Market Shakes Off Bad News

Stocks staged an impressive reversal on Thursday after initially falling on dismal housing and durable goods reports.

The ISDEX http://www.wsrn.com/apps/ISDEX/ rose 5 to 156, and the Nasdaq surged 43 to 1775. The S&P 500 rose 14 to 1100, and the Dow climbed 117 to 9462. Volume rose to 1.37 billion shares on the NYSE, and 2.25 billion on the Nasdaq. Advancers led by 19 to 11 on the NYSE, and 21 to 14 on the Nasdaq.

After the close, VeriSign and JDS Uniphase fell on their earnings reports. Overture surged on its report, and Avant also rose. Also, Corvis missed revenue estimates, VerticalNet and F5 warned, and BMC matched estimates.

During the day, traders shook off steep losses on the durable goods and housing numbers, and focused on the Capitol Hill stimulus package and Dell’s most recent reaffirmation of its earnings guidance. The release of Microsoft’s Windows XP also helped, sending MSFT stock above its 200-day moving average for the first time in two months.

Oracle and Juniper lagged on downgrades.

Stocks rising on earnings news included Peregrine , Cirrus , Comverse , JNI , Digital River , Digex , New Focus , Quest , Microchip , BroadVision , Speechworks and Sanmina .

Netegrity , Micromuse and Foundry fell on their earnings reports.

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One impressive turnaround today, and the indexes staged breakouts by the end of the day to boot. At this point, the trend should be up until November 2. Bullish sentiment is getting a little giddy, but we don’t see a reason for a decline before then as long as critical support levels hold. The first critical level is 1752-1753, the big bad bearish engulfing candlestick from last week that the Nasdaq negated today. The second critical support should be at about 1720, the bull flag that the index broke out of today (see first chart below). Taken literally, that breakout measures to about 1870. First resistance is 1800-1820. The Dow and S&P also staged breakouts today (second and third charts). The S&P could be headed to 1140-1150. First support is 1096 and then 1090. For the Dow, support is 9400, and resistance is 9489-9500. Finally, are GE and the NYSE forming head and shoulders tops here (fourth and fifth charts)? Both narrowly avoided breakdowns today. GE needs to clear 38.50 and the NYSE 570 to make those patterns appear less ominous. And a look at an old indicator, On Balance Volume, in all the index charts below. OBV has yet to give a buy signal on the NYSE, and did so only in the last couple of days on the Dow and S&P. Unless those lines can cross soon on the NYSE, it will be a non-confirmation, a negative.

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