Traders are watching tech as a bright spot in an otherwise tentative market, which is focused on a banking industry bailout, the economy and earnings news.
The Nasdaq, driven by gains in Microsoft, Intel, Cisco, Yahoo and others, finished higher Monday, while the S&P 500 was nearly unchanged and the Dow was lower.
"Techs are doing better lately and a lot of these stocks are breaking out and today Microsoft is leading. I'm very happy with the way the market is acting today," said Cowen's Todd Leone on Monday. "We got close to the 805 level (on the S&P 500) and we bounced off of it which was great." The S&P technology sector rose 1.5 percent while the financials inched up 0.2 percent.
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In Tuesday's market, traders will be watching earnings, pending home sales and the auto industry's release of January sales figures, expected to show declines of 30 percent plus.
They are also watching for developments with the $819 billion stimulus plan, now before the Senate, and details on the Treasury's revised bank bailout plan, due for release next week.
The Dow finished Monday down 64 at 7936, while the S&P was down 0.44 percent at 825.44, and the Nasdaq sprang more than a 1.2 percent higher to 1494.
"The market short term looks very dicey," said Merrill Lynch chief investment strategist Richard Bernstein, pointing to the linger credit problems and corporate layoffs.
"Longer term, there's actually some things that are becoming much more interesting. We're seeing things in some of our work, we haven't seen in 10 to 11 years," he said in a quick interview Monday. "Wall Street is recommending the lowest equity allocation since January, 1998."
"Attitudes are changing. That's very important. What it means is risk premiums are changing. If the premiums are changing, the chance of outperforming goes up." Bernstein also mentioned that in December, high beta stocks actually sold at a discount to low beta stocks for the first time in 11 years. "That was fleeting ... but you've got all these little things that are starting to change."
Bernstein pointed out in a recent note that the number of negative earnings surprises this quarter are at a 10-year high. "Earnings surprises might approach 1992 when negative surprises actually outnumbered positive surprises," he wrote.
"I think the earnings reports are still very, very critical and the rise in the percent of negative surprises are still on the upswing, and it is a threat because I think it will propagate unemployment," he said.
Traders who watch the market's technical levels have been saying stocks could be heading for a serious test of November's lows. Twice in the past two sessions, the S&P has found support at 805.
"There really is a lot of interesting divergences out there," said T3Live.com's Scott Redler. "There's a lot of decent looking charts now in tech, but it's hard to sink your teeth into them when you think the market's going to test the lows. It's the same way that Goldman Sachs and J.P. Morgan ... are holding up, but its hard to trust that when today it looked like GE was going to break $11.50 and Bank of America was so weak."
Redler, in a note, said that some biotechs also look good as new leadership. Some of the technology names he's watching are Microsoft, Research in Motion, Google and Apple.
"There's all these cross currents that are frustrating traders and keeping everyone at bay. So, it seems like something's got to give," said Redler. "If we can get a successful test and hold and blast off, there's finally going to finally be a group of leaders that people can talk about. The last few times they've attempted rallies, there's been absolutely no leadership and no volume. There is an interesting dynamic that just might take a few weeks to work out."
To get out of the "danger zone," the Dow needs to quickly regain 8050 to 8100. If it doesn't, Redler said it will likely test the 7500 level of November, and that test could come this week.
Big pharma takes center stage in the earnings parade Tuesday morning, when Merck and Schering-Plough report. Also reporting are Archer Daniels, British Petroleum, CME Group, Dow Chemical, Marathon Oil, Motorola, Northrop Grumman, PNC, D.R. Horton and Tyco. After the bell reports are expected from Disney, Electronic Arts, and Yum Brands.
In late Monday trading, SanDisk fell despite better than expected sales. Aflac meanwhile rose after it said it was not changing its target for double digit earnings growth.
As Treasurys gained Monday, the 10-year's yield slipped to 2.718 percent and the two-year fell to 0.899 percent.
The Treasury Department announced Monday that it expects to borrow $493 billion of net marketable debt in the January to March quarter, which is up $125 billion from earlier estimates. The estimate includes $200 billion in debt for the Fed's supplementary financing programs. A Treasury official also said the estimates include planned spending on the $700 billion financial bailout but not on the new proposed $819 billion stimulus program.
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