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        3-14-2002           High     Low     Volume Advance/Decline
DJIA    10517.14 + 15.29 10551.11 10474.72  1.2 bln   1742/1384
NASDAQ   1854.14 -  7.89  1873.01  1851.38  1.4 bln   1986/1580
S&P 100   584.33 -  0.37   587.15   583.26   Totals   3728/2964
S&P 500  1153.04 -  1.05  1157.83  1151.08
RUS 2000  497.76 +  2.31   499.48   494.90
DJ TRANS 2950.91 +  1.07  2956.36  2926.72
VIX        22.02 +  0.05    22.27    21.38
VXN        42.33 -  0.93    44.15    42.13
TRIN        1.72
Put/Call Ratio       .84


Bond yields rose today as prices on bonds fell. This is well illustrated by the chart of the 10-year Note Index below. On balance, the economic data of today, several important releases Tomorrow (Friday), the continued strength in the cyclical stocks that point to a revival of the economy, as well as a growing feeling that rates are as low as they can go and must begin to rise, are contributing to the mixed outlook and low stock volumes. The resulting drop in the broad averages today had as much to do with potential buyers stepping aside as to concerted selling.

Today's economic data showed jobless claims for the latest week fell by 3,000 to 377,000, somewhat better than expected. The prior week's reading of 376,000 was revised higher to 380,000. Continuous jobless claims rose 96,000 according to the U.S. Labor Department. That number more than offset an 83,000 decline in recipients reported for a week earlier, leaving the level near where it was for much of February.

Business Inventories rose

The Commerce Department reported inventories rose a seasonally adjusted 0.2% in January after falling 0.5% in December, versus expectations of a decline of -0.3%. Total business sales rose 1.1% in January, marking the first increase in business inventories in 12 months.

With sales rising faster than inventories, the inventory-to-sales ration fell from 1.39 to 1.38, the lowest level in nearly two years. Inventories are now 6% below January 2001 levels. The Commerce Department also said the current account deficit - the broadest measure of the nation's financial standing with the rest of the world - rose slightly in the 4th quarter of 2001 to $98.7 billion from $98.5 billion in the 3rd quarter. The 4th quarter's $98.7 billion was slightly lower (better than expected) than the $101.3 billion consensus.

All in all, what the market saw today pointed to an improving economy. The Dow Industrial average posted a small gain due to strength in Eastman Kodak (EK), Minnesota Mining (MMM) and International Paper (IP). The other indexes fell slightly. Friday's events can easily impact the market and determine whether buyers will continue to stay on the sidelines and book some profits. Besides fluctuations that may occur from the expiration of options and futures, there are significant reports that relate to the economy and inflation:

Friday, 03/15/02 - Figures due
PPI Feb Forecast: 0.1% Previous: 0.1% Core PPI Feb Forecast: 0.1% Previous: -0.1% Industrial Production Feb Forecast: 0.2% Previous: -0.1% Capacity Utilization Feb Forecast: 74.4% Previous: 74.2% Michigan Sentiment Index Mar Forecast: 93.0 Previous: 90.7

After the close

Oracle Corp. (ORCL) reported third-quarter profit fell 13 percent, meeting lowered expectations, as revenue dropped 20 percent on a decline in sales in Asia. Shares of the stock rose a few pennies in after hours trading. The stock has been under pressure, falling recently from the $16 area, to 13.45 at today's close. On a conference call, the company said that "technology spending will continue to lag the overall economy even while economic data shows an improving economy". If true, the tech heavy Nasdaq should continue to lag the blue chip, "old-economy" tocks.

Adobe Systems' (ADBE) shares also rose in after-market dealings after the maker of publishing software exceeded first- quarter profit estimates and posted revenue in line with expectations. The company earned 22 cents a share, versus expectations of 20. Some tech bright spots are found, but they are still few and far between. A further example of technology's continued woes was seen when a Lehman analyst cut his estimates for

Micron Technology (MU), indicating that his expectation is that the company's production & shipments during the recent quarter were less than anticipated.

Technical picture, near-term:

The near-term technical outlook suggests, as do the uncertain and mixed fundamental picture related to earnings and the spike up in bond yields, support the idea that the recent rally has run about as far as it can without some consolidation. The low volume also points to the current lack of conviction on the near-term market outlook.

The further expected consolidation I anticipate can take the form of a sideways move that "throws off" the overbought reading in the 14-day stochastic registering in the S&P 500 (SPX) as seen below. Or, the consolidation can take the form of a deeper pullback. Based on the recent highs moving up to the top envelope "band" (4.5% above), relative to its 21-day moving average, there is an historical tendency for the index to pull back, at least once, to the "mean", as represented by the central, 21-day moving average per the chart below.

The other important moving average and one more widely followed, is the 200-day, just below today's close. A break of this level, should lead test of the 1130 area.

Trading strategy -

Look to the buy side for stocks that are in current uptrends, but on a further good-sized market pullback, such as into the 1120- 1130 zone, basis the SPX, or wait for the market to "prove" itself and for SPX to achieve a decisive upside penetration of well-defined overhead resistance in the 1170-1175 zone. The tech sector is not the most favorable place to look for current buy- side candidates, especially in the options arena, as the Nasdaq Composite should continue to lag the S&P.

Leigh Stevens

Chief Market Strategist

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