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Market Wrap

Uday and Qusay Day

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      07-22-2003           High     Low     Volume Advance/Decline
DJIA     9158.45 + 61.80  9174.42  9037.30 1.75 bln   1842/1386
NASDAQ   1706.10 + 24.70  1710.34  1686.15 1.72 bln   2071/1126
S&P 100   497.64 +  4.84   498.64   491.63   Totals   3913/2512
S&P 500   988.11 +  9.31   990.29   976.08 
W5000    9503.48 + 89.90  9515.37  9391.00
RUS 2000  464.00 +  6.83   464.00   457.17 
DJ TRANS 2576.37 +  3.80  2579.51  2558.29   
VIX        20.98 -  1.14    22.38    20.96   
VXN        32.45 -  0.62    33.58    32.28 
Total Volume 3,740M
Total UpVol  2,723M
Total DnVol    938M
52wk Highs  281
52wk Lows    35
TRIN       0.50
PUT/CALL   0.79


Uday and Qusay Day
By Jim Brown
Click here to email Jim

They would probably not appreciate the +100 point Dow bounce on news of their death. Actually it was more important than that. The Dow was headed for a retest of support at 9000 with the morning low already 9037. Once the announcement hit the airwaves the market turned 180 degrees and rallied to close well over 9100 once again. It was a spectacular recovery that lasted into the close. But then tomorrow is another day.

Dow Chart

Nasdaq Chart

S&P Chart

The only economic report today was the weekly Retail Sales which came in at +0.3% on warmer and drier weather. Seasonal summer merchandise is reportedly selling well and relieving concerns for the retailers. The tax credit checks are due out this week so retailers should continue to see a pickup in sales. This was the third consecutive weekly gain.

The major news moving the markets today, at least prior to the Iraq news, was a very mixed bag of earnings. NVLS surprised the street on Monday night with an upbeat outlook and decent earnings. The company said there was a "potential" for a sustained upturn. They warned that a delay in some orders for Japan would cause revenue recognition problems for the next quarter but it was only a single incident. NVLS was up +1.76 on the news.

UPS beat the street on the strength of its international business but cautioned that it was due to past investments paying off not an due to economic growth. They also said the only pickup in U.S. volume was in financial document delivery for mortgage refinancing while manufacturers showed little sign of a turnaround. The UPS spokesman said "throughout the second quarter we did not see much pickup in business from the economy." The general commentary was "no recovery yet." UPS lost -56 cents.

TXN gained +1.37 after saying the SARS fade and new models were helping them avoid the problems of other communication chip makers. TI is about to go head to head with QCOM on the CDMA front and they appear to be prime to profit from the competition. TXN beat estimates by a penny. Lehman raise its rating on AMAT, NVLS and LRCX, which also helped the semiconductor sector.

After the bell today there was another flood of earnings:

AMZN est +0.06  actual +0.10  beat, raised guidance
AMGN est +0.46  actual +0.49  beat
BRCM est +0.09  actual +0.10  beat
ABGX est -0.38  actual -0.76  includes charges
SEBL est +0.02  actual +0.02  
ATVI est +0.00  actual +0.04  beat
SUNW est +0.02  actual +0.01  miss
BSX  est +0.30  actual +0.27  miss
CPWR est +0.01  actual +0.06  beat
INVN est +0.67  actual +0.61  miss 
STK  est +0.24  actual +0.27  beat
MXO  est +0.08  actual +0.03  miss
MANH est +0.21  actual +0.21  
CAKE est +0.30  actual +0.30  
DCLK est +0.01  actual +0.04  beat
ASKJ est +0.07  actual +0.10  beat, raised guidance
CYMI est -0.20  actual -0.15  beat
LLTC est +0.20  actual +0.21  
WBSN est +0.18  actual +0.18  
EFII est +0.15  actual +0.15  
TRMS est -0.89  actual -0.84  miss
VTSS est -0.04  actual -0.04  
BZH  est +2.85  actual +3.01  beat
RYL  est +1.80  actual +2.03  beat
ARBA est +0.00  actual -0.01  miss
WLP  est +1.39  actual +1.49  beat
COHR est -0.03  actual -0.01  beat

One of the biggest announcements came from AMZN which beat the street with ten cents compared to estimates of only six cents. The stock soared +$2 in after hours after AMZN raised estimates for the full year to as much as $5.1 billion and well over the $4.8 billion analysts had forecast. They did make about $54 million on currency translations, which enabled AMZN to post a +$42 million profit. Think about it. The stock was beginning to fade as the after hours session ended so maybe some others were reading between the lines as well.

The Internet is where it is at if you believe the earnings so far. ASKJ also beat estimates and raised guidance. They joined YHOO, AMZN, DCLK and others in the limelight. You could list all the Internet stocks on your fingers and have trouble filling both hands but the survivors appear healthy.

SUNW was the disappointment for the day as they missed both earnings and revenue. Revenue fell for the ninth consecutive quarter for SUNW. Scott McNealy said they were looking at a pretty tough year. Gross margins were up to 43.7% due to aggressive cost cutting but the CFO said they would fall in future quarters due to aggressive pricing and smaller margins in its services business. SUNW dropped about 50 cents in after hours to $4.31. SUNW does not provide guidance but the comments by SUNW personnel did not give traders a warm fuzzy feeling.

SEBL announced earnings that were inline with estimates at two cents and said they were going to cut 490 more jobs in the current quarter. SEBL warned on July-3rd and the tone remained the same. They said they were seeing no signs of a recovery and were faced with growing competition for reduced technology budgets. The CEO said "the market is quite soft" when discussing business conditions on the conference call. SEBL warned that Q3 earnings could come in at the low end of analysts estimates.

It was a mixed bag with cyclical companies like MMM, UTX, IR and DE posting strong gains and drugs and tech stocks showing weakness despite the Iraq rally. Oil companies were up despite the -5% drop in oil prices on the Iraq news. Crude is back down in the $30 range after hovering in the $32 area for the last week. Tomorrow will be a strange day with no economic reports but probably a strong reaction to the Iraq news in the overseas markets. They are likely to open up strongly and with the confirmation of the death and positive ID they should stay up. That sets the stage for a positive open for us in the morning but that may be it.

While there are no economic reports there is a Fed head speaking that will have everybody glued to the TV. Ben, printing press, Bernanke, will be speaking late in the morning and the markets are likely to go into suspended animation when it starts. Ben is not likely to say anything negative about the economy but his speech will be dissected for hints of future Fed action. He is a strong proponent of aggressive Fed action and traders will be hoping for a sign of coming events.

Bargain hunters took heart in the apparent holding of support by the S&P at the 50 DMA at 975. This is critical support and it has been tested for two consecutive days. While the bulls may have been encouraged by the days action there was a good possibility it was only short covering in the face of unexpected news. The futures have rallied back to the day's highs in the Globex session but are having trouble breaking those levels at 989. Should the markets open up on gains in Europe as expected they will run smack into resistance at Dow 9200, S&P 1000 and that has been very strong resistance.

Unless I missed something in the earnings news tonight we are no closer to a recovery than we were this morning but we are +125 Dow points higher than we were at 10:30. We have been seeing some distribution patterns that are disturbing. Today we saw a strong bounce on light volume but the internals were weak. Over the last week the down days have seen stronger volume with patterns that are typical of institutional distribution. That means funds are selling stocks instead of buying it. Trimtabs.com reported fund inflow rose to +$2.9 billion in the week ended July-16th but that could be the last drop from the faucet. That is typically when the retirement funds cease to flow for another quarter and fund companies go onto life support. With the worst three months of the year ahead and withdrawals beating contributions they have to plug the holes and start bailing to keep the boat afloat. They do this by scaling down positions and dumping weak performers to raise cash.

There is plenty of cash available according to Charles Schwab. Their weekly report said there was nearly $4 trillion in money markets, CDs and savings accounts that could be put into stocks if conditions improved. In reality that is the key. We are not seeing the economic explosion that would draw that money off the sidelines. There is a glimmer of hope but it is just a glimmer. It may be enough to continue to power these weekly rallies but it does not appear to be enough to sustain them. Once the news of the Iraqi aces passes we will be back to business as usual and that means economic worry once again. This is a very light economic week but another one-third of the S&P is reporting earnings. Their guidance will be the economic news for the week. Will investors listen to SUNW and SEBL or AMZN and ASKJ? Earnings are like a box of chocolates. You never know what you are going to get or how investors are going to react to the taste. Keep those stops tight.

Enter Very Passively, Exit Very Aggressively!

Jim Brown
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