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THE MARKETS

Overall market stats:

VIX: 28.18; +0.56. Volatility rose a bit even as the Dow and S&P 500 while the Nasdaq staged a later day recovery. It is staying near 30 even on the move up, and we like that. We like higher anxiety in the market even as things are performing pretty well.

Put/Call ratio: 0.56; -0.04. Dropped a bit as investors remained fairly bullish on the upside. Indeed, there has not been any reason to short stocks right now other than specific stocks and sectors that are undergoing distribution. Even those are calming down.

NASDAQ: Lost ground, but on lighter volume, and it staged a late-session run that closed it down just fractionally. This is just the kind of lower-volume selling action we wanted to see: nothing virile, nothing to set off a selling spree. The late-day action showed a doji with a tail on the candlestick chart, and that is pretty bullish action. With the leading techs vaulting after hours, it looks for now as if we have a catalyst for a move up once again. The concern: will earnings continue to provide a catalyst, or will they start to detract and wear thin as in quarters past? That is the key that the market has not been able to overcome the past three quarters.

Stats: Down 7.95 points (-0.3%) to close at 2618.55.
Volume: 2.074 billion (-17.7%) as volume fell just slightly below average. That is what we want to see on selling. Up volume continued to lead 1.083 billion to 936 million even on a down day.
A/D and Hi/Lo: Advancing issues still led on a down day, 1.58 to 1 (1.62 to 1 Friday). This makes for a very nice-looking A/D line on the Nasdaq. Breadth turned around on confirmation, and it has remained solid. New highs rose to 99 (+41) and new lows rose to 21 (+2).

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

As noted, the Nasdaq saw another doji on the candlestick chart today, and today's doji showed a 'tail.' That means the index opened, sold down, and then recovered to close near the open price. After some price gains we are seeing the index pullback and digest those gains, but it is not running into a wall of sellers yet this time around. Instead, it has drifted back on lower volume, refusing to give back a lot of gains. That is positive. The 'tail' shows this story: stocks sold back, but then buyers came in and pushed them back up. Sellers did not win the day, and those that were in the market were not there in numbers.

On the low the Nasdaq (2576.95) touched close to the 18 day moving average at 2562.53 (on the close today, up from 2534.71 on Friday's close) and then recovered. The index closed just under the down trendline once again, fighting its way back toward that level at the close. Again, we like that action as it is not bouncing the index lower after testing over it on Friday. Again, we are looking for a break over that level held to close on strong volume. Then it is a run over 2700 on strong volume as well. That will start shaking off some of the lethargy the index has experienced. It is not there yet, but it is acting as it should in preparing for that move.

Dow/NYSE: The Dow surged up, but as noted, volume was lower even than Friday's selling volume. That is the wrong price/volume action and means to us the move may not have much strength as the Dow continues to struggle in its range. Today it stalled just under its 50 day moving average. It is hanging in there, but has not been able to breakout of the range. If the Dow techs can take off, that could move the index back up to challenge its range again. Could.

Stats: Up 127.28 points (+1.2%) to close at 10,652.66.
Volume: NYSE volume contracted to 1.200 billion shares (-6%). Still above average, but lower than on the recent selling. Up volume did top down volume 723 million to 443 million shares, and that gives a bit better prospect for a continued attempt to move up even if the techs rally again.
A/D and Hi/Lo: NYSE advancing issues also continue their lead, boosting it to 1.45 to 1 (1.03 to 1 on Friday). That pushes the NYSE A/D line higher once again. As with the Nasdaq, this market is moving on the backs of many shares. New highs rose to 172 (+74) and new lows rose to 15 (+10).

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

Once again bounced off of the 10,450 level to close higher, today stopping right at the 50 day moving average. At this point it is at some resistance from the MVA and some peaks in November and December. Not enough to stop a solid move. That is in store at the 200 day moving average (10,719.51) and then at 11,020.

S&P 500: The big caps joined in with the Dow for a gain, but it was on lower volume and it too did not clear near-term resistance at 1335. It still has that resistance along with the 50 day moving average (1342.35) and down trendline now at 1340. That is some touch resistance, but the breadth of this move is better. If the big techs join back in, the S&P will have a good shot at moving over this resistance. We were looking for a pullback to the 1300 level, but the index only hit 1313.65 on its low today.

Stats: Up 8.33 points (+0.6%) to close at 1326.65.
Volume: NYSE volume was lower on the move up (1.2 billion; -6%).

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

TOMORROW

The big earnings news after hours sent tech stocks on a solid ride higher all session long. That has a lot of momentum in the indexes with the Nasdaq futures up 54 points (80 points above fair value) at the time of this writing. As we know, that is subject to change, but there is a ton of good news out there tonight that has everyone buzzing.

The downsides? Before the open we have the PPI for December, and if it is higher than expectations (+0.2% overall; +0.2% core), that could have a negative impact. Higher prices are signs of inflation, and as we saw with the PPI, that has some commentators taking the position that the Fed may not be so aggressive with rate cuts. We can never rest easy in this market, and as the CPI is more volatile than the PPI, the possibility of a higher number is there. Still, we have to put everything in perspective. Even with the higher than expected, prices were down for 2000, and the Fed has more incentive to cut than it does to raise rates.

There is also the continued earnings parade. It got off to a bang with JNPR, AMCC, NVLS and others. As we have seen the past two quarters, however, the good news hits and everyone is all cheers. Then the novelty wears off and we are back into selling on the news again. Last time BRCD broke the cycle and got things going again. Moreover, we have the Fed on a rate cutting cycle, and while we hate to beat the horse, it is this very type of change in character that looks as if it sets this action apart. Still, this is something we have to be aware of moving forward and not get too wild chasing extended stocks. Better to buy after a pullback to test support as we have been seeing.

That brings us to tomorrow which looks to be a rip-roaring open based on how earnings were received, the after-hours momentum, and the futures. If the CPI is in line, we anticipate a gap higher in the morning on many of the 'name-brand' leaders: JNPR, AMCC, BRCM, PMCS, CIEN, GLW. Several of these we have been looking at as solid even as the Nasdaq pulled back. As we said, we don't want to catch stocks too extended, so we will be watching where they touch back after the first surge and start to take positions at that point; not full positions, just partial until we can get a better pulse on where the action is going. If things continue as we see after hours today, we believe that will be continued moves up after testing the higher open. We feel fairly confident of this move, so we will take positions on other weakness as well when it appears the move back up has started. Again, we think this is very likely another leg for the Nasdaq, though we wanted to see more consolidating. We won't ignore the moves, however.

Key to us tomorrow will be whether the Nasdaq can hold over the down trendline when it breaks it. It will no doubt break that level as it closed right beneath it today. We want to see increasing volume on the move, and a break and hold over last Friday's high at 2700 would be great. We will see what we get tomorrow, but we will be ready to start taking new positions again on solid moves either after pullbacks on the initial surge or on breakouts from the patterns we are looking at.

Support and Resistance Levels

Nasdaq:
Resistance: The down trendline at 2620.
Support: Tapped close to the 18 day moving average on the low as we thought it might (2562.53). After that, 2200 down to 2000.

S&P 500:
Resistance: The down trendline at 1340. 50 day moving average at 1342.45. Previous resistance at 1360.
Support: Turned back up at 1313.65. If things get really ugly, 1270 is possible support. 1254.07 is the 2000 low.

Dow:
Resistance: 10,900. Then 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.

1-16-01
Business inventories for November (8:30): 0.4% versus 0.6% prior.

1-17-01
Consumer Price Index for December (8:30): 0.2% versus 0.2% prior.
Core CPI (8:30): 0.2% versus 0.3% prior.
Industrial Production for December (9:15): -0.5% versus -0.2% prior.
Capacity Utilization for December (9:15): 80.9% versus 81.6% prior.

1-18-01
Initial jobless claims (8:30): 345,000 prior.
Housing starts for December (8:30): 1.5 million versus 1.562 million prior.
Building permits for December (8:30): 1.586 million prior.
Philadelphia Fed report for January (10:00): -7.1% versus -4.2% prior.

1-19-01
Trade balance for November (8:30): -$33 billion versus -33.2 billion prior.
Preliminary Michigan sentiment for January (10:00): 99.0 versus 98.4.

SUBSCRIBER QUESTIONS

Q: Are the indexes going to fall because options expire once again later this week?
A: Friday marks the end of the January option period. That historically generates more volatility. December's expiration came at a very volatile time for the market anyway as it had just tapped the down trendline and was already coming back down. That added to the downward momentum the extra volume generated. This time around the Nasdaq is once again at the down trendline, and that raises the possibility of a fall down once again. This time, however, there is more positive action in stocks and the indexes, and we have a Fed rate cut that has propped things up somewhat despite what some on the television are saying. This time around we think the momentum will be more to the upside than downside with the positive action we see. Bad news could upset the apple cart, but we don't think it will be devastating as it was last time.

Again, for short-term option plays, remember that after expiration, shorter term options will start losing some value, all things remaining equal. If there is selling ahead, it will be difficult for them to regain upside momentum in a short time period.

TEAM TRADES

JNPR: We had been anticipating good earnings news from this powerhouse, and we were ready to take positions before the close as selling started. An aggressive, play, but one we thought worth making.

In the last half hour JNPR started hitting 127.25 and struggling there, unable to move higher on an attempted run. We believed that was the start of some selling by those nervous about earnings. That turned out to be the case. The stock sold down to 124.13, but looked to be finding support at 125 where it had mounted its move up at the start of the hour. We were looking at both February and April $120 call options. We were tempted to go with the February as they were $10 less in price, but with the earnings we wanted more time.

The April $120's were 31.12 by 33.38 when JNPR was down 5.81 points. We started to ready an order and saw the bid drop to 31.38 by 32.50 when the stock was trading down very close to 125 once again. We went ahead and put in a limit order at the ask price. The stock dipped down to almost 124 and the fill was made. With just about two minutes left JNPR ran up to 128 for the close. The options closed at 33.38 by 34.50. After hours JNPR was racing ahead, though it was touchy right after earnings. It did run to about 139 after the guidance forward was released.

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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