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      07-24-2003           High     Low     Volume Advance/Decline
DJIA     9112.51 - 81.70  9281.42  9106.42 1.87 bln   1549/1670
NASDAQ   1701.42 - 17.80  1740.80  1700.29 1.87 bln   1512/1697
S&P 100   493.65 -  4.14   503.12   493.31   Totals   3061/3367
S&P 500   981.60 -  7.01   998.89   981.07 
W5000    9457.57 - 57.90  9612.58  9453.27
RUS 2000  465.26 -  0.88   472.51   465.25 
DJ TRANS 2592.95 + 20.80  2612.83  2571.09   
VIX        20.46 +  0.02    20.66    19.63   
VXN        31.45 +  0.67    31.68    30.10 
Total Volume 3,989M
Total UpVol  1,566M
Total DnVol  2,383M
52wk Highs  517
52wk Lows    26
TRIN       1.30
PUT/CALL   0.75

By Jim Brown
Click here to email Jim

I was. Not that we had the big bounce in the morning. Most bulls I know were scratching their heads at the close today the same way I was scratching my head on Tuesday afternoon. I was in denial all morning today and when the drop did begin it came so fast I immediately became suspicious despite feeling relief. Relief that I was not losing my mind over my July analysis. We are a long way from proving that last statement but significantly closer tonight than we were this morning.

Dow Chart

Nasdaq Chart

S&P Chart

The day got off to a flying start with the first Jobless Claims number under 400,000 in 23 weeks. The 386,000 headline number triggered massive short covering as surprised bulls started buying and surprised bears began running for cover. The general consensus was that a real economic recovery had begun. Hold that thought for a minute. If the Jobless Claims were really under 400K would that mean a recovery had begun? No, just that the statistical anomaly of 22 weeks over 400K had finally run its course. It would take a string of weeks under 400K with decreasing weekly numbers to even begin to indicate a jobs recovery had begun. Now the bad news. This was "seasonally adjusted data." The raw number was still over 400K, way over at 423,972. The numbers are adjusted for a normal influx of workers furloughed from automakers in the last two weeks of July while the retooling process takes place. This is historically when this takes place. However, things are a little more fluid this year and the adjustment could be over done. With automakers cutting production earlier and adjusting assembly lines to compensate for the weaker demand we may not have the same worker fluctuation that we have always had in late July. All this boils down to you cannot trust the numbers and they really do not mean anything. It was one week and not a trend.

Another jobs report, the Monthly Mass Layoff report, showed that 1,691 new layoffs were announced in June for 157,595 workers. This was only slightly below the 173,784 for May and 161,095 for April. Definitely no change in trend here. The manufacturing sector continued to lose the most workers. Layoffs in California, Pennsylvania, New Jersey, Florida, Texas, and Ohio accounted for 58% of all layoff events and 55% of initial claims for unemployment insurance in June. Granted this is a lagging report as it is layoffs announced in June but the actual layoffs occur over the next 90 days from the announcement. That puts us right in the middle of the layoff period.

Despite these reports the market charged off to within 38 points of the high for the last 12-months at 9319. Did the economy suddenly improve overnight? Was there a flood of positive earnings guidance from major companies? Did Saddam Hussein surrender? No to all of those questions. In fact there were several high profile comments to suggest otherwise.

International Paper beat the street by two cents but warned that they were seeing no improvement in the economy. They said they were anticipating a very tough environment with demand remaining flat. Sales were less than expected and prices are declining. FBN, Furniture Brands International, the largest residential furniture maker in the U.S. said it sees no signs of an economic rebound and warned for the rest of the year. They said margins were compressing and they were seeing increased promotional pressure. Whirlpool dropped -3.14 after beating the street mostly on gains in their global businesses not the U.S. business. Investors were concerned that the shrinking margins and lack of U.S. gains were a sign for the future.

After the close today VRSN posted earnings inline with estimates but said the prolong slump in technology spending was continuing. The CEO said the information technology and telecom recovery has not yet materialized. KLAC said they were not seeing a broad based increase in business activity but some of their customers were reporting an upturn in their business that could produce an upturn in sales in the future. Plenty of qualifiers in that sentence. Borland Software guided flat to down based on seeing no improvement in the economy. FLEX announced results of +0.4% that missed street estimates and warned that revenues would be lower due to weak demand. The FLEX CEO said it was difficult to know if an upturn was under way. Let's see falling sales and lowered guidance might be a clue. CLS also reported a loss of -18 cents when analysts were only expecting -4 cents. The guided lower for the next quarter and said they were going to layoff another 2000 to 3000 workers. CLS and FLEX are two of the biggest electronics manufacturers and if a recovery was underway they would be the first to see it.

JDSU, the largest supplier of fiber optic components said sales going forward would be weaker. The JDSU CEO said the market remains tough and we really do not have any visibility from our customers. NT reported a loss on $2.3 billion in sales and said the business conditions remain difficult and their customers were continuing to spend cautiously. The said they remain cautious about the next six months. TQNT warned that 3Q and 4Q revenue and earnings would be below prior estimates. Avaya posted a small profit on sinking sales but did say they were seeing some revenue stabilization and some positive signs that IT is strengthening. Also, very qualified. Other companies that raised guidance included MSCC, PCLN and BNBN.

EBAY posted its best earnings ever at 37 cents, raised guidance and announced a 2:1 split. EBAY dropped -$5.00 in after hours. Why? EBAY, like the market was priced to perfection and investors expected EBAY to beat estimates by a wider margin. The company said revenue could reach $2.75 billion, a jump of +$250 million. EBAY is one of the highest priced Internet stocks with a PE over 120. Another problem was a reduction in guidance due to purchase of the Chinese auction site EachNet. That will subtract -2 cents in the 3Q and -1 cent in the 4Q. EBAY has a market cap of $37 billion, about one seventh of Wal-Mart's with revenue that is only 1% of Wal-Mart's.

Gateway ended the earnings for the day with another loss of -22 cents on falling revenue. GTW back earlier guidance of -19 cents for the next quarter although those numbers tend to fade around mid quarter. They have lost money 10 of the last 11 quarters. GTW actually said that despite a decline in their PC sales they were seeing signs of life in the market. Considering they are nearly giving away computers to maintain any market share in the battle between Dell and HPQ they are probably finding a few takers on their promotional products.

After the smoke cleared today and the charts quit moving it was pretty clear that a couple of buy programs, likely asset allocation from bonds, and some serious short covering pushed the Dow back over 9250 but the plan ran out of steam trying to hold it there. When the S&P failed to hold the 994 level (992 for futures) the bottom fell out in a hurry. Considering it took until 2:15 for that failure to occur it was a pretty spectacular effort. After the morning bounce the war was waged in a very narrow range and the vultures lined up on the sidelines waiting to see up was going to get trampled. The bulls lost. There were multiple rumors helping to torch the rally. One had the terror alert level being raised due to a retaliation plot after the death of Udai and Qusai. Another had a single engine plane zooming in on a presidential motorcade. Still another had the big three brokerages Salomon, Goldman and JP Morgan dumping huge S&P sell programs on the futures market. The last one may have some shred of truth.

The fact that the rumors were flying emphasized that some bears were out on a limb. When they are about to go down for a big loss some will resort to anything to try and stimulate the market in their direction. If that was the intent they did a good job as the Nasdaq fell all the way back to 1700 once again and the Dow is poised to break 9100 at the open if the negative futures tonight hold until tomorrow. Helping mix things up will be Durable Goods Orders at 8:30 and Home Sales at 10:am. The real economic problems don't begin until next week when the calendar begins looking like a mine field in Korea. ISM, Confidence, Jobs, Sentiment, GDP, PMI, ECI, Beige Book, Income, Spending. Put on your flack jacket beginning on Monday. This could lead to some more weakness tomorrow. The massive drop at the close that turned a +100 point gain into nearly a -100 point loss has probably given some bulls indigestion. 60% of the S&P have now reported earnings and 70% of the Dow. With the balance of the earnings spread out over the next several weeks there is nothing anyone will learn that they have not already heard. The recovery is limping along at best and the markets have failed at higher levels four times since mid June. If they are going higher they have a tough road ahead and a lot of traders to convince that the July decline is not going to happen this year.

Enter Very Passively, Exit Very Aggressively!

Jim Brown


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