Waiting For The Fed

Stocks rose Monday afternoon after spending the morning mixed, as traders waited for the Federal Reserve's decision on interest rates due out at 2:15 p.m. on Tuesday.

The ISDEX http://www.wsrn.com/apps/ISDEX/ rose 3 to 215, and the Nasdaq added 19 to 1910. The S&P 500 rose 8 to 1159, and the Dow climbed 80 to 9903. Volume dropped to 482 million shares on the NYSE, and 718 million on the Nasdaq. Decliners led 14 to 13 on the NYSE, and 18 to 14 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.

Optical networking stocks rose despite lowered full-year guidance from Corning , which rose 1.31 to 24.49. Corvis climbed 7/32 to 8 5/8 on news that it had introduced the highest capacity transport system to date. Bit Ciena fell 3 13/16 on news that Cisco was moving into the metro space.

Ariba rose 1/4 to 10 7/16 on a deal with IBM . i2 lost 1/8 to 16 7/8, and Commerce One rose .09 to 9.17.

PSINet plunged 17/32 to 3/16 after the company retained Dresdner Kleinwort Wasserstein to explore alternatives and said its common stock has no value because of company indebtedness.

Palm added 3/16 to 13 3/4 after the company said a lawsuit filed by NCR last week against Palm and Handspring has no merit.

Check Point continued to come under pressure, losing 4 13/16 to 52 15/16. Openwave , off 1.75 to 23.80, hit a new low on an analyst downgrade.

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A nice looking market today, but it's hard to get too excited until the Fed's decision - and the market's reaction - at 2:15 p.m. tomorrow. The Nasdaq now has a nice lower trendline at 1867 today (1857 tomorrow), the lower boundary of what could be a bullish falling wedge (first chart). The Nasdaq 100 also has a lower wedge trendline forming (second chart). Sellers seem to be running out of energy lately, and the chart patterns and price action have so far supported that view. The Nasdaq is also holding above pretty stubborn resistance from mid-1998 in the 1850-1870 range (third chart), so that could add to support in this range. The next support level below 1850 would likely be 1750-1770. Also adding to the trend exhaustion case is that the Nasdaq 100 hasn't had the kind of rapid descent that would be expected after it broke a bear flag last week (fourth chart), but we'll wait until tomorrow before disregarding that pattern. To the upside, the Nasdaq needs to clear 2028, the July 1998 high, fill a down gap at 2042-2053, and get back above 2070, the redrawn 1990 logarithmic trendline. After that, the upper boundary of that falling wedge is just under 2100, and next resistance after that is 2252. We are still expecting a significant turn in the market this week, and due to the importance of the Fed news, the market's reaction tomorrow afternoon should tell us if we will get that turn. But the market is at its most oversold levels in recent memory.

The most important support for the whole market, in our opinion, is 1125 on the S&P 500 (see chart below). That was a tough resistance level from mid-1998, and we can't see another strong support on the S&P 500 until 1000, so the S&P must hold that line. The index continues to find support around 1150, but that's probably more a function of the Nasdaq's and Dow's action. To the upside, there is resistance at 1171, 1191 (the July 1998 high) and 1198. The index must take out 1214-1215 to be restored to technical health, a level that marked the index's recent breakdown.

The Dow is so far staying within its two-year trading range, a range it would depart with a break below 9650. However, last week's action was just plain ugly, and the index had its lowest weekly close in two years. However, its lowest daily close was 2796 last March, so a close below that ;level would be an early warning sign. Below 9650, the next support is 9350 and then 9200. To the upside, 10,000 is first resistance, but the Dow must get back above 10,300 to be restored to health. The Transports are up only modestly today, a negative because of their importance to the health of the economy as a whole.

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