is notable because his hi-load, well hyped growth funds, hyped by Merrill's army of brokers, have lost more money over the past 12 months than any of their peers.

It would be delicious irony if this marked the bottom of the tech market . . .

-QCOM a pre-opening upgrade (yesterday) by Goldman Sachs helped the stock trim make of its extended session losses. Today's the day to see if that upgrade holds . . .

-RUMOR: FleetBoston Financial (FBF)$35.71, Rumor has it that Citibank (C) will make a $42 bid for the company. Both companies declined comment.

-Oracle (ORCL) broke thru resistance at $15; buy half right here; pick up the rest on any pullback to the lo $15s. (added Mid-day Nov 7th)

--Countrywide Credit (CCR) Up 7.5 points in a 6 days, CCR is now at the top of its range, and is overdue for a pullback. Short between 45 - 47; STOP LOSS: cover on a breakout over 47.50

-Manugistics (MANU) First close above the 10 level since September 5; Short term target would be to "fill the gap;" Intermediate goal is $12.50.
  SOURCE: Tim

Also Notable: Qwest Communications (Q) Trading at lowest level (11.51) since September 1998; A bottom fishing candidate?. 

AOL TIME WARNER Another rally saw prices penetrate resistance closing at $35.15. Momentum Index Buy Alert was given. Support remains at $31.50. Resistance is at $36.48. Point & Figure chart reversed to the upside on Nov 1, 2001. (P&F downside reversal takes place at $32.25). Summary: Technical indicators have turned bullish. BUY AOL @ $35.25; Use a protective stop of $32.75. Price Objective is $54.00. Risk/Reward: $2.50 VS. $18.50. Risk Reward Ratio: 7:1 SOURCE: wstraders.com

SHORT-TERM TOP?
We obviously had a strong follow through on the momentum rally of Tuesday. Even though the market opened lower, it then rallied, backed off, rallied again, consolidated, and just before noon took off and spiked up into the 1560 area on the Nasdaq 100. At that point we were up 230 points in six days, or about 17-18%, and I felt the market was way ahead of itself, which I've been feeling for a couple days but market momentum was very strong and carried prices even further into overbought territory.

The technicals were rather weak going into this rally. In fact, when the market was running up this morning, the advance-declines on the Nasdaq were barely ahead by less than 100 issues, and I thought that was a telltale sign that we may be losing momentum. At the end of the day there were about 16 ? stocks down for every 14 up on the Nasdaq, but the up/down volume was 2-1 positive. That indicates most of the volume was in a minority of advancing stocks today. New York was flat on advance-declines with up/down volume about 4-3 negative.

So it was a very mixed picture today, but it smacked of a top formation. The intraday pattern on Nasdaq and on the S&P 500 looked like a head and shoulders, and late in the day it cracked the neckline so it's very possible we've seen an important high. We could be headed down from here for a few days but ,we'll just have to see. Until the market actually breaks down below its moving averages, which we bounced off late in the day, we'll have to see whether the market still has some sustainable bullish momentum or whether we're about to start a declining phase.
-Harry Boxer, The Technical Trader (www.thetechtrader.com)

Technimentals (Kevin Lane)
Two to watch: Inter tel (INTL) and Hutchenson Technology (HTCH)

"There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time."
--Jesse Livermore

OPTION STRATEGY: Upside Averaging

Do you have signed option papers in for all of your clients? Do it at your leisure, and not when its an "emergency."

We have discussed cash flow and how it is important for one's business's to have a high cash flow. One way to increase your cash flow is by selling calls against your stock positions. Of course, most investors sell calls against their entire position -- but you don't have to do this. You can sell calls against half of your position, in essence, doing upside averaging. Many investors use the tactic of averaging down when buying stocks, but they forget they can AVERAGE UP when selling stock.

Keep in mind that getting out can be as difficult as getting into the position, if not more difficult. We mentioned averaging against half of your positions earlier. Let's look at an example. You own 1000 shares of XYZ, now at 73, and you sell 5 April 75 calls at 3 1/4. If XYZ is above 75 at April expiration, the two options you sold will be exercised and you will be assigned to deliver 500 shares of XYZ for $75 each. However, since you sold the calls for 3 1-4 each, your effective sales price will be 78 1-4. Not only that but you will continue to hold the 500 shares you did not write calls against and will participate in further advances. On the other hand, if XYZ is below 75 at April expiration, you will retain all 1000 shares plus the $1650 option premium (5 x $325), improving the cash flow in the account. You can then write 5 more calls if you choose. This may be a strategy to consider in this market.

Source: DWA

Why We're Still Optimistic about Tech Investing ...or, how I learned to stop worrying and love the crash
By Fred Hagar, Hager Technology Research.
http://www.luskinreport.com/hager/archive/20011023hager.htm

EXCERPT:
Valuations are now at levels that would have been deemed unfathomable only a couple of years ago.  Many, if not most technology companies are trading at less than 25x their annual earnings prior to the recent fallout.  A number of leading semiconductor manufacturers are now trading at less than 15x their peak earnings.  Once a rebound occurs, it’s quite possible that many firms will see their shares appreciate not only as a result of improving fundamentals, but also increasing valuations. 

Many of the companies that have been hit hardest by the recent downturn can, to a large extent, attribute the drop in their earnings not to a drop in demand from the consumers and businesses that end up as the final users of their products, but due to inventory buildups on the parts of the original equipment manufacturers (OEMs) that act as a link between the two.  [Many tech firm] problems primarily stem from the inventory accumulated by the Motorolas and 3Coms of the world, and stand a good chance of being greatly alleviated as soon as the inventory is cleared out.  Similar commentary can be made with regards to the near-term business prospects of numerous semiconductor, component, and equipment manufacturers scattered throughout the IT industry. 

Most important of all, however, is that the potential for rapid future growth still remains.  Contrary to what many of the more ardent pessimists have proclaimed, the tech revolution is far from dead.  The techno-utopia still hasn’t arrived, and plenty of work remains to be done before it does.  Just consider the following facts: 

- Less than 5% of all residential Internet users currently have a broadband connection.  Of those that do, most of the connections provide speeds in the neighborhood of 1 mbps, far less than what’s needed for high-quality video transmissions. 

-Over 90% of all Global 2000 corporations still provide Internet access to their employees via hideously expensive T1, T3, and SONET connections. 

-Less than 15% of all cable TV users worldwide possess a digital set-top box.  Of those that do, only a small fraction possesses fully interactive versions capable of supporting features such as video-on-demand and two-way Internet access. 

-Less than 5% of all mobile phone users currently utilize an always-on, packet-switched wireless Internet access service.  Of those that do, only a small fraction contain an advanced operating system, and only a handful (literally) have access to any type of multimedia service.

  -Less than 20% of all Global 2000 companies have migrated some of their mission-critical storage assets to an interoperable, networked architecture.  Many of those that have done so are still far from completing their migration. 

-Less than 1% of all home appliances and automobiles presently sold contain advanced power management modules.  These modules, utilizing sophisticated semiconductors, allow for power consumption savings of over 30%, and several-fold increases in product reliability. 

The end of the free ISP?
-Reuters

EXCERPT:
LONDON--A year ago, Europe's Internet service providers were shifting focus away from access charges and toward advertising revenues as the path to profit.

But the promising online advertising market has cratered in the past 12 months, as ad revenues dry up across the media. The response of ISP executives? Focus again on access charges.

"There is no improvement in the online advertising market," Merrill Lynch analyst Peter Bradshaw told Reuters. Bradshaw said that e-commerce revenues were developing, but that much of the business was by-passing the portals and going straight to retailers online.

"What's a good revenue source? Access fees. Everyone perceived it as a ridiculous, loss-making model. But it turns out to be a pretty good model," Bradshaw added.

With three of Europe's largest ISPs--Germany's T-Online, Spain's Terra Lycos and Italy's Tiscali- scheduled to report results over the next two weeks, analysts will be focusing on numbers from their nascent broadband businesses as a long-term measuring stick.

Speedier, high-cost broadband services, sold on a subscription basis, are in increasing demand across Europe.

--Barry Ritholtz
November 8, 2001

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