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Stocks Soar On Cisco Outlook

Stocks soared Friday after Cisco Systems said business is stabilizing and reaffirmed its outlook.

The ISDEX http://www.wsrn.com/apps/ISDEX/ surged 9 to 175, and the Nasdaq soared 73 to 1916. The S&P 500 gained 22 to 1184, and the Dow rose 194 to 10,423. Volume rose to 1.06 billion shares on the NYSE, and 1.49 billion on the Nasdaq. Advancers led 19 to 11 on the NYSE, and 22 to 13 on the Nasdaq. For earnings reports, visit our earnings calendar at http://www.wsrn.com/apps/earnings/internet.xpl and reported earnings at http://www.wsrn.com/apps/earnings/ireported.xpl. For after hours quotes and news, visit our after hours trading site at http://www.afterhourstrading.com.

Investors ignored a report showing that capital spending continues to deteriorate, but cheered a stronger than expected report on new home sales.

Cisco soared 1.47 to 18.23, clearing its 50-day moving average, after reaffirming its early August guidance and saying it is beginning to see signs of stabilization in its business.

The rally was led by heavily-shorted issues like Broadcom , PMC-Sierra and EMC , which posted gains of roughly 10% each.

Applied Materials surged 2.76 to 46.89 after winning a key 300 mm contract from Texas Instruments over rival Novellus .

Ericsson soared 10% on news of a pending venture with Sony .

Microsoft surged 2.97 to 62.09 on optimism over the new judge in the antitrust case, but stopped short of its 200 day moving average at 62.42.

Hotel Reservations Network surged 3.83 to 41.89 on a CIBC report of better than expected online hotel bookings.

Intel rose 1.48 to 29.15 despite concern that next week's price cuts could be deeper than expected and that the PC slowdown could be more protracted than expected.

Some technical comments on the market: Note: We include charts in the technical market commentary. If you can't get the charts via the e-mail newsletter version, try this link: http://www.afterhourstrading.com/column.html

We'll watch two things in the days ahead to see if this rally is for real. First, the Nasdaq pushed through a boatload of resistance with that final push at the close today (hard to see in the first chart, but those lines were cleared). Those trendlines, at roughly 1910, are now first support. 1920 is next resistance, then 1934-1941, 1960, and the main downtrend line just under 2000. Second, if this rally is to be sustained, it needs a third wave up under Elliott Wave theory (second chart). That means that any correction before then can't go lower than the top of that first wave up at 1883. If this is just a correction against the main downtrend, the Nasdaq won't hold that level on its next pullback, and that correction should begin soon, probably at no higher than 1950. One good sign: the S&P 500 took out some very big resistance at 1170 today (third chart); that level should now be support. The S&P faces resistance at 1191 and then 1200. If it can clear that main downtrend line at 1200, the broad market would look pretty good. The Dow (fourth chart) cleared its main downtrend line on a closing basis for the first time today, a big plus, but still faces a lot of resistance in the 10,500-10,600 range. Above 10,500, the old industrials would look less bearish. But now for the big warning: the market is already overbought, and by some sentiment measures the S&P 500 has little upside potential from here. That is a dangerous situation: the market has little upside room on these rallies, but plenty of downside room.

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