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We apologize for the delay tonight. Many ISP's around the country were down or suffering extreme difficulty in handling mail traffic.

THE MARKETS

As one of our analysts noted tonight, the market is at a key juncture with some major news coming. As she put it "if the market pulls back tomorrow, it is going to be hell again." Despite the move higher on increasing volume today and the good earnings news, the market is setting itself up for some trouble with all of this heady talk going on. We like the move the Nasdaq made, but it could not close over Friday's high (2841.25) after trading over that level at the end of the session. It has some serious resistance at 3000; without a full 50 basis point cut it will have some trouble overtaking that level. It needs to show it can move up again right now on solid volume without falling back. It has to distance itself from that down trendline and 2700 in a big way. As earnings have been coming as anticipated if not a bit better given the diminished circumstances, what the Fed does is becoming key. Greenspan will play a big roll tomorrow.

Overall market stats:

VIX: 23.86; -2.08. Volatility tanked today, falling below its 200 day moving average and showing us a level we have not seen since October. This is a secondary indicator, but worth watching in conjunction with the price/volume action. Today P/V was okay again, but weaker. Took a late rally. Caution.

Put/Call ratio: 0.60; +0.14. Put buyers were back in action today, but not overwhelmingly. Some possible short covering as the market moved up and the feeling becoming prevalent that things can only go higher. Another sign just to be on the lookout.

NASDAQ: We were concerned about the Nasdaq heading into the last two hours. The index was up sharply, but many stocks were not flying higher on strong volume, and the overall volume looked to be coming home lower. Then the buying spurt in the last hour righted the ship a bit. We like to see strong finishes, and that was the case today. That may take care of things. Still we really want to see a follow-up day tomorrow on higher volume. A lot is riding on Greenspan.

Stats: Up 82.48 points (3%) to close at 2840.39.
Volume: 2.283 billion shares (+12%). Again the index showed the right price/volume action, but it took a late rally to do it. Up volume rose to 1.671 billion shares while down volume fell to 548 million shares.
A/D and Hi/Lo: Advancing issues continued to lead, coming in at 1.64 to 1 (1.10 to 1 Monday). New highs rose to 92 (+17) while new lows rose to 18 (+1).

The Chart: http://www.investmenthouse.com/cd/$ndx.html

A quick move down at the open and a solid move up after that test of 2736 on the session low. That was the type of action we like to see, and volume finally came in late in the session to give it a 'healthy' label on the session. On its high (2845.39) it topped Friday's intraday high, but it closed below that level 15 minutes after hitting it. The index is showing it has some work ahead of it between here and 3000. Again, it needs real help from the Fed. We don't want to pin everything on the Fed, but things are shaping up as sort of a showdown: the market wants it, but will the Fed deliver it?

Dow/NYSE: The Dow is banging around in its trading range still, rising today on stronger, above average volume, and once again overtaking its 50 day moving average. It still has the down trendline and 200 day moving average ahead of it. Looking better, but it is still in its trading range and has to actually breakout.

Stats: Up 71.57 points (+0.7%) to close at 10,649.81.
Volume: NYSE volume jumped back above average today to 1.224 billion shares (+5.1%). Better price/volume action. Up volume jumped to 826 million shares while down volume fell to 451 million shares.
A/D and Hi/Lo: NYSE advancing issues stretched their lead to 2.2 to 1 (1.27 to 1 Monday). New highs rose to 140 (+48) and new lows rose to 7 (+1).

The Chart: http://www.investmenthouse.com/cd/$dja.html

The Dow continues to struggle below the 200 day moving average, but today it did not continue its fall as we thought it might. Instead, it tapped 10,509.92 on its low and turned back up for the close. It too showed a doji on the candlestick chart as its trading range continues to tighten. We always like to see consolidations tighten up in narrower ranges; think of it as pressure building for a move. It still has to clear and hold over the 200 day moving average (10,709.94), but it looks as if it is going to make a run at it.

S&P 500: The big caps made the best move of the day. They jumped up off the 50 day moving average on rising, above average volume and cleared the January highs as they continued to move further up off of the recently broken down trendline. Not a powerful move as volume was not huge, but a very solid move. It is sitting right at some resistance, but it has good momentum and the big caps could lead the rest of the market higher. Still, it needs the help of a Fed on the side of the market.

Stats: Up 17.50 points (+1.3%) to close at 1360.40.
Volume: NYSE volume was back above average on the move at 1.224 billion shares (+5.1%).

The Chart: http://www.investmenthouse.com/cd/$spx.html

TOMORROW

Today was a solid day. The indexes did what was necessary given the patterns set up Monday, but they did not race ahead with power. The S&P 500 looks the best right now as the Nasdaq is about to lock horns with its thorniest test yet from 2800 to 3000. Things need to be just right for it to make the important move, and that means continued institutional buying and the right Fed move. That is a 50 basis point cut in our view, but will 25 basis points be devastating? After all, it is a rate cut. That might be enough to placate the market, but we don't think it will be enough for the economy long term. There are still too many dangerously slow areas in the economy and the world in general to take risks with a 'go slow' approach.

We have a nagging feeling based on the excitement we are hearing from the television analysts, today's intraday action, and the Fed's ego that we could be getting set up. Nothing concrete as technically everything was fine today (normally even a late-day volume surge would have us very pleased), but when everyone starts saying you have to get in, some smart money starts to leave. Keep an eye on volumes tomorrow. You can do it at the IBD site discussed in recent Subscriber Questions (URL in the FAQ's on the site). We may use a morning rally to take some profits. Nasdaq futures are up 38 points and look solid for now. S&P futures are up 2 points and show 17 points over fair value.

We may be just caught up in our perpetual cautious approach to the market. We have had a nice rally and were enjoying all of the naysayers; they kept things dicey which the market likes. Now that we have all on board (at least according to the financial stations) we have to be careful. Today was not going to turn out well until the buying jumped in very late. Maybe that is just a portent of more gains tomorrow on heavier volume. If it is we will continue to do as we always do: look for solid breakouts and play those pre-announcements, pre-splits, and other solid plays that are going to make us money. VRTS was flying after hours on the SEBL news, and we will be looking for opportunities to get into that some more tomorrow; we might not get a chance until later in the session as things were hot and heavy after hours.

Remember: if this market is gong to continue to move up there will be plenty of times to get in. There is a lot of talk about fund managers afraid they are missing out on the basement prices. That is foolish talk as well. There is not just one point to buy a stock. Indeed many techs still have to form their patterns before they are ready to really rock and roll. It is great to average into some positions when it looks like things have bottomed. It is another to chase after positions that have jumped up fast and are extended, having not formed good bases. Patience. Focus on plays that have not run away; we had to hold back today on a few positions that we missed. We got some others, however. That is the way it works. If you rush in because you have a sense that you 'have to get in,' back off. That is what made us cautious today. We have seen a lot of 'have to get in' rallies turn into 'get me out quick' nightmares. That will not stop us from making plays that look ripe if the market is still performing properly. JNPR jumped up as expected today, as did EMLX and BRCM. EXDS does not look bad at all, and PMCS has us drooling though it shot out of a canon after hours on the BRCM news as well. We always react to the numbers. We will just watch what the Nasdaq does when it approaches 3000 and take our cues from there.

Support and Resistance Levels

Nasdaq:
Resistance: 2890 to 2900 is next before the 3000 level.
Support: 2700 is what we are looking for as the first round. Then 2640 to 2650.

S&P 500:
Resistance: 1360.
Support: 1335 to 1340. Then 1325. After that we look to where it turned up last time at 1313.65.

Dow:
Resistance: 200 day moving average (10,707.62). Down trendline at 10,705. Then 10,900 and 11,020. After that, 11,400.
Support: 10,300 to 10,400. After that, 10,000.

Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.

1-22-01
Leading Economic Indicators for December (10:00): -0.3% versus -0.2% prior.
Treasury budget for December (2:00): $32.0 billion versus $33.1 billion prior.

1-25-01
Initial jobless claims (8:30): 330,000 versus 306,000 prior.
Employment Cost Index, fourth quarter (8:30): 1.1% versus 0.9% prior.
Existing home sales for December (10:00): 5.05 million versus 5.22 million prior.
Greenspan speech

1-26-01
Durable goods orders for December (8:30): -1.5% versus 2.5% prior.
Help wanted index for December (10:00): 75 prior.

SUBSCRIBER QUESTIONS

Q: Can you please address what it means for a stock to "fill a gap" and what the probability for this is?
A: A gap occurs when a stock opens higher or lower than the previous closing price. It is caused by either high demand for the stock or heavy selling pressure. How high or low it gaps depends on how high or low the market maker has to move the stock to find a seller (upside gap) or a buyer (downside gap). Tomorrow we will most likely see BRCM and SEBL gap higher based on their earnings numbers.

The question is whether the gap will be filled. Some say all gaps will be filled, but that is not necessarily the case. Indeed, we have seen trend reversal (aka, key reversal) gaps occur and the stock never comes back to 'fill the gap.' We have also seen cup with handle breakouts where the stock exploded out of the pattern and never came back. As for probabilities of filling, it depends upon the stock, the news (if any), the strength of the market, and the pattern. What happens is that the initial demand wears off and the stock slides back down to the point where it gapped up (the close immediately before the gap). The stock will either bounce up off of that point or slide lower.

We often see stocks breakout on a gap and then test the breakout. They can partially or completely fill the gap. We see others that gap higher, race up even more, and then come back to test where they gapped up to before taking off again. One fills the gap, the other does not. The main thing we look for is whether the test comes on lower volume, preferring that the stock hold most of the gap, and requiring that it hold the pivot point on the breakout. After that we don't really care as we can take positions on the move up from there as well.

Sometimes we play a gap short term that jumps higher and does not fill the gap that day or the next. If it continues up, we climb aboard, but are ready to get off when it shows signs of peaking on the run. Then we can get back on if the test is successful. There are many ways to play a gap as you can see. When we have options we tend to take the profit on what appears to be the peak of the gap and wait for the test before taking additional positions. On longer term positions we can ride down the test if we so desire as long as the stock does not violate our rules on gaps as outlined above.

TEAM TRADES

A busy day today as many plays were performing as anticipated. We took positions on IFMX as it hit the buy point on good volume. Same with TPTH. Smaller stocks that gave us good volume early on that we wanted to be in for what look to be very solid moves once again. We also got the chance for more positions on BRCM today as we outlined last night. That one looks as if is going to work out very well with the solid earnings.

We were looking at positions with stock on BSC (financial services) as well, as it moved up Monday in the handle of its cup pattern. The high in the handle was 59.75, so we were waiting on a move to 59.88 on a surge in volume (preferably the 1.8 million range, but on an early move you have to use your best judgment on the strength of early moves as it turned out, today ended up just over average). The stock closed Monday at 59 and opened today at 59.06, quickly making a move over the buy point. We put in an order at 60, but the stock moved beyond that point to 60.25 10 minutes into the session, so we waited for a pullback to test the breakout. We did not pull the order, and were a bit nervous when the stock immediately tested the breakout, pulling back to 59.81 in the next 5 minutes and taking us out at 60. The stock moved between 59.75 and 60.37 for the next 20 minutes, and then managed to break over its morning highs.

We also were looking at EXTR, which had made good moves recently with the techs but had slowed down a bit after earnings. Actually, the stock was holding up very well, showing consecutive dojis under resistance of its 18 day MVA, which was at 44.75. Monday the stock reached over that level to 45 before pulling back, so we were going to see if EXTR could make a solid move over that level. The stock opened at 43 9/16 and quickly started moving up on good volume. The stock hit 45 at 9:55 ET, but we wanted to see a move over that level, preferably with a strong rebound in the Nasdaq, which was slightly down. EXTR did not disappoint, climbing up to 45.25 in the next couple of minutes. When it pulled back to 45 1/8, the Nasdaq had not turned but was not headed south either, so we put in an order for stock at 45, looking to be taken out on a test back to that level. We were being a bit cute here, as generally on a pullback we would look at positions on a move back up after testing 45. However, this time we were confident that the move was strong, but when we saw the stock pause at 45.25 and drop back to 45 1/8, we thought we could get taken out at 45 when it tapped back to that level. We were right, and after we were hit the stock made a solid run that was almost uninterrupted up to 47. Note that we had been very hot on taking positions we could have put in an order as soon as the stock showed strength on it move over 45, catching it at 45 1/8 or 45.25, or, as stated above, on the move back up after the test of 45. Playing it the way we did risked catching it on a move down that did not stop at 45.

Good Investing!
Jon Johnson and the Tech Traders Report Staff.

All of the foregoing is commentary for informational purposes only. All statements and expressions are the opinion of Online Investment Services, LP or its paid consultants and are not meant to be a solicitation or recommendation to buy, sell, or hold securities. We are not licensed or registered in the securities industry. The information presented herein and on our related web site has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. The security portfolio of Partners of Online Investment Services, LP or its paid consultants may, in some instances, include securities mentioned herein and on our web site. Estimates, assumptions and other forward-looking information are subject to the limits of forecasting. Actual future developments may differ materially due to many factors.

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