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CIEN affirms earnings and CSCO is enthusiastic. The company comments about the future continue to improve with CIEN today reaffirming its earnings outlook. That means it did not lower estimates, and that is taken as a sign of stabilization. Cisco presented at Comdex, and Chambers has certainly turned from the gloom spinner he was late last year (but he was right at the time about how fast things had fallen; something the Fed missed until the cows had left the barn) to a more cautiously optimistic CEO. He is known for his mood swings and he is discounted a certain amount on each end of the scale. But, he is feeling better about the future still, stating that CSCO continues to improve market share. That is not a ringing endorsement of the sector (does not imply sector growth), but it was a positive for CSCO.

Hope you like bacon: Senate 'stimulus' bill is all pork. If you don't fall into the various small categories of 'victims' in the Senate bill, you won't see much stimulus coming your way. The Senate bill is a spending bill, providing subsidies as its primary method of 'stimulus.' Again, senators are trying to help their own backyards by giving money away to support prices in certain specialized sectors of the economy that 90% of us do not have any involvement in. Subsidies don't work: how can artificially keeping prices higher or paying someone not to do something act as stimulus? It is the most ludicrous piece of legislation in years, but is going to be rammed through the Senate to attempt to force a major change in the House bill. Let's call it the 'New Entitlement and Giveaway Act of 2001.' If it passes, there will not be stimulus, just money squandered. It is clear these guys and gals are not listening to their constituency. It is time for you to give them a call and an email to tell them to forget the pork and do what needs to be done. Otherwise we are going to throw a bunch of money down the hole and not see anything for it. That is something the government does quite often, but there truly is a need to do otherwise right now or it may be many years before the U.S. regains the lead in the world it enjoyed just two years ago before our leaders decided to punch holes in the bottom of the ship. Great opportunity to turn tragedy into victory, but our leaders in Congress are ready to squander it. Get after them and let them know what you want them to do.

THE MARKET

As noted, the indexes had a chance to sell hard, started to do so, but then stopped at support and reversed. The Nasdaq closed with a gain on higher buying volume while the Dow and S&P made runs at the prior close. We view today as constructive given that today's incident could have easily been used as an excuse to sell if that is what investors wanted to do. Instead, investors stepped in at support and bought tech stocks, especially semiconductors.

VIX: 31.26; +2.59. Volatility spiked on today's events, not unexpected given their nature. The VIX hit 33.06 on the high; if it had closed there, it would have been one of the largest single-session jumps ever. As noted all day on the financial stations, the quick jump even on the recovery of the S&P well off the lows shows how edgy investors still are. But, as noted above, they did not sell hard. Edgy is good, particularly if there was no high-volume selling to accompany it. For perspective as to where it is now, volatility ranged from 20 to 22 during the summer (very low, very complacent), and then spiked over 55 when the market re-opened after September 11. Since then it has ranged from 28.19 to 38.

VXN: 58.99; +0.40. Nasdaq 100 volatility rose fractionally, but the index also closed positive for the session. On its high it hit 63.14, a huge spike on the news, and as with the VIX, it shows that investors remain very on edge. But again, no selling volume. The higher volume today was on buying. For perspective, in the summer it ranged from 43 to 47 on the lows. After the re-open it was up to 93 intraday, and has since ranged from 55 to 70.

Put/Call Ratio (CBOE): 0.81; +0.07. Put activity shot higher again today on the news even as the indexes hit support and bounced quite well. When more option players were buying puts, we sent an alert out that we should be selling our put positions as the indexes were holding support. This increased put activity is another indication that investors are edgy about the market's prospects, and that is good.

Nasdaq

Continues to be the strongest index in the market, bouncing off just above the up trendline to move positive on the session with rising volume (holiday volume, so still below average). It continues to trade in a tight range on the close, just what we wanted for a consolidation for another move higher.

Stats: +11.65 points (+0.6%) to close at 1840.30.
Volume: 1.596 billion shares (+4.8%). Below average volume once again, but it was a holiday. Still, the index rose on higher volume, and the up volume far outpaced the down volume at 1.089 billion shares to 478 million shares.
A/D and Hi/Lo: Advancing issues eked out a win at 1777 to 1770 (1.003 to 1). Very even session on an up day. New highs edged slightly down to 40 (-1) as new lows rose to 50 (+6).

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

Sold off fast on the news of the crash, tapping just above the up trendline on the low (1782.48), testing it again, and then rallying to positive territory. At the close of the session, the up trendline is now at 1780. On the close the Nasdaq continues the pattern of holding in a tight range, holding above key support. It may test the up trendline and 1800 again. We really, really like it when up trendlines merge with horizontal support lines as that tends to provide a solid catalyst in the direction of the trendline. Again, if the index continues to move laterally to slightly down on low volume as hit has been doing, it is setting up for a solid upside move. It has churned some, but has shrugged it off so far. More lateral action on low volume would heal those days and set the stage.

Dow/NYSE

The Dow as well tapped toward support early, then recovered to close just down for the session. Lower volume and still holding in a tight range on the close. Another building pattern.

Stats: -53.63 (-0.6%) to close at 9554.37.
NYSE Volume: 991 million shares (-10.4%). Still well below average volume, but we like low volume on pullbacks or consolidations. Down volume led up volume 534 million to 450 million shares. Pretty evenly matched and constructive in the current pattern.
A/D and Hi/Lo: Declining issues recaptured the lead, but at just 1.04 to 1. New highs rose to 77 (+4) as new lows edged up to 31 (+1).

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

Tapped down to 9408.58 on the low, tested it, and then moved higher. It almost turned positive, but could not clear the opening price of the session, a natural intraday resistance point. Still, it was a good session. The index fell below near support at 9500 and the 50 day MVA (9459.41), but held above the up trendline at 9330 (today's close). The index continues its lateral move (closing prices) above support as volume tapers off. That is classic consolidation action. Yes there has been distribution, but it is trying to settle down and iron out a solid consolidation for the next move higher.

S&P 500: This index as well tapped support on the low (1098.32 on the low) at 1100 and the 50 day MVA at 1099.43), and then rallied to close almost flat for the session. It did peek into positive territory, but could not hold. That is okay. On the close it once again continued a tight trading range over support on low volume. Sound familiar? The indexes are trying to put in a floor for the next move up, working through the recent churning sessions. If they can digest them and continue to move laterally for 2 or 3 more sessions on low volume, the will be ready to move higher from a new support level.

Stats: -1.98 points (-0.2%) to close at 1118.33.
Volume: NYSE volume sagged even further below average to 991 million shares (-10.4%). Good consolidation action; if it can keep it up, it will have a floor to jump up off of.

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

TOMORROW

We did not get the downgrades coming out this morning. Indeed, we had some positive talk about RFMD and others, and that had futures looking good before the air crash. Indeed, it was the crash that sent the indexes down to test support as we were anticipating and allowed us to issue the alerts saying we were closing out our put positions. Even the news of the crash, however, did not bring in heavy selling volume, one thing we were going to watch closely this week to determine if the consolidation we were seeing would hold. We are still getting trendline support, and on the close the indexes are holding above near term support just recently broken. What is happening is the building of a stronger support level over near term support (e.g., 9500 on the Dow, 1800 on the Nasdaq, 1100 on the S&P) as the indexes close above those levels, moving laterally on low volume.

We may continue to get this testing of the up trendlines. Indeed, if the indexes can continue to do this on low volume for a few more sessions we could see a very nice move higher without a further fall at this time. The market looked ready to fall last week, but it refused to do so at this juncture. It had the excuse to sell today, but it rallied back. The dumping and churning we saw as recently as last week has subsided for now, giving way to a constructive, low volume lateral move.

The war and the stimulus package remain the primary factors in our view that could interrupt this action. The crash today was feared as terrorism, and the market was selling down sharply on news of the crash before it was realized that this was more than likely just a tragic accident. So, terrorism is still a factor that will impact the market. As far as stimulus, if the Senate bill is passed in its current form, and it will be if the parties continue to vote along party lines, it sets up a very contentious reconciliation process that could take weeks IF it can even be resolved. There is a real question as to whether a stimulus bill will get to the President, and even if one does, it could be Christmas or later before it gets there. That will be much too late to help thousands of businesses that depend upon Christmas to make the year.

If the Senate bill stays in its current form, the market will start to waver on its determination that the economy will necessarily turn the corner back to growth in the first half of 2002. That won't cause a big collapse in itself, but it sets the market up to give back gains when other troubling news hits. The market could always look ahead and say 'but there is big stimulus to come,' and thus fight off selling. If the stimulus is going to be special favor, do nothing spending or not even happen at all, there won't be that staunch belief things will recover first half 2002.

As for now, there is not scheduled news tomorrow, and the market will be more or less left up to its own devices. We anticipate more building of the current lateral foundation in the absence of outside stimulus. As we have seen, the market has a tendency to rise slightly if left alone; it is trending higher, after all. In this situation what we do is look for opportunities, i.e., breakouts, bounces up off of support, pre-split momentum plays. We will see stocks lead the overall market higher, making their moves first. ACS on the SSR looks ready to make another bounce off the 50 day MVA to run to the upper channel; AMCC and TXN are in ascending wedges; there are many solid bases out there waiting for the trigger. Good building action starts presenting more and more opportunities both with stocks that were trounced but have set up pretty darn well and those that are leading the way with bases right at new highs. A little patience and buying when the moves are made look to pay off very handsomely in the near future.

Support and Resistance

Nasdaq: Closed at 1840.13.
Resistance: Upper channel at 1934. Then 1930 to 1940.
Support: 1800 held on the close again today, continuing the lateral consolidation. The up trendline is now at 1780 and rising toward 1800; that convergence can be an upward catalyst as support merges with the trend. The 50 day MVA is below at 1742.01. Again, 1720 to 1740 is about the usual retracement on these moves, but the index is trying to hold the line here. Below that, 1700 to 1680 has been acting as some support. Then 1630 (close prior to gap) and 1649.55 (gap up point) as significant support if the index breaks down here.

S&P 500: Closed at 1118.33.
Resistance: 1124 (prior consolidation). 1150 is after that (also price consolidations and the upper channel).
Support: 1103 is the first level, and the 50 day MVA backs it up at 1099.43. These held on today's close. The up trendline is now at 1089, providing further support that is also converging on support at 1100. Below that 1050 has been very solid.

Dow: Closed at 9554.37.
Resistance: 9600. After that, 9870 to 9992 are the levels where the index moved right before the September plunge and where it found resistance in the middle of its March and April double bottom pattern.
Support: 9500 held on the close once again. The 50 day MVA is at 9459.41. The index found support today at the 18 day MVA on the low (9406.97), above the up trendline now at 9340. 9000 has held very well, and if this move fails it could see that level again. 8900 might try to hold, but 8700 down to 8500 is after 9000.

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

11-14-01
Retail Sales, October (8:30): 2.0% versus -2.4% prior.
Retail Sales ex-auto, October (8:30): 0.2% versus -1.6% prior.

11-15-01
Business Inventories, September (8:30): -0.3% versus -0.1% prior.
Initial Claims, 11/10 (8:30): 475K versus 450K prior.
Philadelphia Fed, November (12:00): -25.0 versus -27.4 prior.

11-16-01
CPI, October (8:30): -0.1% versus 0.4% prior.
Core CPI, October (8:30): 0.1% verus 0.2% prior.
Industrial Production, October (9:15): -0.9% versus -1.0% prior.
Capacity Utilization, October (9:15): 74.7% versus 75.5% prior.

TEAM TRADES

A lot of subscribers emailing with reports of solid gains on index upside plays, downside plays, stock breakouts, and just good old moves up from old standbys we have been jumping on, e.g., BRCM, SMTC, etc. Today we issued a handful of alerts on stocks at the top of their patterns such as INK and RMCI. We also issued general alerts on RFMD, BRCM and QLGC as these have been performing well and were looking for opportunities to enter.

QLGC has been riding up its 10 day MVA, and today it was tapping down toward that level, and we were looking at taking a few more positions on this stock that is a semiconductor leader. It tapped its early low again an hour into the session and started to rally. We issued the alert and then set about picking up a few shares. We said we were building a position, not going whole hog as the stock was still in a pretty aggressive uptrend; we were just going to use this to further build the position. We moved in at 45 and the stock ran up to 45.80. It then turned to re-test, falling ot 44.20, and we were wondering if we jumped the gun. But, that was the real 10 day MVA, and it held and started a strong move all the way to 47.20. It moved laterally and closed near that level. This one turned out well, but again, this one was for accumulating positions given an opportunity to do so.

Good Investing!
Jon L. Johnson and the Stock Split 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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