Microsoft Saves The Day

Optimism that Microsoft will meet or beat estimates sparked a turnaround in stocks on Monday.

The ISDEX gained 1 to 105, and the Nasdaq climbed 19 to 1460, 46 points off its low for the day. The S&P 500 added 3 to 992 after coming within 5 points of its September 21 close of 965, and the Dow gained 28 to 9281, 200 points off its low for the day. Volume declined to 1.57 billion shares on the NYSE, but rose to 2.04 billion on the Nasdaq. Decliners led 18 to 13 on the NYSE, and 19 to 16 on the Nasdaq.

Microsoft sparked buying when it announced its earnings date shortly after noontime. Traders took the announcement to mean that the company will meet or beat estimates when it reports July 18.

The announcement sent software and PC stocks higher. Intel , Dell and Oracle were among the day’s winners.

Freemarkets soared 18% after reaffirming guidance.

Digital River gained 9% on a Prudential upgrade.

Macromedia fell 20% on negative analyst comments.

Emulex gained 1% in its first day of NYSE trading.

Microsemi plunged 40% on a warning.

Some technical comments on the market: Note: To see the charts in the text email newsletter, click on the story link at the top of the newsletter.

This kind of action is not helping the market find a good bottom. Until there are at least a few days of sustained selling with a high negative TICK (greater than -1000), the market will have difficulty building a bottom that has a chance of holding for a while. In the index charts below, selling pressure (-DI) has gotten pretty extreme, a positive for the bullish case. But buying pressure (+DI) has gotten nowhere near the 10 or under level that in the past has signaled that buying interest has dried up. In other words, eager buyers remain on every dip. The Dow and S&P (first two charts below) formed the bearish ‘three black crows’ candlestick pattern last week, which should cap upside at 9490 and 1013, if the indexes can get that far. The pattern predicts minimum downside of 9025 on the Dow (a correction from Friday’s commentary) and 965 on the S&P 500. In all likelihood, those targets will be exceeded. At 8800 on the Dow, the minimum measured move from the 6-month head and shoulders top would be completed. The S&P’s September low was 944, and its October 1998 low was 923. The Nasdaq (third chart) looks headed for the 1357-1387 area, the October 1998 and September 2001 lows, and potentially lower than that. The imperfect three black crows formed on the Nasdaq last week could continue to limit upside to the 1470-1480 range.



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