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Market Wrap

Long For Peace, Short For War

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      02-25-2003           High     Low     Volume Advance/Decline
DJIA     7909.50 + 51.30  7920.49  7719.64 1.74 bln   1853/1372
NASDAQ   1328.98 +  6.60  1331.35  1291.96 1.37 bln   1687/1537
S&P 100   424.88 +  3.41   425.52   413.69   Totals   3540/2909
S&P 500   838.57 +  5.99   839.55   818.54 
W5000    7949.38 + 54.30  7956.53  7771.79
RUS 2000  361.53 +  2.98   361.20   354.09 
DJ TRANS 2041.83 + 24.10  2041.91  1973.63   
VIX        36.12 -  0.65    38.13    35.92   
VXN        44.33 -  0.55    47.27    44.04 
Total Volume 3,331M
Total UpVol  1,935M
Total DnVol  1,334M
52wk Highs  146
52wk Lows   335
TRIN       1.40
PUT/CALL    .75

Long For Peace, Short For War
By Jim Brown

And I on the opposite side will be. I modified that phrase from Paul Revere's midnight ride text only slightly to reflect investor sentiment this week. It seems everyone is going in opposite directions as conflicting signals are seen. Iraq news is driving traders to drink when faced with dozens of news conferences per day and differing opinions expressed in each. This is Yo-Yo trading at extremes!

Dow Chart - Daily

Nasdaq Chart - Daily

The day started out very ugly with news overnight that North Korea had fired another missile into the Sea of Japan. The saber rattling is moving to a fever pitch and the Asian markets did not react well. This set up the US markets for a fall and fall they did. We gapped down and came very close to 7700 once again before the buyers appeared.

It is amazing they appeared at all once the Consumer Confidence numbers were announced. The headline number came in at 64.0 and well below consensus estimates at 76.50. Everyone expected a lower number but nobody was even close to the disaster that was announced. The present situation component fell from 75.3 to 61.6 and the expectations component fell to 65.6 from 81.1. Consumers planning on buying autos and major appliances were dropping but there was a small gain in home buyers. This was the lowest headline number since October 1993 and indicated the rate of decay was accelerating. It was the largest drop since Sept-2001. War, high energy prices, rising unemployment and weak markets all weighed on consumers. Orange terror alerts did not help either.

Offsetting the Consumer Confidence was the existing home sales numbers which came in at 6.09 million compared to estimates of 5.80 million. The gains surprised everybody again and set a new record. House prices are beginning to fall and many thought that could be the incentive dragging the last round of buyers off the couch. Prices in the Midwest have dropped -5.5% in the last two months. The west and northeast prices are still rising slightly. The south dropped -1.4% for the month. The comments by Fed members last week that they will not raise interest rates anytime soon gave the housing sector one more reprieve for the spring selling season.

Chain Store sales declined for the third consecutive week despite the rush to buy duct tape, batteries and plastic. Wal-mart said it helped them but evidently the other dept stores lost sales. Sales have dropped due to the big storm as well. The estimates for monthly sales growth have now been lowered from flat to -0.5% overall. With the President's Day sale a bust in the northeast the earnings for retail stores could be tough for the quarter.

Oil prices continue to rise and are showing no signs of easing. There are strong fears that Iraq may blow up its wells and take that three million barrels of daily supply out of the market for 6-12 months. That would be a serious problem with Venezuela still not at 100%. With gas prices well over $2 a gallon in many places the consumer is feeling the pain. Every dollar increase per barrel amounts to a $7 billion undeclared monthly tax on consumers. With oil reaching $37.20 today that is $12.20 over the base rate that OPEC strived to maintain. That is $85 billion in excess costs being passed to consumers each month with no end in sight.

This tax is being passed on to manufactures as well and earnings revisions are being made on a daily basis due to higher oil. 8% of the S&P set a new 52-week low today and the new lows at 335 beat new the new highs of 146 better than 2:1 in the broader market. This was the 15th consecutive day that the lows beat highs. 40% of the S&P have already warned for the 1Q.

The floor traders on the NYSE said the big dip at the open and after the confidence numbers was due to heavy institutional selling. There were a couple comments that the strength of the selling was encouraging. It appeared that institutions wanted out at any price. While this was limited to only a few of the thousands of institutions, traders thought maybe we were nearing a capitulation event and something we could build a real bottom upon. With the rebound this afternoon that thought evaporated. The dip buyers are alive and well and they did overcome some decent selling resistance to power the Dow back to a +187 point rebound from the days lows. There was also some asset allocation taking place again with selling in bonds and buying of stocks. This has happened each time the Dow traded around the 7700 level. It would appear that other institutional investors are deciding that bonds are not going higher with heavy supply coming to market in the near future and the risk of stocks going much lower is slim. Hope they are right.

After the bell today HPQ announced earnings that beat the street by a penny and affirmed earnings for the current quarter. Unfortunately they missed revenue targets by an analyst mile and gave a cautious outlook. Revenue was only $17.88 billion vs analysts estimates of $18.47. Close enough for me but the stock traded down in after hours. Carly Fiorina followed the pattern of those early announcers and said the environment is uncertain and predictions of performance were very difficult. The HPQ CFO declined to comment on tech spending trends in general claiming limited visibility.

This cautious HPQ stance weighed on the futures after the close and it would appear the open may not contain a continuation of today's rebound. We closed just barely over the 7900 level and below strong resistance at 7950. There are no major economic reports on Wednesday and that means we are stuck depending on stock news and war news for direction.

Depending on how you draw the lines the Dow has serious resistance at every 50 point increment between 7900 and 8150. There have been 12 major gap down days since Jan-23rd and nine miraculous recoveries. While there have been some spectacular rebounds we are trading in a range -500 to -700 points below those Jan-23rd levels. Don't get me wrong. The rebound from 7700 today was amazing. Especially considering the confidence numbers were at 13 year lows. Still the pattern is clear. The rebounds eventually fail and we start the process over again from a lower high. According to the charts that lower high on this bounce could come anywhere between 7900-8000 but probably not over 8000. This sets up the next dip as early as tomorrow. Considering most funds and institutions are not reactionary and they plan tomorrows moves only after fully evaluating today's reports and market reaction, that immediate direction is probably not up.

The NDX closed at 999.24 and could not break that 1000 barrier but the Nasdaq Compx managed to edge just slightly over 1325. The tech stocks are the wild card tonight. If they react positively to the HPQ news the Nasdaq could throw just enough confusion to the bears to keep them off balance. The only sure bet is that volatility will be strong and we will continue to see big moves in both directions.

Enter Very Passively, Exit Very Aggressively!

Jim Brown


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