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Market Wrap

Earnings are coming in strong and the Nasdaq charges again!

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        4-8-99           High     Low    Volume  Advances Decline
DOW    10197.70 +112.39 10209.08 10059.78  844,384k  1,698   1,260
Nasdaq  2573.39 + 28.96  2573.97  2514.27 1148,400k  2,014   1,995 
S&P-100  679.49 +  6.65   679.92   668.63   Totals   3,712   3,255
S&P-500 2343.98 + 17.09  1344.08  1321.61            53.3%   46.7%
$RUT     399.89 +  2.12   399.89   396.29
$TRAN   3329.40 -  9.47  3351.20  3290.86
VIX       23.33 -   .20    24.72    23.20
Put/Call Ratio      .60

Earnings are coming in strong and the Nasdaq charges again!

General Electric, one of the first Dow companies to announce earnings, met analyst's estimates this morning with a record $.65 which equates to a $2.15 bln profit for the quarter. This came on the heels of Alcoa, which announced yesterday, beating analyst's estimates of $.54 with an actual of $.60. On the Nasdaq side Yahoo announced last night $.11 vs estimates of $.08 by analysts.

The blue chips are still leading the way and the techs are next. Baring any earnings disaster we could continue to see the market set new records. However, there was a warning or sorts recently when several analysts expressed concern about Compaq and Hewlett Packard. Some analysts expect them to show weakness in sales and an increase in inventory when they announce soon. This would be a bearish event but is it a symptom of the market or just a symptom of poorly run, non-competitive companies being beat by Dell and Gateway?

Michael Dell, at the analysts meeting today, expressed confidence in the coming results and did not give any negative guidance to analysts. Michael said he was confident at a +35% to +40% growth rate. The Dell.com website now amounts to over $14 mln in sales daily, over 25% of Dell's total. The Gigabuys.com site has been receiving over 100,000 visitors per week since the recent launch. Michael said sales of the new under $1,000 PC were encouraging. The Tuesday prophecy of a drop by Dell after the meeting came to pass with a -1.44 drop even on a record setting day. The prime example of "buy the rumor, sell the fact".

The rally today was inspired in part by a rate cut by the European Central Bank, which lowered, rates by 50 basis points. They had expected a 25 point cut and the larger cut convinced traders that the European economy would rebound quicker than expected. Also U.S. traders felt the cut would prevent the Fed from touching U.S. interest rates anytime soon. This lit a fire under the financials which had been lagging the recent rally.

Bond yields slipped to 5.44%, under the mental 5.5% bar which prompts investors to buy bonds instead of stocks.

Another log on the rally fire was the strong same store sales results this morning. Mild weather and an early Easter pushed more sales into March which boosted retailers profits for the quarter. Wal-Mart total sales was up +18% and same store sales was up +11.3%. Wal-Mart sold over $2.2 bln more this qtr than the same qtr last year. They sold over $14 bln last month alone. Other store sales increases were Kmart +8.1%, Sears +2.1%, Dayton Hudson +12.9%, Gap +21%, Ann Taylor +21%, The Limited +18%, and the winner and a current play, American Eagle +33%.

The triple digit Dow record close, was joined by records in the Nasdaq and S&P-500. All closed at record highs and near their highs of the day.

The sickest sector today was health care after Humana warned that higher costs would impact profits by as much as $.10 this quarter. The sector sold off strongly but the weakness was not contagious.

The rally may have another week or two of life if earnings continue to surprise to the upside. The advancers found new life today and beat decliners by a decent margin. The trouble spots continue to be the Russell-2000, still under 400, and the transports, which are suffering the results of $16 oil.

Clinton and Zhu played friends on TV today as each joked about campaign finance contributions and stolen nuclear secrets. Zhu said the campaign contributions were a joke because he had $168 bln in U.S. dollars and if he had wanted to influence the U.S. elections in that way he would have invested at least $10 bln. The amount reported by many sources was only $300,000. I think $10 bln would have been a little easier to trace personally. He also admitted that China only had 15 to 20 nuclear missiles, and he did not know the correct number but compared to the 6,000 the U.S. has, he felt China was not a threat. Could that have been 15 to 20 PROTOTYPES mister Zhu??

Before you rush out to buy more calls on Friday let me remind you that the Dow is up +411 points in the last five days and is due for a pullback for profit taking soon. I do expect it to be brief and met with bargain hunters who missed the rally the beginning of the week. Fortunately at 10,197 we can now lose a lot of ground and still be above 10,000. If you see a sharp intraday pullback on Friday I would call it buyable. If we get another up day Friday then Monday should follow. Tuesday would then be my pick for a profit taking pullback.

The only speed bump on the highway is the PPI on Friday morning but unless it is an clear disaster it will be ignored.

Plan your plays and your exits. Sell too soon.

Good Luck

Jim Brown

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