Although good military news helped the overall market, the possibility of a relatively brief engagement weighed on the defense sector.

Additional cities fell to the Northern Alliance -- Jalalabad and and the airport at Kandahar were taken, and CNN reported that "numerous opposition forces were said to be rising against the Taliban in the south." These strategic victories took the momentum out of key issues in the aerospace and military sectors: Raytheon (RTN) Lockheed (LMT) and Northrop Grumman (NOC) all closed in the red as wartime buying euphoria faded.

Despite the all too recent memories of the last time investors chased stocks to irrational levels, buyers apparently could not help themselves again as they bid defense issues up nearly 50% from their pre September 11 levels. Since that early October peak, many of these stocks have given back half (or more) of their post attack gains . . .

Closing Summary

Index	Last	Change	% Change
Dow Jones Industrial Avg.	9823.61	72.66	.75%
S&P 500	1141.21	2.12	0.19%
Nasdaq Comp	1903.1	11	0.58%
Russell 2000 Index	452.82	4.48	1%

Pushing on a String? . . . Not!
The Bears have been fond of pointing out the ineffectiveness of the past 10 Fed cuts; Some have even attempted comparisons of the US economy with that of Japan's economic malaise.

Aside from the structural differences between the two countries -- we have a cap/ex induced slow down, while their's is primarily a banking problem -- yesterday's retail numbers may help put an end to that speculation.

Unprecedented efforts by the Big 3 automakers -- namely, 0% financing -- helped pushed retail sales for October up a blistering 7.1%. This was nearly 300% above consensus estimates. Expect this to effectively eviscerate the arguments that the Fed is "Pushing on a String."

Obviously, Fed cuts are stimulating the economy in a very measurable way; Without the greatly reduced interest rates, automakers could not afford to offer 0% financing -- which is what's driving car sales. Now, if only the credit card companies would follow suit . . .

Return of the IPO market?
Almost lost amongst the war time and terrorism news has been the return of the IPO market: Three IPOs priced this week at the top of their expected range -- or higher; All 3 opened at least $3 over their IPO price and gained 27% on the first day of trading. Investors were prepared to buy when the three companies that completed IPOs began trading Tuesday. The price of each new stock leapt in line with the broader markets.

Investors were jumped on board (sorry) The Advisory Board (ABCO), which opened higher at $22.55 -- solidly above its $19 IPO price. AMN Healthcare Services (AHS) popped at $21, 23% above its $17 offering price. It opened big, then added to its gains late in the day, closing up 27% at $21.66. Lastly, New Zealand-based Fisher & Paykel Healthcare (FPHC) was a strong opener at $21.55, more than $3 above its $18 IPO price. The ADR headed solidly higher through the day and closed up 27% at $22.95. (Source: ipo.com)

Crude Oil Falls Again as OPEC Unable to Make Large Production Cuts
A squabble between OPEC and non-OPEC oil producers over production cuts and a rise in last week's crude and distillate inventories dealt a double whammy to crude futures Wednesday, prompting prices to fall back to a low under $20 a barrel.

OPEC announced cuts of 23.2 million barrel per day output quota by 1.5 million barrels per day, emphasizing that OPEC also wants non-OPEC members to cut their output by a total of 500,000 barrels per day, according to Dow Jones. Oil stocks declined in the face of falling prices; XOM dropped $1.80 (4.4%) to 38.70; BP Amoco fell $3.31 (6.7%) to 45.90; Royal Dutch Petroleum (Shell Oil) dropped $$3.19 (6.11%) to 49.05.

    - DELL release 3Q earnings today.

- NOK as expected, an upbeat analyst day from Nokia. UBS doubled the amount of NOK's convertible bond offering. See T/A round for our add of NOK to the buy list.

- AMZN mentioned here yesterday, CFO comments launched the stock skyward, as AMZN added $2.16 -- an astounding 29.63% gain in Amazon's stock; (What year is this again?)

Ironically, Amazon's move occured on the same day that Henry Blodget -- the Merrill Net Analyst who put a $400 price target on Amazon back in the day -- accepted a $2 million severance buyout from ML -- could this mark the bottom of the 'Net sector? Blodget plans to write a book about the Internet bubble.

- YHOO holds Analyst meeting today; Seeks revenue in DSL embrace. Yahoo deal with SBC Communications (SBC) to offer co-branded high-speed Internet access in SBC's region. The internet portal has been pressed to cut costs and find other revenue sources; Yahoo appears to be making progress on both imperatives. Yahoo has a large short interest -- who may be covering as the stock rallies further.

- MSFT Debuts X-Box in NYC. The world's largest software co begins selling its first-ever gaming system today in an attempt to enter the lucrative game system market. Its part of Microsoft's strategy to bring its products closer to home - every home.

- GPS The Gap also release Q3 earnings -- widely expected to be miserable. Their confeence call is at 5:00pm

- AOL "AOL May Have to Buy Europe Venture Stake
Flipside of Pottermania: Bertelsmann AG has informed AOL Time Warner it may have to buy back part of the German publishing group's stake in their AOL Europe venture between Dec. 15 and Jan. 15, AOL said in an Securities and Exchange Commission filing.

This issue was the subject of speculation in Barrons a few weeks ago. Short sellers predicted that the dilution and expense from this event could pressure the the stock into the "high teens."

AOL noted in the quarterly earnings filing it would have sufficient resources either from cash reserves or accessing the capital markets or committed bank facilities in the event Bertelsmann exercises its rights. The German media giant has the right to sell 80 percent of its 49.5 percent stake in the European Internet service provider for about $6.75 billion before Jan. 31 has the right to sell its remaining stake by July 1.

- HWP / CPQ surprises to the upside, saves Carly's job: A pleasant surprise as HP cut inventories and costs. This increases the odds that the merger goes thru. HWP's stock popped $1.85 (9.14%); CPQ added $1.20 (13.64%). Their call is at 4:30

- LU - may sell fiber unit for less than agreed price; The WSJ reported that Lucent is likely to take less than the agreed-upon $2.75 billion to Furukawa, CommScope and Corning.

Look Out Below ?
- AMAT 4Q missed by a penny (DOH!), but said "long term industrial outlook was strong." Stock was off $1.25 in after hours trading (I'd hate to see how they'd do if their outlook was weak).

Momentum Move?
The scalding hot momentum move on increasing volume looks like part of that $6 Trillion on the sidelines went to work is closing in on yesterdays interim target of S&P 500 (SPX) 1150.

The Friday options XPIRY looks like it has the arbs evening positions on the buy side due to heavy net short options set ups can continue to boost the run at least to tomorrow.

Any way you look at it this whole show in a collapsing economy has the graybeards scratching their heads as they watch price advance. Best to go with the flow and accept the fact that at some point the worst economic/earnings news will be discounted and markets will go against the fact. Maybe we're there now. It's always an eerie feeling coming out of bottoms when you're up to your neck in a world of mire and prices move up for no apparent reason -- but let's live with it.

Prudence suggest taking some off the table on any high TICKs; SPX below 1134 will bring on the sellers. (SOURCE: Dr. John Faessel)

Market Stats

Market	NYSE	Nasdaq
Total Volume	1433.34m	2148.07m
Up Volume	889.64m	1,375.22m
Down Volume	518.36m	729.73m
Advancers	1880	2060
Decliners	1229	1538
New Highs	105	92
New Lows	22	49

- NOK the world's largest mobile phone maker broke out this week as increased cell usage seems related to recent tragedies. Lehman Brothers analyst Tim Luke expects an upbeat analyst day, as he tells clients "while data points on demand remain mixed, we believe new applications, licensing deals, new product introductions and upbeat message at Analyst Day may help shares."

Technically, the chart is appealing as it also looks to fill its gap -- not from the September sell off, but a company specific warning back in June. Upside targets are 28 - 30 over the next Q. Buy half here, add to the position on pullbacks (sound familiar?). Added midday (7/14)

- PMCS broke out Monday on the move over $20; Tuesdays move on better than average volume confirms the break out; Short term target remains filling the gap to $25; Use pullbacks to add to position. This is one of our favorite charts. (added Mid-day Nov 12th)

- XOM Contrarian pick: Consider scaling into a partial position right here ($38.75) as oil prices fall. The fundie story is pretty obvious -- oil is bottoming in the middle of the recession. As the economy improves, so will energy demand, driving oil prices higher. XOM is at the bottom of its multi-year up channel, so as long as it doesn't rollover, this is a desirable entry point. Add to the position as the stock declines to $35, or if it rallies above $40. Work with a tight $34 stop.

--Countrywide Credit (CCR) still recommended as a short; as it continues to show weakness. You can add to the position on an uptick between 44 - 46; STOP LOSS: cover on a breakout over 47.50

Things That Warrant Attention On The Charts

One must be impressed with the strength of the markets. All four of our indices (the Dow, SPX, COMP, and SOX) bounced off their 10-day moving averages (10-dma's) on Monday, and shot up toward their upper Bollinger Bands (BB) on Tuesday on strong A/D ratios. A stock or index that is living between its 10-dma and its upper BB is in a very strong uptrend.

-- The short-term Stochastics turned up from high levels, which is bullish, and the mid-term oscillators (Stochastics and RSI) are holding strongly in overbought conditions - also bullish.

-- All four indices closed at the highs of this new uptrend. This "higher high" confirms that he uptrend is continuing. (An uptrend requires higher highs and higher lows.)

-- Noticeably strong on the COMP is the Candlestick Volume Momentum Indicator (CVM). It is approaching its July and early August highs while the price is down within its congestion range from late August (lower than the prices in July and early August). So, CVM is making an even stronger recovery than price, relative to its earlier levels. This is a positive divergence and is bullish.

-- The senior indices (Dow, SPX) are currently well below the levels of their respective August 22 lows while the COMP and SOX have moved up and hit their respective lows of those dates. The Dow and SPX CVM's are also weaker than the COMP's.

CONCLUSION On a purely technical basis there is no reason to doubt the current uptrend. It continues to maintain its internal strength. Money is moving into this market and so far that money flow has not weakened.

Skepticism of this rally is not on a technical basis, but on doubts that this kind of strength can be maintained between now and when positive hard numbers start coming in Earnings Reports and Economic News. These numbers are months away, at least.

On a near-term basis the COMP has moved back up into congestion levels from August, and the Dow and SPX have now closed above their September 10 closes. These two ideas could provide some near-term resistance (along with the fact that all the indices have touched their upper BB's)

A market that has moved this far, this fast without significant correction is susceptible to instability. The recent technical strength has left us looking for the next dip to be less severe than we previously anticipated, however, so we would look for pullbacks to the 20-dma's but not necessarily for full retests of the September 21 lows.

With the indices extended to the upside but showing no weakness it is difficult to recommend either buying or selling here.

MARKET TALK:The problem with sentiment these days: There's something for everyone.
Why aren't the bulls applauding Monday's action in the Dow Jones Transportation Average? There was a disastrous plane crash, yet that average didn't come close to making a new low. Still, no one can find anything good to say about the airlines. Instead, people are focusing on the next airline that might declare bankruptcy.

The point is not that Boeing held up so well -- it's a lousy chart. It's that folks attributed bullishness to Ciena's (CIEN) announcement more so than Boeing's. Shouldn't we applaud Boeing's action and be disconcerted by Ciena's? Boeing held up well in the face of bad news, and Ciena is still about $3 lower than it was a few weeks ago, despite feeding us good news Monday.

This continues to be the general problem with the market. Six weeks ago, you couldn't convince anyone tech was OK. Now, people are once again ignoring anything bad about tech. We saw that in the Nasdaq Monday, as it was the only one of the big three averages to close higher. That was a new closing high for this rally, yet the number of Nasdaq stocks making new highs was about half of what it was in early October, when this reading peaked. (Helene Meisler, TheStreet.com Tech Love Affair Rekindled)

"I cannot get a negative number for 4Q GDP growth no matter how negative I make my assumptions."

-Ram Bhagavatula, chief economist at the Royal Bank of Scotland. Bhagavatula was reacting to the news of a record 7.1% increase in retail sales for October.

How many of your clients are active particpants in ESOPs?

The IRS just proposed a major change to how these employee stock option plans are treated; Have you thought about how this will impact your clients' assets?

Educate yourselves on these (potential) new rules; Develop a plan of action -- then speak with your clients. Let them know how these rules may impact them (or their employees). Let them know you are on top of your game, and looking out for their interests.

See further Reading below for more on this development.

IRS proposes new rules for worker stock plans
by Mark Schwanhausser, Mercury News

EXCERPT: The Internal Revenue Service issued new rules Tuesday that would force companies to withhold payroll taxes when workers buy stock through employee stock-purchase and incentive stock-option plans.

Payroll taxes include Social Security and Medicare, but not federal and state income taxes. The IRS backed off plans to withhold income taxes on such plans.

If the rules are implemented as scheduled in 2003, critics complain, companies would face administrative headaches that might cause them to alter or scrap such plans. And millions of rank and-file workers would pay extra taxes, trimming the bonus they receive through such plans.

"It makes it more expensive for both employees and employers, and it's a haircut on the tax benefit that has been associated with these plans," said Ellie Kehmeier, national tax director for Deloitte & Touche in San Jose. The IRS regulations would directly affect 10 million to 12 million workers who buy stock through employee stock purchase plans, or ESPPs, and about 2 million workers who hold incentive stock options, estimated Corey Rosen, who heads the National Center for Employee Ownership in Oakland. But the impact could ripple worldwide, Rosen added, because many U.S. companies extend such plans to workers worldwide.

For Three Sectors, Unexpected Twists
EXCERPT:
With the initial shock of the terrorist attack abating, it could pay to look back at some strange twists affecting sectors highlighted in this space in the last few months.

The major averages have rallied since hitting lows on Sept. 21, despite further slowing in the U.S. economy and little evidence that corporate profits are recovering. The S&P 500 has gained 6.2% since then, while the Nasdaq is up 26% and the Dow Jones Industrial Average has climbed 14.6%. The previously spotlighted sectors -- auto suppliers, cigarette makers and savings and loans -- have had mixed showings, and the fortunes of each were changed by the terrorist attacks. For instance, the auto-parts makers were lifted by Detroit's zero-financing binge, while tobacco companies saw their status as a defensive play go out of vogue when the Fed put easing into overdrive.

-Auto Suppliers are Driven
-No Cure for Tobacco
-Are Thrifts at the Cycle's End?

--Barry Ritholtz
November 15, 2001