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Market Wrap

Running Out of Time

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      01-21-2003           High     Low     Volume Advance/Decline
DJIA     8442.90 -143.80  8623.49  8438.18 1.59 bln   1007/2266
NASDAQ   1364.25 - 11.90  1380.43  1364.25 1.32 bln   1262/2073
S&P 100   450.35 -  7.01   459.68   450.30   Totals   2269/4339
S&P 500   887.62 - 14.16   906.00   887.62 
W5000    8400.48 -129.80  8565.12  8400.45
RUS 2000  383.17 -  4.93   389.04   383.08 
DJ TRANS 2281.23 - 63.30  2351.83  2279.42   
VIX        30.53 +  1.85    31.18    29.22   
VXN        43.24 +  0.40    44.78    42.17 
Total Volume 3,083M
Total UpVol    738M
Total DnVol  2,278M
52wk Highs  234
52wk Lows    93
TRIN       2.33
PUT/CALL    .53

Running Out of Time
By Jim Brown

That was the term President Bush used when discussing Saddam in a press conference today but it applies to the markets as well. Earnings are flying at a furious pace but guidance is not. The guidance given is not encouraging and "no guidance" comments due to lack of visibility are just as bad. With the majority of major earnings releases already history the market is running out of time to find a reason to buy.

Dow Chart

Nasdaq Chart

The morning started off so well with Housing Starts soaring to a 16 year high of 1.835 million units. Builders must not believe there is any bubble and they are rushing to complete homes in the spring to capitalize on the current low interest rates. Once those rates start back up it may be a different story. The number one reason for buying a new home now is because interest rates are so cheap according to surveys. Other factors remain very weak as most needs based buying has already been done.

Major earnings announcements out this morning included MMM which beat estimates but disappointed investors with guidance that was good but not exciting. They estimated sales would only grow +3% to +7% for the year. That may be good for this economy but not good enough for investors expecting +10% or better gains. The stock gapped open to $127.25 but sold off to $125.50 at the close.

Citigroup earned less than expected but still managed to take home +$15.28 billion in 2002. They took charges for loan write offs due to high profile bankruptcies like Enron but still managed to do well. They also forecast double-digit growth for 2003. Sounds like good news but C finished lower on the day.

JNJ also beat estimates by a penny but the stock closed down for the day on fears of competition from BSX. This should not be a factor despite BSX grabbing $1.4 billion of the JNJ stent market. The new JNJ stent is expected to reap $3.4 billion in 2003. BSX guided higher at the open and gapped up to $50 but sold off to $44 by the close with a -1.71 loss. They announced they had been given EU approval for their Taxus stent. Sell the news became the direction as this had been expected for a week.

Ford reported a smaller 4Q loss and predicted a first quarter profit of 20 cents a share. Ford expects to earn 70 cents for all of 2003 but analysts claim the prediction is based on an "overly rosy" projection of the economy. Ford finished flat for the day.

Charles Schwab missed estimates by a penny on revenues that fell -5.9% and produced the second consecutive quarterly loss. Schwab revenue from customer trades fell -14% with average daily trades dropping to 126,700 in Dec 2002 from 159,900 in Dec 2001. Schwab has been raising fees and adding additional charges to previously free services to try and pull out of the dive. The company has cut 10,000 of 26,700 employees in the last year.

HDI hit a slick spot when it affirmed guidance today. Analysts had expected them to raise guidance instead. The stock lost nearly -$4 on the news. Could this be a sign of consumer weakness ahead? Very high dollar motorcycles have been available on back order for years and a termination of that trend could be a problem. This was the first time in 16 quarters that HDI did not raise guidance.

After the bell today Motorola beat estimates by three cents and said sales of its mobile phones were stronger than expected and margins were also better. Will wonders never cease? Handset shipments were up +27% over the Dec-2001 quarter. MOT was up +35 cents in after hours.

Other stocks making news in after hours were RFMD who beat estimates but guided down . CDN also lowered guidance for the first quarter. SANM guided inline to slightly lower. However there were many more companies that beat, affirmed or upgraded guidance tonight. UIS, CFO, VISG, PCLE, PSEM, JDAS, HTCH, OPWV, SGI, OAKT, AV, LM, MXO, CKFR, ELON, MCK, MVSN, PXLW. It would almost seem that the tech sector had miraculously revived and the MOT earnings are going to be the rally cry.

Also after the bell tonight the December Semiconductor Book-to- Bill report came in much stronger than expected at .98. This was up from .80 last month. While it is too early to see this as a revival of the semiconductor sector it is encouraging. The orders are about flat with shipments and that could be seen as a stabilization of the sector. Tech bulls are sure to grab on to this like a lifeboat from the Titanic and proclaim salvation from the rooftops. Then again maybe not. The BTB report does not come out until 6:PM ET and many times it is completely overlooked by the major news outlets and therefore by traders as well.

It would not take much bullish tech sentiment to rescue the Nasdaq. The index put in a remarkable display of strength and traded in positive territory most of the day. This was no small feat with the Dow doing the Titanic imitation and slipping beneath the 8600 and then 8500 waves.

Reviving the Nasdaq would take traders willing to commit money in the face of a four day Dow sell off. Lipper reported today that $10 billion in cash was withdrawn from stock funds in 2002 and the first year with a net withdrawal since 1988. They also reported that $130 billion was deposited into bond funds for the same period. That was also a record. This was repeated numerous times during he day along with the threats about Iraq and the result was all 30 Dow stocks finishing in the red.

The continued bad news from Venezuela is also depressing the markets. American companies are closing locations and shutting doors to protect employees from the increasing rioting. Today Bush sent two more aircraft carrier battle groups and 100,000 more troops to the gulf. With the Monday deadline at the UN there is a very good possibility the rhetoric is going to increase.

We are setting up for a sentiment tug of war between tech bulls acting on perceived good news tonight and economic bears acting on oil, war and economic fears. The Dow at 8443 is about 100 points away from strong support at 8350. The Nasdaq at 1364 is only a few ticks away from support at 1361. Stronger support is about -30 points below that. While I do not think the economy has changed much in the last week the selling has been too much too fast and I expect a rebound before eventually breaking that 8350/1331 support. I expect any bounce to fail in the 8600/1400 range as the UN deadline gets closer. Traders should realize that the next week could be very volatile and they should only be in the market if they are willing to take the risk. After the 28th the war direction/timing should be known and the market should be done with earnings. Will a new trend begin then? Nobody knows but there will be much less uncertainty in the market place. Until then be cautious traders and be prepared for big swings in prices. The 2.33 TRIN at the close plus the MOT news should be good for a few points at the open but don't expect them to last forever.

Enter Very Passively, Exit Very Aggressively!

Jim Brown


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