DOW AND NASDAQ REACH IMPORTANT ROUND NUMBERS -- GM AND MERCK LEAD DOW -- ORACLE LEADS NASDAQ -- INDUSTRIAL METALS REACH SEVEN YEAR HIGH

NASDAQ AND DOW REACH PSYCHOLOGICAL NUMBERS... The Dow and the Nasdaq have reached important round numbers -- 2,000 for the Nasdaq and 10,000 for the Dow. Although round numbers do carry psychological importance, the 2000 number carries less chart importance than 2098 for the Nasdaq. Chart 1 shows that's the level reached at the start of 2002. When a market has embarked on a new uptrend, the first major target is the last prominent peak formed during the latter stages of the last bear trend. For the Nasdaq, that's 2098. For the Dow, the 10K number carries less chart significance. Chart 2 shows that the next major resistance barrier for the Dow is at 10673,which was formed early in 2002. Having said all of that, some traders may be tempted to use those round numbers as an excuse to do some profit-taking.

Chart 1

Chart 2

GENERAL MOTORS HITS 52-WEEK HIGH... Good news for the auto industry helped make GM the Dow's standout performer today. Chart 3 shows GM surging to a new 52-week high accompanied by the heaviest volume in three months. That's a strong technical combination.

Chart 3

MERCK BOUNCES OFF SUPPORT... Merck was another Dow standout today. The big drug stock jumped over 3%. The stock is much closer to a 52-week low than a high and has been a laggard in the drug group. The weekly chart shows, however, the Merck is bouncing off long term support at 41, which was the low hit during the fourth quarter of 2002. The drug group has been a market laggard all year and has only recently started to attract some attention. Merck may not be a leader in the group, but has reached a price level where new buying might be expected.

Chart 4

ADC TELECOMMUNICATIONS BREAKS OUT ON VOLUME... This stock was the top percentage gainer in the Nasdaq 100 today. Its chart shows a pretty impressive perforance. The stock surged to a six-month high on massive volume. Its next upside target is the high reached during May.

Chart 5

ORACLE HITS THREE-MONTH HIGH... Oracle was another standout tech performer in Wednesday trading. The daily chart shows the stock breaking through the October/November highs. Volume is also picking up nicely. The next upside target for Oracle is the early September peak at 14. The relative strength line beneath the chart shows that the stock is just now starting to outperform the Nasdaq 100.

Chart 6

INDUSTRIAL METALS HIT SEVEN-YEAR HIGH... With all the attention being paid to rising precious metal prices, it's important to note that industrial metals are rising as well. While precious metals include gold and silver, industrial metals refer mainly to aluminum and copper. While the rally in precious metals may be primarily the result of a falling dollar, the rally in industrial metals is reflective of a growing global economy. That's why the next chart carries so much meaning. The Goldman Sachs Index of Industrial Metals Prices has exceeded its 2000 peak to reach the highest level in seven years. That's bullish for those commodity markets and for stocks tied to those commodities. It's also bullish for basic material and cyclical stocks which have been market leaders of late. What it's not good for is bonds. That's because rising industrial metals are usually associated with rising bond yields. A comparison of charts 7 and 8 show metals and the yield on the 10-year T note trending together from the start of 1996 to the end of 2001. They peaked together at the start of 2000, which correctly signalled the onset of a deflationary recession. Over the past year, bond yields stayed low while commodities rose. That unusual situation may be changing. Bond yields jumped sharply during June and July, but stalled at a three-year down trendline. Chart 8 shows that the 10-year T-note yield has moved back up to 4.40% and is once again testing that trendline. This week's upside breakout in industrial metals increases the odds that bond yields will hit new highs for the year as well. That's a warning to bond holders. Rising bond yields mean lower bond prices.

Chart 7

Chart 8