Dow Closes Above Pre-Attack Level; Indexes Climb for the Week
DJIA rose, closing at its highest level since before the Sept. 11 terrorist attacks. Microsoft Corp. led the gain as stocks advanced on optimism lower interest rates will spur a rebound in the economy and corporate profits.

Expectations of the bottoming of "earnings getting worse'' have made the equity market attractive.

Closing Summary

Index	Last	Change	% Change
Dow Jones I.A.	9608	20.50	0.21%
S&P 500	1120.31	1.77	0.16%
Nasdaq Comp	1828.4	0.70	0.04%
Russell 2000	438.1	-0.96	-0.22%

 
Taliban Said to Suffer Major Setback
KABUL/WASHINGTON - The war over Osama bin Laden and his al Qaeda network appeared to have swung sharply in favor of the U.S.-led coalition on Sunday after Afghan rebels claimed to have captured a vast swathe of territory and to have crippled the ruling Taliban's fighting force.

The opposition Northern Alliance said the cream of the Taliban army had been wiped out in a string of surprise defeats and it refused to rule out an advance on Kabul, injecting new urgency into the search for a post-Taliban government. (Reuters)

EURO / ASIA COMMENT
-Tokyo's leading Nikkei ended a shaky session down 1.3 percent, as worsening pessimism over corporate earnings and slow progress on structural reforms offset a recovery in bank sector.

Taiwan stocks rose after the World Trade Organization approved both China and Taiwan's entry into the global trade club; Hong Kong ended lower.

Japan's Nikkei Average reversed course and lost 134.15 points, or 1.3 percent, at 10,081.56 -- after having risen half a percent earlier in the day. The key index closed below the 10,100 line for the first time since Oct. 10. (CBS)

Florida Ballot Review Shows Mixed Results

A vote-by-vote review of untallied ballots in the 2000 Florida presidential election indicates George W. Bush would have narrowly prevailed in the partial recounts sought by Al Gore, but Gore might have reversed the outcome -- by the barest of margins -- had he pursued and gained a complete statewide recount.

Bush eventually won Florida, and thus the White House, by 537 votes out of more than 6 million cast. But questions about the uncounted votes lingered. (AP)

- HD Home Depot reports earnings on Tuesday.
After Fridays close, Merrill Lynch analyst Peter Caruso issued a report which may surprise Wall Street: Home Depot's store growth will slow and the cause isn't Lowe's, but cannibalization. All of those Home Depots they're building down the road from one another eventually take their toll.

Caruso says the company is approaching "Stage One Saturation." His prediction: Home Depot's square footage growth will slow to 10%. (Last Q, square footage grew by 24.8%). Caruso based this on a bi-annual saturation study that he has conducted since 1995. (Herb Greenberg)

- MSFT "States' Antitrust Case Set for March
The judge in the Microsoft antitrust trial formally set the case to proceed early next year for the nine states that rejected a settlement with the software giant and the Justice Department; MSFT also proposed, along with five computer security firms, initial guidelines to control the disclosure of information about software flaws.

- Q, BRCM and HLTH each have conference calls today.

- VZ Verizon Wireless said it hopes to complete its long-delayed initial public offering by mid-2002. The company also disclosed that 22 states inquired about its billing practices earlier this year.

- HWP Hewlett-Packard canceled its planned Dec. 5 analyst meeting, rescheduling it for early next year. Separately, founder's heir Walter Hewlett has hired a proxy solicitation firm to fight H-P's acquisition of Compaq.

Market Stats

Market	NYSE	Nasdaq
Total Volume	1100.02m	1507.66m
Up Volume	566.86m	848.29m
Down Volume	512.08m	636.93m
Advancers	1593	1927
Decliners	1474	1804
New Highs	64	41
New Lows	27	42

-Scientific Atlanta SFA makes the bull list: After experiencing a long technical drought over the past two years, during which the stock dropped from a high of 94 to a low of 15.75. This is a somewhat contrarian recommendation, as the stock is far from being overloved. Thomson Financial notes 10 "hold" recommendations on SFA, up from five "holds" one month ago.

These additional "hold" recommendations come during a period in which SFA announced earnings that crushed Wall Street estimates. In October, SFA reported earnings of $0.23 per share - well above the $0.18-per-share estimate. Post upside surprise, the stocked gapped up the next trading day, and has been able to hold this level since. 10 and 20-day moving averages have acted as support during the last couple of weeks. SFA has more upside potential in the intermediate term, as the shares are sporting a very favorable price-to-earnings ratio of 13.89.

-Oracle (ORCL) remains on the buy list; Use pullbacks as an opportunity to add in the lo $15s. (added Mid-day Nov 7th)

--Countrywide Credit (CCR) still on the short list of short stocks. Featured as a short on TheStreet.com after we rec'd it. You can short between 45 - 47; STOP LOSS: cover on a breakout over 47.50 - 48. (added Nov 8th)

Things That Warrant Attention On The Charts
The 21-day moving average of the CBOE equity put/call ratio bottomed (coinciding with market tops) at 0.52 in early February and 0.53 in late May. The Put/Call ratio is a contrary indicator that is bullish near its highs, and bearish near the lows.

The ratio is currently at 0.57 and descending. If the ratio continues at its current pace, it will descend to around 0.53 by the end of the month. There, it will face a tremendous battle between forming yet another bottom at that level and penetrating below it for the first time in more than a year. If it is the former, then the market will form yet another intermediate term top and probably drop below the lows set in late September. If the ratio keeps retreating lower though, the market could take out its late May highs. (Source: Schaeffers Research)  

Mexican Standoff ?
Friday was a dull, listless lower-volume session. Call it a Mexican Standoff - the bulls and bears couldn't make up their mind. We ended up fairly close to neutral on some of the indexes with the S&P 500 up 1.75, the Composite only up .62, the Nasdaq 100 up only 4, and the Dow up about 20 ?

An example of how it was fairly neutral today, the advance-declines were 1580 to 1490 on New York, and the up/down volume was 562 million to 510 million. On the Nasdaq it was 1460 up and 1558 down with less than 4-3 up volume over down volume.

We started out with a move down, rallied back up and came down again. Most of the day was spent in a narrow 25-30 point range on the Nasdaq 100. On the S&P 500 we dipped earlier and had a nice comeback rally but it failed at resistance and the market basically was in a 10-point range the rest of the day.

This action can be viewed as a flag formation on the charts coming off a big move down yesterday afternoon. It portends the potentiality for another leg down here, and perhaps a sharp one as well. Late in the day the moving averages on intermediate charts crossed over, giving a sell signal. The market can drift lower for the next few days.

But net-net on the day, the market had a neutral standoff, Friday profit-taking day, and we'll see if the start of the next downtrend will be minor or something more serious. (Source: The Technical Trader.com)

  "By the second half of 2002 the economy should be growing, inflation should be falling, earnings should be rising, and interest rates will likely be at or below today's levels. With share prices having already declined almost 20% on top of last year's 9% drop, and hovering at levels not seen since the lows of 1998, we believe the only appropriate posture for the investor is to be bullish, and to be fully invested in equities."

--Bill Miller
(Miller is the only fund manager to beat the S&P in each of the past ten years, in his 2001 shareholder report, filed last week).

New Bearish Books Good Contrary Indicators?

As the market approached its top back in early 2000, bookstores were replete with excessively bullish investment guides. Now that September 21st looks like a pretty solid bottom (at least to me), we are now graced with a series of books on "Short Selling."

"Dow 100,000: Fact or Fiction," and "Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market," were both good contrary indicators at Nasdaq 5000; (We discussed these Contrary Indicators back in January of 2001).

What do you suspect the significance of books like "Bulls Make Money, Bears Make Money, Pigs Get Slaughtered" and "No Bull" are at Nasdaq 1389 . . . ?

See "The short-selling of America" (in Further Reading, below) for a more complete discussion of these new crops of books.

An utterly outrageous article appeared in the Washington Post this weekend, titled "The Trouble With 'Timing': It Doesn't Work."

The "facts" are incorrect; The conclusion is faulty; The argument is specious. But here's the most outlandish part: The author of the article is James K. Glassman. If that name seems familiar, he's half of the braintrust who gave us the 1999 book "Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market."

After being so spectacularly and breathtakingly wrong, one would imagine a small amount of reticence would prevent another public "crash and burn;" No such luck. If the author had a shred of decency, he would have fallen on his own sword some time last year . . .

The Trouble With 'Timing': It Doesn't Work
By James K. Glassman
Sunday, November 11, 2001

EXCERPT: "In the stock market (as in much of life), the beginning of wisdom is admitting your ignorance. One of the many things you cannot know about stocks is exactly when they will go up or go down. Over the long term, stocks generally rise at a nice pace. History shows they double in value, on average, every seven years or so. But in the short term, stocks are just plain wild. Over periods of days, weeks and months, no one has any idea what they will do. Still, nearly all investors think they're smart enough to divine such short-term movements. This hubris frequently gets them into trouble. For example, many investors, believing the economy would collapse after the Sept. 11 terror attacks, sold their shares at the first opportunity. The Investment Company Institute reported that investors pulled $29.5 billion out of stock mutual funds in September -- the largest one-month withdrawal in history.

General Electric fell below $30 a share, Oracle dropped to $10, the Dow Jones industrial average skidded to 8236 and the tech-heavy Nasdaq composite index fell to 1423. But within seven weeks, GE had risen above $40, Oracle broke $16, the Dow was above 9600 and the Nasdaq topped 1800. Many investors who sold their stocks in late September in anticipation of hard times ahead got a rude surprise.

But, as surprises in the market go, it was a pretty common one. The strategy that these investors were employing -- trying to make money in stocks by predicting their short-term moves -- is called "market timing." It doesn't work. Period. John Bogle, founder of the Vanguard Group, one of the world's largest mutual fund houses, once wrote: "After nearly fifty years in the business, I do not know of anybody who has done it successfully and consistently. I do not even know anybody who knows anybody who has done it successfully and consistently."

The short-selling of America:
Authors, strategists preach investment alternatives
By Thom Calandra, CBS MarketWatch

EXCERPT:
SAN FRANCISCO (CBS.MW) -- The art of surviving in periods of fiscal turmoil marks the latest crop of investing books.

"As someone once said, and it might have been Yogi Berra or Warren Buffett, "The first rule is not to lose, and the second is not to forget the first rule."

Wall Street wisdom is an industry. Among others, Michael Steinahrdt's "No Bull," George Dagnino's "Profiting in Bull or Bear Markets" and soon-to-be-published "Bulls Make Money, Bears Make Money, Pigs Get Slaughtered" by Anthony M. Gallea hope to show investors how to navigate choppy market waters.

Americans, for the first time ever, are receiving popular lessons in how to short-sell, or bet against stocks. Such material on the short-selling of America coincides with what has been a spectacular year for short-selling hedge funds, the second year running. Dedicated short-bias funds are up an average of 10 percent this year vs. a 17 percent decline for the Standard & Poor's 500 Index, according to Credit Suisse First Boston Tremont Index. Indeed, many short-selling and market neutral hedge funds, based in New York, Boston, San Francisco and Chicago, are enjoying gains of 30 percent and greater this year . . . "

--Barry Ritholtz
November 12, 2001

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