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      03-18-2003           High     Low     Volume Advance/Decline
DJIA     8194.23 + 52.30  8209.36  8096.12 1.85 bln   1731/1494
NASDAQ   1400.35 +  8.30  1400.55  1378.83 1.57 bln   1788/1455
S&P 100   440.38 +  1.74   440.66   435.37   Totals   3519/2949
S&P 500   866.45 +  3.66   866.94   857.36 
W5000    8200.32 + 37.20  8200.72  8114.52
RUS 2000  368.02 +  2.62   368.02   363.30 
DJ TRANS 2129.02 + 35.00  2129.02  2086.54   
VIX        35.78 -  0.68    37.47    35.19   
VXN        48.02 +  1.35    50.36    48.02 
Total Volume 3,721M
Total UpVol  2,643M
Total DnVol  1,024M
52wk Highs  151
52wk Lows   151
TRIN       0.59
PUT/CALL   0.61

By Jim Brown

If so you are in good company. Even the Federal Reserve heads cannot decide what is happening in the economy. The mixed economic reports and the fog of war has everyone confused. The recent rally in the markets has confused analysts as well. The only people not confused appears to be retail traders who are buying everything in sight.

Wilshire 5000 - Daily

Nasdaq Chart - Daily

The biggest economic news at the open was the -11% drop in New Housing Starts. This was significantly below expectations and significantly below last months -1% drop. This was the third consecutive monthly drop in starts and they are accelerating. The decline was broad based and not specific to any particular region which negated the weather factors. This was the largest drop since December 2000. A new factor is the growing number of existing homes for sale which is climbing rapidly. Rental vacancy rates are at an all time high which shows weakness in the multifamily market.

Chain Store Sales were actually positive at +0.4% for a change but most stores reported sales were flat or below plan for the period. Unemployment, war worries, high gasoline prices are still being given for the drop in consumer spending.

The Semiconductor Book-to-Bill ratio came in at .99 and an improvement over last months .94 level but they are still booking less than they are shipping. The $781 million in shipments in February is still less than the $826 million they shipped in December. The trend is improving but it is a long way from well. Part of the problem is the low profit margins from vast overcapacity but SEMI said there were over 20 new fabrication plants scheduled to begin production in the next two years. These new enterprises are coming as older companies are closing plants and laying off workers. AMAT was the latest confirmation that this trend is continuing. Still looks like tough times ahead to me. MCHP warned after the bell that equipment manufacturers were frozen in place and were continuing to cancel or delay orders. They said they were going to delay opening a new plant until demand returned. They said fears over North Korea had caused a drop of -8% in Asian sales to complicate the US picture.

The Fed met today to determine monetary policy and decide if they needed to cut rates to stimulate the economy. Despite the constant flow of negative information the Fed ended the meeting without making any decision other than to wait another 30 days to see if the fog of war had lifted. The Fed heads in all their wisdom could not decide if the economy was in the tank due to economic reasons or war reasons or both. They issued a strange post meeting press release saying they had retained the bias at neutral with no changes in the interest rate. They said "incoming economic data was mixed and the labor market was disappointing. However, the hesitancy of the economic expansion appears to owe importantly to oil prices and geopolitical uncertainties. In light of the unusually large uncertainties clouding the geopolitical situation and their apparent effects on economic decision making the committee does not believe it can usefully characterize the current balance of risks to the economy." They will continue to maintain "heightened surveillance". As opposed to the partial surveillance that got us here? (grin) Basically they dodged the bullet and use the "Iraq ate my economy" excuse and left the markets hanging. Now investors are faced with forming their own decisions about the value and prospect of stocks.

Fidelity surveyed 300 fund managers and found that nearly 70% of fund managers thought the market was either fairly valued or over valued at these levels. Only 12% thought stocks would beat bonds for the rest of 2003. Now that is a scary statistic. With earnings warnings rising and profits falling it is not surprising that professional money managers are skeptical about the rest of 2003.

There is starting to be more rumors that the last two days of gains were due to some asset allocation shifts by a couple large fund groups. Surprise! I wrote about this possibility last Tuesday but it still caught me off guard. Now the funds that missed the rocket launch are trying to decide if it was real or just another bear market rally. With volume shrinking again and new highs/lows only breaking even today and not negative for the first time since March 3rd there is no real confirmation. We had a nice 90% down day last week and a 90% up day this week. Unfortunately it takes an average of six 90% days to for a normal bottom. Two down, four to go.

We are heading full speed into warning season and should the war get launched this week it should not take long before attention returns to those earnings only three weeks away. One positive is the -3.26 drop in oil prices to $31.67 today. The drop was on the fear that the US would open the strategic petroleum reserves when the war started to offset any drop in Iraqi production. The lower oil prices will eventually result in a reduction in costs for manufactured products but that could take a couple quarters. Until we are in control of the Iraqi oil fields there is no assurance that oil flow will return to normal.

Another Dow problem today was the filing of a $289 billion suit by the Justice dept to recover profits from tobacco companies that was earned through deceptive advertising according to their claims. The Justice Dept said new evidence showed that the companies were manipulating nicotine levels, lying to their customers about the dangers of smoking and directing billions of dollars of advertising at children. The government's case will take years to prove and many claim it will be next to impossible but the risk is there and tobacco stocks fell sharply. Dow component MO dropped -2.08 on the news.

Oracle announced earnings after the close and beat the street by a penny but warned that the current quarter could fall below current estimates due to falling new license revenues and the war climate. The new license revenues are seen as an indicator for future revenues due to follow on renewals and support. With new business slowing future revenues may suffer.

Is it the economy or is it the war? Not even Greenspan knows for sure so is it any doubt that average traders are confused. The Dow has made an astounding bounce from last weeks lows of nearly +800 points in five days. It came to a stop today well out of the current range, over 8150 and right at light resistance of 8200. This +11% bounce in five days has everyone expecting for a pullback. The Nasdaq stopped right at a very strong resistance range of 1400-1425. With the ORCL and MCHP warnings tonight I would be surprised to see it break that level tomorrow. Nasdaq futures are down -10.50 at 8:15PM and with a large amount of rebound profit on the books it looks shaky for Wednesday.

The general consensus of opinion is that nobody missed the train. There is a growing feeling that the pattern of the last Iraq war has already been broken and we will not see a post war rally. I know this is heresy but that is the feeling making the rounds. With the Fed giving traders no assurances and warnings continuing to fly the bulls will have to call in the reserves to push the markets higher.

One positive event remains the growing number of Iraqi soldiers trying to surrender. One instance today had some Iraqi tanks flying white flags try to crash through the lines to surrender. They had heard some gunshots from troops taking last minute target practice and wanted to surrender before the fighting got to them. The strangest thing is the friendly forces told them the war had not started and made them turn around and take the tanks back with them. The next couple days are probably going to get even stranger in the market.

Enter Very Passively, Exit Very Aggressively!

Jim Brown

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