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Market Wrap

Still Waters Run Deep

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      04-17-2002          High     Low     Volume Advance/Decline
DJIA    10220.78 - 80.54 10326.44 10188.26 1.37 bln   1671/1490
NASDAQ   1810.67 -  6.12  1832.01  1804.65 1.71 bln   1670/1868
S&P 100   559.73 -  1.56   563.79   558.38   Totals   3341/3358
S&P 500  1126.07 -  2.30  1133.00  1123.37             
RUS 2000  518.77 -  4.18   523.79   518.77
DJ TRANS 2848.31 - 33.09  2882.72  2848.31
VIX        20.21 -  0.09    20.79    20.05 
VXN        39.29 -  0.14    40.14    38.53
TRIN        0.81 
Put/Call    0.54

Still Waters Run Deep
By Buzz Lynn
Click here to email Buzz

The surface appearance of nothingness graced the markets today. But underneath this non-descript day, currents are churning.

Take a listen to Greenspan's speech on Capitol Hill where he notes that rates must eventually rise but that with low inflation and lousy corporate pricing power, the Fed could wait until economic recovery was in full swing to raise rates again (from a recession that never happened).

And to listen to the dominant financial media, you might also think that a recovery was now well under way. Sure, tell that CAT, UTX, and BA. Caterpillar announced earnings yesterday that missed by a penny from which further losses extended today. Boeing reported today and missed by $0.09 ($0.75 actual vs. $0.84 est.). UTX lost today too when they met earnings. Met? Why did the stock fall? In some truthful words uttered by the analyst community, "But I think people are starting to refocus on the market realities here, which are that commercial aerospace is looking pretty weak". This from Deutsche Bank's Chris Mecray. It's future earnings, Silly!

Adding insult to injury, Delphi Automotive (DPH), a major supplier to GM is cutting an additional 6100 workers from its force, which it had already reduced by over 11,000 workers in the past year. That doesn't speak well to the auto industry and flies in the face of GM's bumped-up earnings estimates from earlier this week.

These are huge companies with combined sales of over $130 bln. - roughly the equivalent of MSFT, INTC, DELL, and CSCO (four biggest NASDAQ stocks). The long and the short of it is that manufacturing is far from recovery. Negative publicity and lower stock prices would result if these four NASDAQ stocks missed or warned, but there seems much less concern with CAT, UTX, BA, and DPH. Maybe it's because they have real earnings and pay a dividend?

Then there's IBM, which announced a week ago that it would disappoint. Everybody lowered their numbers and braced for the worst. What happens when IBM announces that it met lower, revised, reworked, and restated numbers? Right, the price pops up $2 in after hours trading. This is investing?

Alright, before I get all riled up on the fundamentals that do not support ridiculous stock prices, I need to focus back on today's internals.

Despite that the Dow lost 70 points and that markets for once could have cared less about Greenspan's comments, the advance/decline line was about even on the NYSE and only slightly negative on the NASDAQ. It didn't fall apart completely when it easily could have on any other losing day. Over and above that, volume was pretty good at 1.39 bln shares on the NYSE and 1.93 bln on the NASDAQ. While I wouldn't call this wildly bullish, it does show that bulls have been able to maintain some control today following what was likely some short-covering driving yesterday's big Dow gains.

Let's see - shorts cover forcing big gains the first day and don't re-short on day-two. Meanwhile, volume picks up, internals improve, and the markets lose far less today than yesterday's gains. Seems slightly in favor of the bulls for now. But what about the charts? Just a quick comment on each.

Dow chart - INDU (weekly/daily/60)

No telling the Dow's direction - weekly is bearish; daily is wobbly but met with declining resistance on every pop. Still the 50-dma (magenta) held. 60-min looks like the bulls might make a teasing charge to perhaps 10,300 before any resistance is encountered.

NASDAQ chart - COMPX (weekly/daily/60)

Same for the NASDAQ - upturned but wobbly daily stochastics; declining upper resistance trendline held again, and today's candle closed just under the 50-dma of 1817. The 60-min chart looks coiled for a bounce from oversold - at least on a daytrade. But the bigger future is uncertain.

S&P 500 chart - SPX (weekly/daily/60)

SPX? ZZZZZZZZZZZZZZZ. Same. Weak weekly chart; pop over daily declining trendline with current price now barely below the 50-dma of 1127 with plenty more resistance not far overhead at the 200- dma of 1134. Yet the 60-min candles found support with the stochastic just entering oversold. Again, bounce from here? Difficult to tell. Chalk up another one to "inconclusive".

Hmmm. . . sounds like three full paragraphs that say, "Rangebound"! In this environment, it's safe for daytrading only. No buy and hold here.

Anything to read into the VIX? Nope, still hovering just over 20, which is symptomatic of a complacent market. Everyone currently seems to believe the markets are not going to budge much. I call it complacency. Others call it belief that they are comfortable with the markets' current direction - sideways for now. It's precisely at these times I get twitchy in that the majority cannot be right. From that, I'm starting to think we are nearly due for a breakout or breakdown in the coming weeks. The good news is that we only need think of tomorrow's action.

So for tomorrow and Friday, personally, I would not take a position home with me and would be out by the time the exchanges close. Calls might make for a fast swing or daytrade early on. But the bigger weekly chart bearish pressure is still in place. Get in, get out. Just rent the things for a while and return them before you go home.

See you at the bell.

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