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The "unexpected" results in the "unexpected"

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The major indexes have managed to shrug off some wild trading and a dip lower after semiconductor equipment giant Applied Materials (NASDAQ:AMAT) $11.97 -7.5% jolted investors just before the opening bell by saying it has seen a decline in equipment orders in recent weeks.

But negative news there was offset by some unexpectedly strong economic data when the Chicago Purchasing Managers Index jumped to 56% in January, which was a marked improvement from December's 51.7% reading and well above economist's forecast for a 53% reading. Levels above 50% are considered to depict growth, while levels below 50% depict contraction.

I say that some of today's news was "unexpected," but the Applied Materials (AMAT) warning on a decline in orders may not have been a surprise to subscribers. As mentioned just after Intel's (NASDAQ:INTC) $15.80 +0.06% recent quarterly earnings, it said it was cutting its 2003 capex budgets, much of which is slated for semiconductor equipment. The broader sector as depicted by the CBOE Semiconductor Index (SOX.X) 274.12 +0.16% has edged back into positive territory after falling to a session low of 261.38, which was right near the daily S2 level of support from pivot analysis of 261.71. I'm looking for SOX resistance to be firm at today's pivot of 279.17.

It has been a rather "wild" first-half of session with the major indexes and various sectors recovering from their lows and now pegging their session highs. The Dow Industrials (INDU) 8,088 +1.8% reversed a low of 7,917 and has now marked a 180-point reversal. An upside surprise on earnings from Disney (NYSE:DIS) $17.55 +7.3% has this stock leading today's Dow gainer's list, while being partially offset by weakness in Hewlett Packard (NYSE:HPQ) $17.34 -4.72%.

In yesterday's 03:15 PM EST, we mentioned a HIGHLY SPECULATIVE stock that traders as well as investors may want to monitor in the coming sessions for some psychological perspective on what the markets might be thinking with regard to "war with Iraq," in shares of Boots&Coots (NYSE:WEL) $0.57 +35.71%. Our thoughts were that Iraq's President Saddam Hussein might implement a "scorched earth" policy with regard to blowing up oil wells should his country be attacked by a U.S.-lead coalition, which only came to mind after observing large volume and price increase in the shares on January 24th. While I had mentioned the stock in the OptionInvestor.com market monitor a couple of days ago, and profiled a SPECUALTIVE bullish trade at $0.40 yesterday, a Reuters report today that low-level U.S. military officials have given notice to Boots&Coots (WEL), RPC Inc. (RES) $10.65 +16.9% and Superior Energy (SUP) $8.43 +13.9% that their services may be required in the coming months if Iraq torches it oil wells in the event of war. This news has "lit a fire" under these three names. As mentioned yesterday, I would only expose RISK capital to these stocks and I view a position in WEL as an option trade..Unfortunatley for option traders, which is all I would be looking at on a "scorched earth" type of scenario, doesn't have options being traded on any of the stocks mentioned above. As such, it has been my personal decision to only SPECULATE with a small dollar amount in WEL to seek some defensive exposure to this scenario.

While it is just one day following yesterday's comments regarding how we can monitor WEL for psychology of the market and its view of what might take place in Iraq, today trade action, combined with comments from military officials does express some type of concern that things could get dicey with Iraq, and this may weigh on any type of bullish enthusiasm from investors in the coming weeks and perhaps months.

Market volumes are rather light as the weekend approaches, with just under 1 billion shares traded at the NYSE and NASDAQ showing just over 1 billion shares traded.

After the NYSE Bullish % ($BPNYA) reversed into "bull correction" status yesterday, which I views as VERY DEFENSIVE as this broad market indicator of market internals beginning to deteriorate, we are seeing some good breadth at the NYSE on a daily basis with 22 stocks gaining for every 9 stocks declining. The NASDAQ Composite Bullish % ($BPCOMPQ) remains in "bull confirmed" status and has not yet followed the NYSE bullish % reversal. However, daily breadth here has NASDAQ showing 17 gainers for every 13 decliners.

The new highs versus new lows indications remain rather weak. NYSE shows 35 stocks hitting new 52-week highs compared to 43 stocks achieving new 52-week lows. NASDAQ has just 28 stocks achieving new 52-week highs compared to 74 stocks having traded a new 52-week low.

Jeff Bailey

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