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CLOSING WRAP-UP, May 25
By Jody Osborne, Optionetics.com
5/25/2004 5:45:00 PM

http://www.optionetics.com/articles/article_full.asp?idNo=10452

Major rally takes hold of stocks, although volume remained on the light side. The Dow ($INDU) rose 159.19 points, closing back above the 10K level at 10,117.62. The S&P 500 ($SPX) added 1.61 percent on the session to 1,113.05. The Nasdaq ($COMPQ) saw the largest advance, tacking on 2.17 percent to 1,964.65. Volume picked up from Monday’s anemic session, but remained light. The NYSE traded 1.54 billion shares with the Naz turning over 1.75 billion. Market breadth was extremely positive by a 28-to-6 and 23-to-9 margin on the Big Board and Naz respectively.

Stocks rose today because there wasn’t a lot of negative news holding them down. Oil prices fell off Monday’s highs and this left traders able to focus on the positives in the economy. Earnings were very strong in the first quarter, but stocks have not benefited because of high gas prices and problems in Iraq. It seems traders are coming to grips with the fact interest rates are going to rise, but the bulls still haven’t been able to show much strength until today.

After a nine percent decline Monday, shares of tobacco company Altria (MO) gained nearly four percent today. Both Deutsche Bank and Smith Barney had positive things to say about the stock, telling clients to buy the weakness. Among Dow components, only SBC Communications (SBC) moved lower.

The Naz was able to move above resistance today when it closed above its 200-day moving average. Now traders are looking for the Naz to recapture the 2K level. Volume for the Nasdaq 100 Trust (QQQ) was strong, with nearly 150 million shares trading. With the Naz rising sharply, the Nasdaq Volatility Index ($VXN) fell nearly 10 percent. The VXN now sits at 22.04, just 10 percent from its support level near 20.

Economic news picked up Tuesday, but didn’t have much impact on trading. Chain store sales fell 0.5 percent last week and May consumer confidence remained flat. However, existing home sales rose above expectations, reaching its second highest reading on record. Overall, traders took the opportunity to buy shares today, but we’ll have to see if the strength lasts. Recent strength for stocks has been met with selling, with a number of wild cards present. Lower oil prices eased some selling pressure, but these prices can easily go back up, creating bearish tendencies once again.

Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site