Tuesday, February 06, 2007

CSCO Party, Don't Miss It

Market Action:
While the averages don’t really indicate it, the market was anything but dull on Tuesday.  The volume was on the weak side so the fireworks were somewhat contained price wise.  The opening was up but not “strong” and about a half an hour into the day the NASDAQ indexes collapsed about 0.75%, after which you have to know we had to rally into the close, which we did.  Clearly the trap door was open under the market but the traders managed to bring it back to a decent close with little or no change in the major indexes.  

The after hours story was what most traders were waiting for, the report on CSCO from Mr. John Chambers.  The news out of CSCO was nothing but “spectacular” and according Chambers “It was clearly another very strong quarter—that really is the proof point that our vision of how the industry is playing out is working.”  After that news CSCO was back near its highs for the year, up about 4%.

The CSCO news may be what we have been looking for in terms of the near term rally we expect in the NDX.  When a company like CSCO has positive news, the market interprets that as being for the entire world so we expect a pretty strong opening on Wednesday.  We are expecting the NDX to move into the 1820 to 1825 area or maybe a little higher.  This type of move would take out the highs of the last couple of weeks but not the 1847 highs around January 12 and 16, the trading days surrounding the Martin Luther King Jr. holiday.  

Wednesday represents a very good day for a test of the NASDAQ highs as the Dow probably makes a new high.  We are thinking that the 1847 high in the NDX is going to hold because we are at such overbought conditions again in the broader market.  This would be a good time for the market to top and fall away—the day after CSCO’s earnings.

Dow Industrials:  12,666.31  +4.57
VIX: 10.65
HUI:  334.64
QQQQ:  44.05
RYVNX:   16.67
RYAIX:  21.25
RYCWX:  34.56
TLT:  87.80
BEGBX:  13.58

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