FED LEAVES RATES UNCHANGED -- MARKET JUMPS ON RISING VOLUME -- CISCO AND GE HIT NEW HIGHS -- MORGAN STANLEY LEADS STRONG BROKERAGE GROUP
FED LEAVES RATES UNCHANGED... The Fed did nothing today and the market liked it. The Fed statement was basically unchanged from the prior one and once again emphasized the threat of lower inflation. That meant that the Fed would hold short-term rated down indefinitely. This morning's report that consumer inflation in August fell to the lowest level since 1966 reinforced the Fed's message. The bond market showed very little reaction. However, stocks rallied before and after the Fed announcement. The stock rally was led by small caps and technology, which has been the case for sometime. The Semiconductor (SOX) Index was the top gainer in technology. The Nasdaq Composite Index gained 2.2% to lead all the other market averages. The next upside target for the Nasdaq is the upper Bollinger Band at 1910. Volume picked up on both the Nasdaq and the big board, and breadth was positive. A good day all around. Other groups that showed strong gains were airlines, brokers,and papers. Stocks in those groups that hit 52-week highs were Georgia Pacific (paper), Morgan Stanley Dean Witter (brokers), and Southwest Air (airlines). Pockets of relative weakness were consumer staples (mainly food stocks) and energy. Within the technology group, Qualcomm broke out to the highest level in eighteen months. Two big bellwethers that hit 52-week highs today were Cisco and General Electric.
Chart 1
CISCO AND GENERAL ELECTRIC HIT YEARLY HIGHS... Both stocks hit new 52-week highs today and were among the day's most actively-traded stocks. In addition, Cisco is considered a bellwether for the Nasdaq as General Electric is for the big board. That's makes their strong technical action encouraging for the entire market. Chart 2 shows Cisco moving up to challenge the highs formed during the fourth quarter of 2001 in the low 20s. What it does at that level will tell us a lot about it's strength -- and that of the Nasdaq. General Electric has just broken through its summer high to reach a new 52-week high. The next test will take place at 32.5, which was the high set during the summer of 2002.
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BROKER INDEX HITS MULTI-YEAR HIGH... The AMEX Broker/Dealer Index reached the highest level in thirty months after recently breaking through chart resistance at 550. The next upside target for the XBD is the January 2001 peak at 650. The rising relative strength line along the bottom shows that the brokers are rising faster than the S&P 500. It's a healthy sign for the market when the brokers are leading it higher.
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MORGAN STANLEY BREAKS OUT... Earlier today, we showed Charles Schwab having a strong day. From a charting standpoint, Morgan Stanley Dean Witter had an even more impressive day. Its daily chart shows the brokerage leader breaking through its summer highs on strong volume to a new 52-week high. The relative strength line along the bottom shows that MWD has been a laggard in the brokerage ground. That may be changing. The weekly bars in Chart 6 shows MWD headed toward the 57.00 - 58.50 region.
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Chart 6
MONEY MANAGEMENT UPDATE... Recent improvement in the stock market has been reflected in the technical Decision Model used at MurphyMorris Money Management. The Model rates the market environment as positive. In addition, our risk model components are positive. The Model doesn't worry about seasonal considerations. It simply tells us whether or not the trend is up. Right now, it is. The Decision Model also tells us that it's appropriate to have money invested in the market at this time -- which we do.
