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Distribution Zone

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      04-30-2003           High     Low     Volume Advance/Decline
DJIA     8480.09 - 22.90  8528.75  8432.12 1.98 bln   1974/1285
NASDAQ   1464.31 -  6.99  1472.69  1459.04 1.64 bln   1754/1377
S&P 100   465.53 -  0.40   468.25   462.75   Totals   3728/2662
S&P 500   916.92 -  0.92   922.01   911.70 
RUS 2000  398.68 +  2.90   399.85   394.46 
DJ TRANS 2408.87 +  7.99  2419.78  2381.30 
VIX        23.63 +  0.27    24.12    23.35 
VXN        33.67 +  0.09    33.64    32.59 
TRIN       1.30
PUT/CALL   0.68


Distribution Zone
By Jonathan Levinson
Click here to email Jonathan

A lot of shares changed hands today, with no significant technical developments taking place other than the upper resistance lines on the charts holding back the indices. They traded flat to slightly down on volume that was heavier than yesterday on the NYSE and unchanged from yesterday on the COMPX. The VIX and VXN put in higher lows and higher highs, while finishing only marginally higher from yesterday.

Chart of the INDU

The ascending triangle continued to develop today without any sign of breakout in either direction, and the 8300-8500 range remains in play. Note that the ascending triangle is a bullish formation. Note as well that if not for the tweezer top printed on the 24th of March, it would be a bearish ascending wedge instead. No conclusion can be drawn either way- the market will have to tell us.

Chart of the COMPX

The COMPX continues to print its large bearish ascending wedge with the oscillators in topping territory. While this formation is characterized by higher lows and higher highs, it tends to break to the south in nearly 75% of cases, as discussed in my futures wraps over the past week.

The real news took place in the US Dollar Index, which got croaked all night, and then began printing lower lows throughout the day, setting a 4 year low against the Euro and a new bear market low of 97.10. This occurred as word circulated concerning the Treasury's record-breaking note sale next week, which will comprise $22 billion in 3-years, $18 billion in 5-years, and $18 billion in 10-years for a total of $58B. The Treasury said that these auctions will not be impacted by the debt ceiling, but added that without a change in the law the government will only have sufficient funding through mid-May.

Weekly Chart of the US Dollar Index

Note that today's price is not reflected in the above weekly chart, and today's print of 97.10 took out downside support. Unless the index bounces from here, the MacD could give a fresh signal from way below the zero line- a distinctly not-bullish indication if it occurs.

Gold put in a solid day, breaking the 340/oz resistance level and tacking on gains of over $6 as of the time of this writing.

The day started with disappointing economic data. The Mortgage purchase index decreased by 1% to 356 from 359.9 the previous week, with the refi index down .25% to 5092. These figures are significant to the extent that mortgage loans and refinancings create a significant amount of the liquidity currently available to the US financial markets. At 10AM, the Chicago Purchasing Managers Index for April disappointed to the downside, coming in at 47.6 vs. the 49.3 reading forecast by economists. Any reading below 50 is indicative of contraction in industrial activity.

Mr. Greenspan testified before Congress today, and in his inimitable fashion had much to say, and implied exponentially more than he said. As always, I recommend reading his comments directly, accessible at http://www.federalreserve.gov/boarddocs/hh/2003/april/testimony.htm What I took away from his testimony, listened to on Bloomberg radio while posting in the Market Monitor, was that he feels it necessary to caution that the fabled "2nd half recovery" may not actually come in the 2nd half of this year. He sounded very short of solutions, and Congress seemed to be pushing for suggestions in that direction. At issue were national and state deficits, continued unemployment, continued economic contraction and the like. He mentioned that SARS had not significantly impacted the economy, either domestically or in other countries, at this point in time. The market held up quite well during his testimony and continued to do so throughout the remainder of the session. Mainstream media services noted the Chairman's optimism about stock prices and the economy in general, but also acknowledged his "cautious" tone and comments.

The White House announced that the President will address the nation on Thursday night from the deck of the USS Abraham Lincoln to declare the end of "major combat operations" in Iraq.

TYC was halted for good part of the morning when it was announced that the company would report a loss of 23 cents per share for Q2, in line with Wall Street's consensus estimate, along with a story in the Wall Street Journal that the company would disclose fresh accounting problems to the tune of over $1B. Tyco was originally scheduled to report on Thursday. It traded heavily throughout the session, managing to close higher by 1.50%, and then gave back nearly all of its gains following the release of its numbers after the bell. It posted a loss, with earnings of 23 cents vs. consensus expectations of 34 cents per share and news of $1B in accounting charges.

It was reported that GE is in talks to sell its Financial Guaranty Insurance unit for more than $2B to a group including PMI, BAC, private-equity firms the Blackstone Group and Cypress Group, the Post said. FGIC provides insurance for municipal bonds, and in light of my views regarding the credit bubble and state and municipal finances, I think that this is great decision by GE.

Best Buy reaffirmed guidance for a 14 to 16 percent increase this year in profits and a rise of 11 to 13 percent in sales. Adobe rose 3% after hours after raising guidance on stronger than expected sales of its Acrobat software.

DELL's COO stated today that he "sees no sign of an uptick in corporate technology demand", which confirms what we've been hearing recently from the majority of the tech companies that have just reported. Ingram Micro got smoked as it announced earnings in line with estimates but forecasted a sequential drop in earnings for the second quarter to between $14 million to $19 million, or 9 to 12 cents per share, due to "softer demand" in North America. Despite this, the COMPX and QQQ saw only minor losses today, as investors continued to ignore the fundamentals and shrug off negative news.

On the "he-said-she-said" front, the NYSE refused to confirm that it had invited former U.S. Secretary of State Madeline Albright to join its board, following a Reuter's story that Richard Grasso had asked her to do so. The NYSE is seeking to fill the void caused by Sandy Weill's withdrawal of his candidacy.

For tomorrow, the trendlines on the charts above will be key, as will the action in the US Dollar Index overnight. Heavy selling came in just before the bell on the indices, and QQQ was trading 27.43 after hours. Until the lower supports get taken out, we'll continue to print an ever-narrowing range near what remains the top of the current rally. The market continues to prove resilient and entirely resistant to bad news, but bulls' inability to propel the indices above resistance today despite solid volume was a telling sign. The volatility indices remain severely oversold, and the oscillators on the indices remain overbought. With no sign of economic data to celebrate, other than the consumer confidence numbers yesterday which are admittedly "soft" data, bulls are going to need a lot of will to take out the sellers just above current levels. The wildcard, in my opinion, will be short sellers. We've seen increasing support from short covering, and indeed this entire rally has occurred on a declining US Dollar. The readiness of the put to call ratio to race to the top of its range intraday tells us that shorts are still active, and as long as they are, the potential for a short squeeze above resistance such as we saw yesterday morning is a real risk for bears. Tomorrow's employment data at 8:30AM could prove the catalyst in either direction, either invigorating bears and prompting them hold instead of covering, or igniting the bulls and a short covering rally.

One last thing: There's an expression, "Sell in May and go away." With the end-of-month window dressing now complete and this seasonal cliché on traders' minds, there will be expectations of downside in the market. I don't believe that they will be sufficient to reverse a strong reaction to positive employment data tomorrow, but it's worth keeping in mind. See you at the bell!



 
 



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