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Market Wrap

A Great Start To The Week

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04-28-2003                  High    Low     Volume Advance/Decl
DJIA     8471.61 +165.26  8501.66 8305.03   1362 mln  1594/1246
NASDAQ   1462.24 + 27.70  1465.40 1436.35   1218 mln  1623/1399
S&P 100   464.78 +  8.58   466.80  456.20   totals    3217/2645
S&P 500   914.84 + 16.03   918.15  898.81
RUS 2000  395.20 +  6.70   395.20  388.50
DJ TRANS 2398.31 + 45.70  2399.68 2350.59
VIX        23.05 -  0.85    23.69   22.65
VIXN       32.68 -  1.02    34.14   32.56
Put/Call Ratio 0.76

A Great Start To The Week
By James Brown

Early morning headlines had traders reading a positive spin on earnings announcements from Dow components McDonalds (MCD) and Procter & Gamble (PG). This overcame some mixed economic news and more SARS coverage by the media.

That positive attitude had the Industrials vaulting out of the gates and the DJIA closed up 165 points, almost two percent to 8471. The NASDAQ Composite followed suit with a 27-point gain, or 1.93%. The NASDAQ-100 surpassed them both with a 2.2% gain and the S&P 500 added 16 points to close at 914, up 1.78%.

Market Internals

Market internals were very encouraging today. Advancing issues out paced decliners by large margins. Stocks closing in the green tallied more than 2100 on the NYSE and more than 2,000 on the NASDAQ. Stocks losing ground today numbered 703 on the NYSE and 970 on the NASDAQ. 52-week highs continue to overpower 52- week lows at 254 to 49, respectively. A very good sign for investors was the up volume compared to down. Up volume on the NYSE was 1.3 billion with only 180 million in down volume. The NASDAQ turned in 1.1 billion over 271 million. Maybe we should just start reporting up and down volume in this format: 1308/180 (read as 1308 million over 180 million). Sort of like the market's blood pressure reading.

Economic News

Just as traders find it essential to monitor the market's blood pressure, larger moves in the financial markets forecasted by moves in the economic blood pressure of the U.S. and global economies. This morning's consumer spending and income numbers were somewhat positive. Adjusted for inflation, consumers' income rose 0.4 percent, which matched consumers spending rise of just 0.4 percent. However, peel away the numbers and real consumer spending only rose 0.1 percent in March. This is pretty slow but it reversed two months of declines.

This week will provide plenty economic data for investors to sift through with the Employment Cost Index (ECI) report tomorrow and the Consumer Confidence report again. The Confidence number is expected to come in around 71. Given the estimates being raised for a rebound, should there be a negative surprise, the markets could react sharply to the downside. On Wednesday we have the Purchasing Managers Index (PMI), which is expected to show a contraction in this country's manufacturing sector. Wall Street will also be listening for any hints from Fed Chairman Alan Greenspan's appearance on Wednesday.

Thursday and Friday will be busy with the Jobless Claims, Productivity, Construction Spending, the Job's report and the ISM. The ISM is actually expected to rise slightly from 46.2 to 47.1 while the April Job's report is expected to show a rise in unemployment.

Despite all these potential landmines for the markets, everything depends on how investors interpret the data. It's possible that the rally today was boosted by the conclusion of the SEC's two- year investigation into Wall Street's practices. Should investor sentiment remain positive then nothing will stand in the bull's way.

SEC Settlement

It's been a long time coming but the SEC and State Attorneys offices from around the country have finally finished their negotiating with the top ten firms on Wall Street. After all the haggling was finished the SEC proudly proclaimed victory with a $1.4 Billion settlement, the largest in SEC history. There was plenty of delays and word-smithing by the two sides as the brokers didn't want the SEC to use the word "fraud" in their final statements. To do so would only empower the herd of class- action lawsuits many of them already face over these same issues.

Despite their pleas, the SEC did charge three firms with fraudulent practices but on a civil basis and not a criminal one. The three firms with the big scarlet "F" on their chest are Merrill Lynch, Credit Suisse First Boston, and Citigroup's Salomon Smith Barney. The ten firms who are coughing up the $1.4 billion are Citigroup (C), Credit Suisse (CSR), Goldman Sachs (GS), Merrill Lynch (MER) and Morgan Stanley (MWD). These five are paying the heftiest fines. The second half includes Bear Stearns (BSC), J.P.Morgan (JPM), Lehman Brothers (LEH), UBS Warburg (UBS), and U.S. Bancorp Piper Jaffray (USB). Also getting hit with some large monetary fines were infamous stock analysts Henry Blodget and Jack Grubman. Merrill's Blodget will have to cough up $4 million in fines and Salomon's Grubman will be writing a check for $15 million. By paying the fines neither analyst is admitting or denying any wrongdoing but both are banned for life from operating in the securities industry. There are plenty of voices on Wall Street and Main Street that say the $1.4 billion these firms are being fined is pocket change compared to what investors lost. This may be true but if anyone is still seeking restitution they'd better get in line behind the class-action suits.

More Earnings News

They don't call them earnings "seasons" for nothing. They just seem to go on and on and on. This is the third heavy week for earnings announcements but the pattern appears to be in place. Wall Street analysts had lowered the bar so low, spurred on by mid-quarter guidance and pre-earnings warnings from corporations, that the sudden trend is for most companies to meet or beat the estimates. Gosh, this quarter wasn't so bad after all now was it?

Helping perpetuate the myth was McDonalds, who announced prior to the bell this morning. After three weeks of trading sideways under resistance at $16.00 the stock exploded higher today and closed at $16.93, plus seven percent on its earnings results. Estimates had been for 28-cents a share and Ronald McDonald's employer managed to beat by a penny. Net income rose to $327.4 million compared to just $253.1 million the same quarter last year. Revenues rose six percent to $3.8 billion, which beat First Call's estimates. In an industry that is facing stiff competition, a more educated consumer, and a product line with a $1 menu, we're wary of any long-term appreciation. Yes, the stock is oversold and short-term traders might do well to consider watching it but there is growing speculation that the fast-food industry will come under the same sort of litigation pressures that the tobacco industry did.

Another Dow component to announce this morning was Procter & Gamble (PG). Excluding a $66 million restructuring charge, PG turned in 96 cents a share, which was inline with consensus estimates. Last year the company earned 74 cents a share. This was PG's third quarter and profits rose 23 percent with strong sales of Crest toothpaste and Pampers diapers. Total revenues came in at $10.7 billion, up eight percent. The stock added $1.55 or 1.73 percent to close at $90.69. Shares remain stuck in their four-week range of $88 to $91 with significant resistance overhead between $92.50 and $93.00.

Making headlines after hours was news from Intuit Inc. (INTU). The tax-preparation software designer was hit hard today on worries that its most important tax-season quarter would be weaker than expected due to a number of factors. Shares were down 6.6 percent to $34.79 but up significantly off its lows for the session. The bounce continued after hours when the INTU spin cycle hit the wires with word that sales were great but net earnings would still come in at the low-end of guidance. How this shakes out tomorrow will be interesting for short-term traders and OI readers. The company is expected to announce earnings on April 15th.


Adding some oomph to the tech rally on Monday was a bullish report from the Semiconductor Industry Association (SIA). SIA proclaimed that chip sales for the first quarter of 2003 were up 13 percent over last year and sales were up 2.6 percent in March. The $SOX index rose 2.5 percent, which lifted a number of chip stocks with it. Unfortunately for tech bulls the good news is potentially overshadowed by the fact that chip sales fell 3.2 percent from the fourth quarter. Furthermore, the SIA also lowered their growth forecasts from 19% to a more conservative 10% to 15% for 2003. Chip analysts appeared rather ho-hum about the report and many remain cautious on the sector's outlook. Given the current state of I.T. spending and the detrimental impact SARS will have on the production line for many of these companies industry watchers sounded skeptical.

The Charts

Investors have to take into account all the factors but one that's hard to avoid is the charts themselves. The rebound in the DJIA is encouraging but the Industrials remain under resistance. The trend on the NASDAQ composite looks a lot more tempting for the bulls as do the NDX and the S&P 500. But remember, Jim outlined the importance of the 920 area for the SPX in the weekend wrap and the market has yet to break above this crucial level of resistance.

Chart of the Dow Jones Industrials:

Chart of the NASDAQ Composite:

Chart of the S&P 500 (SPX):

Don't forget - tomorrow will be the ECI report and fresh Consumer Confidence numbers and a full day of corporate earnings.

James Brown


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