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Market Wrap

One Over Par

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      05-22-2003           High     Low     Volume   Adv/Dcl
DJIA     8594.02 + 77.60  8628.14  8509.22 1.79 bln 2128/1088
NASDAQ   1507.55 + 17.70  1512.80  1489.08 1.74 bln 2000/1255
S&P 100   469.38 +  4.18   471.27   464.88   Totals 4128/2343
S&P 500   931.87 +  8.45   935.30   922.54 
W5000    8892.83 + 82.90  8921.00  8802.98
RUS 2000  415.09 +  4.36   415.29   410.46 
DJ TRANS 2366.78 + 10.40  2372.02  2354.33   
VIX        21.62 -  1.59    23.65    21.59   
VXN        30.11 -  0.77    32.07    29.74 
Total Volume 3,830B
Total UpVol  2,925B
Total DnVol    861M
52wk Highs  578
52wk Lows    42
TRIN       0.56
PUT/CALL   1.16

One Over Par
By Jim Brown
Click here to email Jim

Traders spent the majority of the day more concerned with the golf score of Annika Sorenstam than the direction of the markets. Her score of 71 and one stroke over par was a strong performance by the first women to play in a PGA event in 58 years. However, I think the performance of the markets was much more impressive but I am a trader, not a golfer. The Dow came within six strokes of closing over 8600 once again and the Nasdaq rebounded back over 1500.

Chart of the Dow Jones Industrials:

Chart of the NASDAQ Composite:

Combined chart of the SPX, RUT and the TMW.

Thursday was a lackluster day in terms of market news. The only economic report was the Jobless Claims at 428,000 and the 14th week over 400K. The prior week was also revised upward by +4000 to 421,000. Commentators tried to spin the gains for the week as due to tornados wiping out some businesses in some Midwest towns. I am sure there were some job losses due to those storms but what about the other 13 weeks? The four-week average dipped slightly as did continuing claims due to the easing off the 450,000 weekly pace from April. Another factor impacting the growth of claims is the summer worker flight and vacations. Many workers in dull jobs and with kids home for the summer will quit for the summer and look for new employment in September. Other companies facing many workers leaving on vacation will slow terminations until after the season is over. Both of these factors should slow the pace of new claims but we are not really seeing it yet. 41% of the jobless are now running out of claims before finding work. This is the highest level on record. It is estimated that 1.4 million workers currently have no benefits and another 1.1 million will see their benefits expire in the next six months. Could be a tough summer.

The biggest event in the market today was the passage of the economic recovery package and the Bush announcement he would sign it. Many traders thought this was already priced into the market but dividend paying stocks found lots of ready buyers as the day progressed. The dividend tax cut was definitely being taken into consideration as a reason to buy stocks. Altria was the big winner once again as the big win in court yesterday opened the gate for dividend investors to buy a high yield stock cheap. With the cloud clearing over the industry MO was on fire gaining +2.75 and running their gains to $8 over three days. That +25% bump has helped pull the Dow out of the dumps almost single handedly.

The comments by Greenspan on Wednesday and Mark Olson today helped to fuel the idea that the economy was poised to rise sharply later this year and that another rate cut was likely. Homebuilders roared back to life with BZH +2.67 and HOV +2.78 just a couple of examples. With bond yields still dropping and the multiple comments about more Fed action ahead the prospect of even lower mortgage rates is pushing the builders once again.

Technology shares rose on upbeat guidance from SNPS, which gained +8.02 on the news. SNPS beat the street by +10 cents and they said orders and revenue were strong on every count. They said Wi-Fi, automotive and consumer products were strong markets for their customers. They raised estimates +10% on very strong bookings of future orders. The company makes chip design software. Most techs rebounded from their slump with the notable exception of MSFT. The company has been floundering under rumors that one of its eight largest investors was shopping 74 million shares yesterday and today. MSFT is pegged on $24 while the rumors fly. MSFT traded 110 million shares on Wednesday and 93 million today. Average volume is 59 million.

While most sectors were benefiting from the return of bullishness there were some exceptions. The increase in the terrorist threat level to orange has caused a substantial drop in vacation bookings. Hotels, airlines and cruises are seeing cancellations just when hopes were returning that the industry would see a post-Iraqi rebound. An analyst for PricewaterhouseCoopers did note that hotel occupancy rates for the Memorial day weekend would be above 2001 and 2002 levels but the post-war bounce is clocking in lower than expected. Shares of Marriott (MAR) were only up 15 cents on the session.

At least a few market commentators are starting to fret that the market's bullishness is getting excessive. The bullish percent numbers for the major indices are quickly approaching or already well past overbought. With levels over 70 marking overbought status the Dow Industrials bullish percent is at 73, the NASDAQ 100 is at 78 and the OEX and SPX are at 67. Another more traditional indicator of overbought-oversold, the VIX lost another 6.8% today closing at 21.62. Normally, when the VIX trades near 20 it's a classic sell signal and a market top is not far behind. However, VIX reading is more art than science as the indicator can reach extremes south of 20 before a market reversal occurs. This is a clear and present warning to keep your stops tight.

Keeping these indicators in mind it remains tough to ignore the impressive internals that underscore this market's strength. We continue to witness just how broad-based the rally really is with the Russell 2000 and the Wilshire 5000 bouncing higher in perfect step with the Industrials, the NASDAQ and the S&P 500. Today's closing numbers would indicate that traders are set to drive prices higher before Friday's close ahead of the long three-day weekend.

Enter Very Passively, Exit Very Aggressively!

Jim Brown


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