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Weekly jobless claims back above 400K

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Stock futures are holding upside gains and pointing to a higher open for stocks despite the new year's first economic release which showed weekly jobless claims rose by a "worse" than expected 13,000 to 403,000, which was above economist's forecast for 382,000.

The number of new claims for benefits is not all that different from the 410,000 weekly claims from a year ago.

The four-week moving average for first-time unemployment benefits jumped by 11,250 to 418,750 in the week ending December 28 and the highest since 424,500 in the week ending September 28.

Because the weekly numbers continue to be buffeted by special factors, such as the Christmas holiday in the middle of the week, the Labor Department is urging users to focus on the four-week moving average rather than on the weekly numbers.

Meanwhile, the number of workers receiving state jobless benefits fell to its lowest level in 15 months. The four-week average for seasonally adjusted continuing claims fell 10,250 to 3.41 million, the lowest since October 2001.

In the most recent week, the government said 3.42 million workers were receiving state benefits.

The figures do not include some 783,000 workers who were receiving federal benefits that are available to some workers who exhaust their state benefits, typically after 26 weeks.

The federal program expired on Dec. 28. President Bush has urged Congress to renew the federal benefits program when the lawmakers return for their new session Friday.

Republicans and Democrats have not yet worked out a compromise to bring the program back to life.

About 95,000 workers exhaust their state benefits each week.

With layoffs running about 400,000 a week, economists expect unemployment rate to remain high through 2003. In November, the official rate rose to 6 percent from 5.7 percent in October. December figures will be released Jan. 10.

Initial claims have seesawed all year around 400,000. In 2002, the four-week average sank to the low for the year at 377,250 four weeks ago. The high for 2002 came on April 24 at 454,000. For the cycle, claims peaked at 482,000 in October 2001.

While stock futures dipped lower on the jobs data, they've recovered back near their best levels of the morning.

S&P futures (sp03h) currently trade 7.6 points higher at 886.50. NASDAQ futures (nd03h) are gaining 12 points at 999, while Dow futures (dj03h) are up 59 points at 8,390.

Fair value for the S&P 500 today is $0.18. That price will not change during the session. HL Camp & Company has their computers set for program buying at $0.28 and set for selling at $-2.02. Fair value for the NASDAQ-100 today is $2.90.

Dow Dog update

Tuesday's e-mail version of the "Dow Dog" theory got a little messed up as links were not working to the below graph.

Also! That update was done during market hours and who'd have guessed, but a late surge higher by Dow component International Paper (NYSE:IP) was enough to move that stock's dividend YIELD below that of telecom services giant AT&T (NYSE:T) and has AT&T entering the category the "Dow Dogs."

"Dow Dogs" and the "little dogs" - Sorted by dividend YIELD

Further bullishness into the close took IP out of the "dog house" as its 2.86% dividend yield became a smidge smaller that AT&T's. Believe it or not, that could be of some benefit to T as their are investment products called "Dow Dog Trusts" that investors will buy that hold the basket of 10 Dow dogs and the 5 "little dogs" that are smaller priced.

Here's a table of the last 6-years percentage gains/losses of the 10 Dow dogs, 5 Dow dogs, Dow Industrials, S&P 500 and the worlds largest mutual fund, Fidelity Magellan.

Various comparisons - Last 6 years

Not including dividends, 2002's "relative" outperforming investment of those listed above was the 10 Dow dogs. The 5 Dow Dogs came in a close second, while the managed portfolio at Fidelity Magellan (not including dividends) may have been the worst performing investment.

Over the last 6-years, the 30 Dow Industrials as a whole have been the better performer on average.

1999 was a rather bullish year for the broader markets and most likely, the "Dow Dogs" which tend to be thought of as a "value" play were shunned by investors as "growth" was in style. Even then, the often-perceived "stodgy" Dow Industrials took top billing.

1997 and 1998 were also "growth years." In 1997 the S&P 500 handily beat out the alternative investments. In 1998, Fidelity's managers may have made some slight adjustments to their portfolio and received top billing.

The last six years are a great comparison as it gives investors and traders alike a good "mix" of bull and bear market conditions. One observation might be that while the "Dow Dogs" tend to under perform a raging bull market, the simplistic approach to "value" based on higher dividend yield beats the fund manager and the broader S&P 500 in more bearish market environments.

This year's, oops, I mean last year's Dow Industrials top performer was Eastman Kodak (NYSE:EK) with a 19.1% gain. Eastman Kodak (EK) was also a "Little Dog" and the lowest priced stock of the 10 Dow Dogs. At the end of 2001, EK closed at $29.43 and carried a 6.12% dividend yield. At that time, it was the highest dividend yielding stock in the Dow Industrials. (Note: 2002 gains were not including dividends).

The second best performing Dow component in 2002 was Procter & Gamble (NYSE:PG), which gained 8.6% (not including dividends). At the end of 2001, PG closed at $79.13 and its dividend yield was 1.92%. PG was not a "Dow Dog."

The worst performers you ask? Home Depot (NYSE:HD) was the worst performing Dow component, falling 52.9% (not including dividends). Intel (NASDAQ:INTC) was the second worst performer, falling 50.5% on the year. At the end of 2001, HD's dividend yield was a paltry 0.39%, while INTC's dividend yield was 0.25%. Microsoft (NASDAQ:MSFT), pays no dividend and was the best "tech" performer, while still declining 22%. IBM fell 35.9% and had a 0.46% dividend yield at the end of 2001.

In this past weekend's "Ask the Analyst" column, we discussed a question regarding "relative strength" from the point and figure charting perspective. In the first "chart" above, I quickly checked the relative strength charts of the various "Dow Dogs," looking for some type of relative strength versus the Dow Industrials that might at least give hint of stocks that were beginning to show some signs of relative out performance.

Would the relative strength chart of EK vs. the Dow given a trader any "heads up" to this year's Dow Industrials top performer?

Relative Strength chart of EK vs. Dow Indu - 0.25 & 0.50 box

While EK may have been on a bullish trader's list of potential Dow Dog winners for 2002, it wasn't until July (red 7) that EK's relative strength chart reversed into X's, which was a signal that the stock was beginning to outperform the Dow on a short- term basis. For EK to be characterized as a longer-term relative strength stock, it would have to establish an RS reading of 4.75.

Was there anything going on in EK's regular point and figure chart in July that might have been saying "buy me?" Even if you are a BEARISH trader, you'll begin to understand how relative strength may give you the needed "heads up" for stocks you're trading.

Eastman Kodak Chart - $1 box

There were little technical signs in January of 2002 that EK was going to be this year's biggest percentage gainer in the Dow. There are some fascinating things that run through my mind that tie in so well with Eastman Kodak (EK) regarding the bullish % charts we talk about, how the bearish resistance trend can sometimes be the directional determiner for how a stock trades and signal a potential longer-term change in trend for a stock.

In July (red 7) of 2002, a bearish trader in EK was most likely licking his/her chops on the thought that EK was destined to trade a new low. Yet while the stock was falling to $28, the relative strength chart of EK vs. the Dow Industrials may have been an early alert that the stock was either "washed out" or beginning to find some type of institutional accumulation RELATIVE to some other stocks in the Dow Industrials.

Even in October (red A), when the Dow Industrials Bullish % ($BPINDU) was way down at 6.66% and the Dow was extremely "oversold" EK traded in "unison" with the Dow, yet its relative strength chart actually improved as RS built to 3.75. That meant that while EK was still declining, it wasn't declining as "fast" on a percentage basis as the Dow Industrials itself.

I think it is important for any trader, bull or bear to make some correlative ties between the bullish % data we had been alerting bulls to in early December (red C) on a point and figure chart, when many of the narrower bullish % charts were all above "overbought" 70% levels.

Subscribers that have been paying some attention to the "red C's" in many point and figure charts have noted that many stocks have seemingly found their recent "tops" when the bullish % charts began reversing lower. This is perhaps no different than when many stocks found their "bottoms" at their "red A's" in early October, when the bullish % charts were deeply oversold and began reversing higher.

This has been a length 09:00 Update. I'm hoping that every trader will try and use the relative strength, bullish % and individual stock analysis shown here this morning in EVERY trade you look at this new-year.

The "Dow Dog" theory is just that. It's a theory or scenario that traders and investors will use as a starting point, to then begin "weeding" out bullish and bearish trading candidates. I'm hoping that this morning's example of what was and be applied to "what will be." However, I find it useful to look back and test some things that we've discussed in other parts of the web site to try and uncover the BEST candidates to trade bullish and bearish.

Again... in last weekend's "Ask the Analyst" column of the web site, we talked about relative strength, how to get a relative strength chart from www.stockcharts.com, how RS is derived, and how to interpret what the p/f relative strength chart is "saying" about a stock's relative strength or relative weakness.

If you're a "bottom feeder" or value-type investor, it is my opinion that the BEST bottom feeding stocks to trade bullish in are this. Look for a market environment where the bullish % charts are deeply oversold. Then, look for stocks that are testing, but have NOT violated a previous near-term low (3-6 months). Then, check the relative strength chart of the stock that fits both criteria just mentioned (oversold market, stock holding 3-6 month support) and look for improving relative strength on the point and figure relative strength chart. If you're a purely "tech" trader, the check the relative strength against the NASDAQ-100 Index. It's also a good idea to test the relative strength against the broader S&P 500, which is the index that many investors and traders consider to be "the market."

Be stingy with your trades. "Make" the stock meet your technical criteria before you trade.

I can't say that every stock/option profiled has the analyst that selects the trade checking the stock's relative strength chart. This is something that can be done in about 5-seconds. If "relative strength" is NOT mentioned in the play write up, then I would assume that there were no observations made relating to relative strength, and something the trader might want to consider.

Happy New Year! And let's get to some trading and make some money!!!!

Jeff Bailey

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