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Mistaken Guidance

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      11-12-2002           High     Low     Volume Advance/Decline
DJIA     8386.00 + 27.10  8504.67  8356.73 1.63 bln   1919/1272
NASDAQ   1349.56 + 30.40  1367.97  1328.08 1.52 bln   2136/1245
S&P 100   450.50 +  2.87   456.82   447.63   Totals   4055/2517 
S&P 500   882.95 +  6.76   894.30   876.19 
RUS 2000  374.69 +  5.55   377.61   369.14 
DJ TRANS 2280.69 +  9.63  2299.57  2270.07   
VIX        35.39 -  0.72    35.71    33.63   
VXN        55.25 -  0.46    56.63    53.02
Total Vol   3,353M
Total UpVol 2,625M
Total DnVol   693M
52wk Highs    74 
52wk Lows    108
TRIN        0.79
PUT/CALL    0.85

Mistaken Guidance
By Jim Brown

Flash! Cisco CEO John Chambers says order backlog is comfortably above $1.4 billion! Quick buy tech stocks was the impression many investors got. The Nasdaq rallied to 1367 and only four Nasdaq 100 stocks were negative for the day. BUT, and you knew there was a but, Salomon Smith Barney says that was a misrepresentation.

Dow Chart - Daily

Nasdaq Chart - Dailyt

About 2:30PM SSB came out with their "where's the beef" comment and the market burned off nearly all its gains and only short covering and bargain hunting at the close kept the Dow from going negative. SSB said people were taking Chamber's comments out of context about the "improved" backlog. According to SSB the backlog number is useless as quarters are always back-end loaded and the backlog numbers were in the $2 billion range in the past. SSB said the Sept and Oct order patterns were actually below Cisco's targets. Chambers was speaking at the UBS Warburg Global Teleconference in New York and he declined any financial guidance other than to say that customers are remaining cautious. Certainly not anything was said to justify a +50 point gain in the Nasdaq intraday.

Yesterday Oracle continued to say that visibility remained poor and they did not see the beginnings of a recovery until the first half of 2003. That implies a minimum gain in the first quarter. ORCL recovered what it lost yesterday on the Cisco comments today.

Need proof things are not improving in consumer confidence? Charles Schwab announced today the 4Q job cuts would hit 1,900. They had previously said they would be forced to cut up to -10% of their work force if things did not improve.

Phillip Morris went up in smoke today and lost nearly -$6 after saying it could no longer affirm guidance for the current quarter. This is a major hit for a Dow stock and considering only eight Dow stocks were negative, MO lost more than the other seven combined.

There were so many conflicting stories in the market today it was ridiculous. Retail sales for JCP were up and WMT said it was back on track to hit same store estimates. Analysts however said it appeared to be due to a sharp burst of winter clothes buying due to a week of early winter weather. They feel this buying will fade and could have actually subtracted from the holiday sales due to limited consumer budgets.

Probably the biggest boost to the market today was a flood of Fed heads out pounding the table on the economy. Reports put six of the inner circle out on the social circuit today but only four made official speeches. Ferguson spoke at two different events in Pennsylvania, Olson in Ohio, Bies in Washington and Greenspan in Mexico City. While the general made veiled comments about Brazil his speech was more of a global history lesson. The troops however were upholding the party line of a very accommodative Fed, which had injected massive amounts of stimulus into the economy, and that stimulus was working. They stressed the fact that it is growing steadily and next year the results would be seen. If you remember the past month when Fed speak was zero you can see the major shift in policy and a strong attempt to "talk up" the markets. This brings up the question again of what do they know that we don't? Why the sudden full court press when they were dormant for the prior month. Tomorrow Greenspan will get the hot seat again as he addresses the Joint Economic Committee and you can bet he will try to spin the party line in his favor. The Richmond and Kansas City Fed district both released positive reports showing slight growth in their areas.

The Fed head will have his work cut out for him after the Business Roundtable Survey was released today. 60% of the top 150 CEOs surveyed expected more layoffs in 2003. Only 19% expected capital spending to increase in 2003. 65% of the CEOs expect GDP growth less than 2%. 28% expect flat to lower sales. These 150 CEOs represent a workforce of over 10 million and $3.7 trillion in revenues. These are the business men who know what is happening in the real world. Using a general average it would appear that two thirds of the CEOs were looking for a continued weakness of some sort in their business in 2003.

The news that the IRAQ parliament had unanimously voted to reject the UN resolution fell on deaf ears since their vote does not count. In a dictatorship like Iraq only one vote counts and that is Saddam. A vote to accept the resolution from a parliament member would have been a vote for personal suicide. Saddam has until Friday to accept/reject the resolution and it should be a given that he will accept in an effort to buy time. IRAQ was caught trying to buy one million anti-nerve gas injections on the open market today. Since it was of a specific type of nerve gas that he is not supposed to posses it is obvious that he has it and is planning on using it or they were simply trying to scare the US into thinking they would.

The biggest killer on the markets today was the release of a new Osama Bin Laden tape on Arab TV. Unfortunately the tape has been verified by multiple sources as being genuine and recent. Osama spoke about the Russian theater attack and the attack in Bali and warned the US about attacking Iraq. It called on believers to continue the war. Just like Jason of multiple horror movie fame, Osama came back from the dead and cancelled everything the US government thought about his demise. No longer is he a dead leader with a scattered and decimated gang. He is alive, well and organizing attacks. Do you think he just did not want Saddam getting all the attention? (grin)

Wednesday we have an IBM analyst meeting, which could create significant market movement and the AMAT earnings after the close. Add in the Greenspan comments and Osama tape ramifications and the day could be exciting. It is going to be a tug of war between Greenspan and everybody else. We know Greenspan is going to be putting a positive spin on our economic future while the talking heads on the news channels will be cautioning against a much higher risk of terrorist strikes ahead. There is already speculation that the tape was timed to trigger sleeper cells into specific and immediate action. The Dow is poised on the top of strong support between 8200-8350 and it is going to take some specific and credible problems to break through that support. The bulls are expecting an end of year rally and Greenspan is going to try and give it to them.

Enter Very Passively, Exit Very Aggressively!

Jim Brown

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