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Market Wrap

Retail Sales Soar

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      02-18-2003           High     Low     Volume Advance/Decline
DJIA     8041.15 +132.40  8076.02  7909.30 1.39 bln   2341/ 908
NASDAQ   1346.54 + 36.40  1346.92  1319.52 1.28 bln   2216/1131
S&P 100   431.48 +  8.91   432.71   422.57   Totals   4557/2039
S&P 500   851.17 + 16.28   852.87   834.89 
W5000    8051.71 +154.80  8061.00  7896.94
RUS 2000  364.53 +  6.03   364.59   358.50 
DJ TRANS 2140.65 + 38.10  2140.65  2100.67   
VIX        35.56 -  1.54    37.06    35.25   
VXN        48.40 +  0.02    49.63    47.71 
Total Volume 2,871M
Total UpVol  2,467M
Total DnVol    378M
52wk Highs  113
52wk Lows   16
TRIN       0.45
PUT/CALL    .81

Retail Sales Soar
By Jim Brown

At least at Wal-Mart where sales of duct tape, plastic, batteries, flashlights and other survival necessities helped overcome weak Valentine sales due to the snowstorm in the north. No kidding. I mentioned this possibility last week that the terror alert would revive retail sales and Wal-Mart is the first major chain to admit it. Don't tell Greenspan or we will have weekly terrorist alerts to boost the economy.

Dow chart - Daily

Nasdaq Chart - Daily

While Wal-Mart may have seen a benefit from the alert most other businesses were not seeing anything due to the white out on the east coast. The traditional mid-winter sale over the President's Day weekend fell flat with many stores closing for much of the weekend. The retailers depend on the holiday sale to dump the rest of their leftover Christmas merchandise and the rest of winter apparel to make room for spring merchandise. With the money already spent for the traditional advertising flurry last weekend there is a shortage of budgets to do it again. This was a serious blow for retailers in the north.

It was also a blow to the struggling airline industry. Most airlines had to cancel the majority of flights to the north east both inbound and outbound. Holiday travelers stayed home by the millions and equipment shortages hampered routes all across the nation. Planes snowbound in the north were not available to complete routes in the south and west. On Monday alone AMR cancelled 627 flights and UAL cancelled 380. Multiply this across all the airlines and the multiple days of the weekend and you can see the problem.

The NY State Manufacturing Survey came in at only 1.1 for February, which was down from 20.7 last month. This is a huge drop and showed a huge drop in unfilled orders, -10.6, prices received -14.4 and inventories -3.8. The switch from robust to barely positive in only one month is not encouraging. One analyst said it indicated relatively stable conditions. And what drug was he smoking?

The Semiconductor book-to-bill numbers came out at 6:PM today and the number fell to .92 in January from .94 in December. Remember this is a three month moving average so the real drop was much steeper. Orders fell -10% and shipments dropped -9%. The semi sector may be improving on the surface but the BTB tells the real tale. You can book all the orders you want but the real number is in the shipments. You can cancel outright or defer orders for months once placed. When both numbers fall it is an indication of trouble ahead.

Wednesday we have the Chain Store Sales again, Mortgage Applications, Residential Housing Starts and the NAHB Housing numbers. These should not be market movers unless the trend changed in the housing sector.

The dividend fever is becoming contagious. GDT announced that they would begin paying a quarterly dividend of 8 cents with the 2Q. They had suspended the dividend in Nov-1998. Given the strong cash flow and financial position it is appropriate to offer a dividend at this time according to the CEO. Last week QCOM announced a 5 cent dividend and MSFT also announced a token dividend.

BRL decided to issue a dividend in the form of a 3:2 stock split. This was the 7th split for BRL. Most investors would rather see splits than nickels and dimes as that extra share of stock, even though the three shares are technically the same value as two, seems to accumulate value faster than the pocket change from dividends. Ask anybody who held for the last six BRL splits. MSFT stock gained +.81 cents on its first day of trading post split at $24.05. I profiled a play on MSFT in the Editors Plays last Sunday.

ANF announced earnings after the bell and beat the street but said the outlook for the rest of the year was cloudy. They said they were being cautious in their planning for spring merchandise. That means lower inventory levels and fewer items. This will mean lower sales if retail explodes again but also lower losses if it fizzles.

Darden Restaurants warned that earnings would be less than expected because of increased marketing and insurance costs. They said the economic downturn was causing lower sales as fewer people ate out. They were spending more in advertising to attract a smaller audience.

I can't do a market wrap without touching on the Iraq news. Remember the unconditional approval to allow U2 spy planes to fly over Iraq? Inspectors finally agreed to Iraq's demands to notify Iraq at least 48 hours in advance of the exact route each plane would take. Think about it. I doubt they will find anything under those conditions. Also, they found several dozen of the "illegal" missiles and 380 long range missile engines Iraq had imported illegally in the last four years in defiance of the current UN restrictions. The inspectors said they were going to "ASK" Iraq to destroy them as a show of cooperation. I assume they will actually watch to see if they are really destroyed and not just take Iraq's word for it. Is it just me or does it seem like the inspectors are on the wrong side? In breaking news tonight the Iraq commission to search out weapons that may have been overlooked along with important papers that may have been stored in private residences announced that they have been unable to find anything. That is reassuring. I am sure the inspectors are relieved.

The markets rallied for about 30 min today. That was how long it took for the Dow to race to 8035 and then hover within 35 points of that level for the rest of the day. There was an attempt to sell off at 3:PM that took the Dow back down to 8000 but the attempt failed when short covering and general buying appeared at the close. The Dow ended back at the 8041 level where it had spent most of the day.

The Nasdaq finally posted back-to-back positive days, a feat not seen since late January. The Nasdaq closed at 1346 and well out of the month long trend channel. The nearest resistance is now 1360 that dates back to Jan-29th. Most tech leaders showed strong percentage gains with gap open spikes that indicate short covering rather than pent up buying demand.

The Dow at 8041 is still about 110 points below the top of our recent trading range. We cannot get excited about the "rally" until we break that 8150 level to the upside. It will take more than short covering to make that happen. Using the largest measure of market strength the Wilshire 5000, the rally stalled exactly at the top of the down trend channel.

Wilshire 5000 Chart - 60 min

The Iraq problem has not gone away and the rhetoric is continuing. According to the latest comments it appears the US is still planning on an attack around March 3rd, maybe as late as March 17th. As this watched pot comes to a boil the markets are not going to just ignore it. The rally came on indications that the war might fade away and today is became clear that it was still on the calendar. Until the Dow breaks 8150 we are still in a down trend. Ignore either event at your own risk.

Enter Very Passively, Exit Very Aggressively!

Jim Brown


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