Stocks Gain On Rate Cut Hopes

Stocks posted strong gains on Monday, as hopes for an intermeeting rate cut from the Federal Reserve gained momentum.

The ISDEX http://www.wsrn.com/apps/ISDEX/ climbed 12 to 311, and the Nasdaq added 45 to 2308. The S&P 500 rose 21 to 1267, and the Dow soared 200 to 10,642. Volume declined to 1.12 billion shares on the NYSE, and 1.82 billion on the Nasdaq. Advancers led 21 to 8 on the NYSE, and 24 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.

The Fed announced that Chairman Alan Greenspan is revising his Senate testimony of two weeks ago that was criticized at the time for being too rosy; traders took the news as a sign that Greenspan could signal further rate-cutting in Wednesday’s House testimony. After hearing the news, former Fed governor Wayne Angell of Bear Stearns raised the odds of an intermeeting rate cut from 60% to 80%. However, other Fed watchers said today the Fed will likely wait until its next meeting on March 20 to cut rates. Dallas Fed President Robert McTeer reportedly said that he would prefer to wait until regularly scheduled meetings to adjust rates. The latest data on consumer confidence will be reported by the Conference Board tomorrow morning; Greenspan has said that consumer confidence is critical to avoiding recession.

Cisco fell 1 to 26 after CS First Boston cut earnings estimates on the stock. Cisco has so far held long-term support at 25. Juniper Networks lost 2 11/16 to 72 1/16.

NetIQ plunged 13 1/4 to 38 on negative comments from JP Morgan, which later said the selling was overdone. WebTrends , which is being acquired by NetIQ, lost 6 1/16 to 18 5/8.

Portal Software rose 1 1/4 to 8 5/16 on an alliance with Siebel Systems .

An earnings warning from Texas Instruments weighed on chip stocks, as did more negative comments from Salomon Smith Barney analyst Jonathan Joseph, who called the peak in the semi cycle last July. Broadcom dropped 6 7/16 to 63.

Research In Motion surged 4 7/8 to 45 7/8 on a deal with British Telecom’s Cellnet.

Yahoo tacked on 3/8 to 25 13/16 after trading as low as 23 7/16 after analysts lowered revenue estimates.

B2B stocks were strong on positive comments from Merrill Lynch about Commerce One , which added 1 11/16 to 22 3/16. i2 surged 5 15/16 to 35 1/2 on a deal with Intel , and Ariba rose 2 to 19 11/16. Ariba will hold an analyst meeting Wednesday.

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The Nasdaq had a small breakout today, closing just above its January 31 downtrend line and the neckline of what could be a small inverse head and shoulders bottom (first chart). That breakout could give the Nasdaq upside potential to about 2430, but new money needs to come in above 2300, where buyers aren’t showing a lot of conviction. Next resistance is the 2230-2250 range, and then the 1990 logarithmic trendline (second chart) at about 2388 (that line will be at about 2430 next month), and the September 1 downtrend line at about 2

400 (third chart). To the downside, sellers and shorts haven’t shown much conviction below 2300, the level where the Fed first cut interest rates. That’s not surprising, given that the threat of more surprise cuts looms as long as the Nasdaq trades below 2300; once bitten, twice shy, as they say. The recent lows at 2150-2200 should hold, and below that, buyers should be found at about 2050. The only negative today was the weakness in the semiconductor sector, which usually leads the Nasdaq; not a good sign that the semis finished down on the day.

The S&P 500 got back above its December closing lows of 1265, a plus. Next resistance is the September downtrend line around 1290 (both levels in the chart below). To the downside, 1250-1265 should now be support, and 1225 is likely to be strong support, if the index gets that low.

The Dow took out resistance at 10,500 and closed in the middle of the 10,600-10,650 resistance range. Above 10,650 (the middle of the 10,300-11,000 trading range), and the Dow trades with an upside bias. Critical resistance is 11,000; the Dow Transports must get back above 3000 and stay there, and the Dow must close above 11,007 to get an all clear signal under Dow Theory. The Transports are coming back nicely, closing at 2978 today. To the downside, 10,300 is important support on the Dow, but the index could go as low as 10,100 without a major technical breakdown.

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