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      01-09-2003           High     Low     Volume Advance/Decline
DJIA     8776.18 +180.90  8787.70  8596.61 1.89 bln   2318/ 963
NASDAQ   1438.48 + 37.40  1445.09  1414.47 1.66 bln   2350/1035
S&P 100   469.92 +  9.86   470.44   460.06   Totals   4668/1998
S&P 500   927.57 + 17.64   928.31   909.93 
W5000    8755.00 +160.00  8760.47  8596.03
RUS 2000  395.94 + 41.10   396.87   389.07 
DJ TRANS 2411.79 + 41.10  2411.79  2369.79   
VIX        26.88 -  1.54    27.88    26.19   
VXN        42.99 -  1.57    45.06    41.79 
Total Volume 3,733M
Total UpVol  3,181M
Total DnVol    522M
52wk Highs  293
52wk Lows    66
TRIN       0.46
PUT/CALL    .74

By Jim Brown

Bulls broke out of the corral and stampeded up the hillside to supposedly greener pastures ahead. Unfortunately the heavy diet of bearish leftovers and lack of any real exercise since Dec-2nd has left them breathless after the three days of sprints in 2003. Each run has resulted in a failure to crest the top of the hill at 8800 and the need for another nap the next day. Will Friday be different?

Dow Chart - Daily

Nasdaq Chart - Daily

The morning started with a bang when the jobless claims fell slightly to +389,000 for last week. This was a surprise as many had expected the number to rise now that the holiday distractions are over. Chalk up one for the good guys. The continuing claims decreased by -35,000 to 3.445 million but that number is expected to rise sharply now that they have approved another 13 weeks of benefits to 2.3 million additional workers that are still unemployed. Over a million other workers that have been unemployed for 39 weeks already are still out of luck.

The Wholesale Trade numbers also surprised analysts with a +1.2% gain and a gain in inventories of +0.2%. This pushed the inventory-to-sales ratio to a record low of 1.21. The jump in sales and inventories suggested on the surface that there was a glimmer of hope at the end of the tunnel. The majority of the gains were autos again and we know what the future holds for them. These were the numbers for November and may not be a good indication of the current situation. We have heard several tech companies say they have not seen any increase in capital spending with EMC and SAP being the exceptions. The record low inventory to sales levels will provide a very big boost to the recovery once it starts. There will be strong buying to replenish those levels once demand is seen again.

Retail Sales for December rose only +1.0% and was the worst gain for the period since 1970. This report came only two days after the same research firm raised estimates to 2.0% for the period. Evidently they lost a few fractions between estimates and final. Weakness was chalked up to serious discounting, lower inventory levels, strikes, snipers, weather, gasoline prices and unemployment. However, despite the negative news investors celebrated. It appears the outlook was for a much worse holiday season. (Worst in 32 years was not enough?) Several stores reported same store sales and WMT gained +2.3% with TGT showing only a slight decline and FD losing -2.6%. Still FD gained +1.71 on the news. Will wonders never cease? Worst year in 32 years BUT it could have been worse. Let's buy! (grin) The reality is that investors felt this should be a bottom for retailers with the 2H-2003 recovery in our future. (Yes, somebody is counting eggs instead of chickens.)

There were several other positive news events today. SAP said they were going to raise guidance due to stronger than expected sales in the fourth quarter. This gave techs a boost since their expectations had been for a decline in SAP sales. The tech gain was surprising since the gain in SAP sale was only "slight". On the whole there appeared to be many more warnings/downgrades than raised guidance/upgrades but traders already had their mind made up. These were some of the changes today.


Raised guidance: BBY, SAP, AZN, BWS, ROST, INVX, MRVC, ALO, RPM, ROK.

What captured investors attention this morning were statements out of the UN that they have not found any smoking gun. There were several news conferences about the lack of progress and the bottom line appeared to be that the potential war could be setback as far as Nov/Dec. This easing war deadline made traders more confident that it may not happen at all. The "deadline" for the formal report on Jan-27th has turned into a status check instead. Almost everyone now expects that the inspectors will request much more time and the US will be forced to cool its heels. There was another order issued to the Marines today which prohibits any Marine from leaving the service for the next 12 months. B2 bombers were ordered to leave from Idaho to staging areas closer to the battlefield. There are about 200,000 troops either in theater or moving into position with another 50,000 expected to be called up.

Key dates in our future are the State of the Union speech on Jan-28th (just a coincidence that it is a day after the prior Jan-27th deadline, right?) and the Muslim holy weeks. Two million Muslim pilgrims will be traveling to Saudi Arabia performing the Hajj by the first week of February. The end of this event is the Adha celebration which takes place on Feb-14th. It is generally accepted that the US would not start the war until after this period. This allows them to give the UN inspectors another 30 days but any further delay would put the effort off until the next winter due to the very hot summer conditions.

Another positive event was promising words out of North Korea. It appears the rush to make nuclear bombs has slowed as pressure was brought to bear from their neighbors. The NK ambassador is meeting in the US to discuss potential resolutions.

Suddenly the world appears closer to continued peace and fewer unemployed. This could be a temporary situation but it did cause shorts in the market to cover in panic for the third time this short year. The markets are VERY skittish and there is no confirmation in either direction as evidenced by the alternating triple digit days. The markets want to go up based on the expectations that the Bush stimulus, added to the already flood of Fed stimulus, will simply over power the economic sluggishness. Traders are tired of fighting losses for the last three years and are ready to invest regardless of the conditions.

This positive sentiment flattened the VIX to a six-month low of 26.19 today. The TRIN also fell to a very overbought level of .35 around noon. While the VIX at 26 is far from historic levels is in an indication that there is no fear in the markets. Almost everybody is bullish, which in itself is a bad sign. The Dow closed just below strong resistance at 8800 once again. This is the 3rd time since Jan-2nd that the Dow has come within 20 points of that 8800 level. On a normal day this would be a setup for failure.

Tomorrow the bears could be caught flat-footed again. The Jobs report for December will be released on Friday at 8:30 AM. Last months number showed a loss of -40,000 jobs. The forecast for December is for a gain of +32,000 jobs. If that jobs number is exceeded the bullish sentiment could explode and the bears could be looking at an opening well over 8800. Conversely, if the number is negative we could see the same result as the retail sales as traders look forward to a future without war. I realize this is a stretch for some readers, it is for me, but instead of trading what we think we need to trade what we see. A break over 8800 would cause another serious round of short covering and would put Dow 9000 clearly in our sights once again.

There was a material change in our technicals today. The Nasdaq closed over its 200 DMA at 1435 by 3 points. Granted that is not much but it did seem to gravitate and stick to that average all afternoon. Any further move over it would prompt serious short covering. It appears we could be set up for a big move at the open in either direction depending on the Jobs report and any news events. According to Yahoo there are only seven companies who report earnings on Friday so any flurry of stock news could be warnings. It should be interesting!

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Enter Very Passively, Exit Very Aggressively!

Jim Brown

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