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Market Wrap

Dog Days

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     08-11-2003         High     Low     Volume Advance/Decline
DJIA     9217.35 + 26.26  9251.59  9146.62 1.20 bln   1700/1082
NASDAQ   1661.51 + 17.48  1668.06  1646.59 1.19 bln   1927/1139
S&P 100   495.12 +  1.32   497.66   491.93   Totals   3627/2221
S&P 500   980.59 +  3.00   985.46   974.21
RUS 2000  459.27 +  5.33   459.27   453.94
DJ TRANS 2579.03 +  6.79  2597.80  2570.74
VIX        21.42 +  0.13    22.43    21.16
VXN        32.12 +  0.09    33.50    31.36
TRIN          0.62
PUT/CALL      0.93

Dog Days
By James Brown

Wall Street finds itself smack dab in the middle of the Dog Days of Summer and we witnessed the lowest volume day of the year. Of course the FOMC meeting tomorrow may have something to do with the low volume today but we'll get to that in a moment. The Industrials squeaked out another 26 point gain to make the current rally stretch to four days in a row. Much of the afternoon bounce in the $INDU was probably owed to 3M's announcement to split its stock in September. Meanwhile last week's losers were this week's gainers as the tech sector was generally green today. All the major tech averages including the DDX disk drive index, the GHA hardware index, the GSO software index, the INX Internet index, the NWX networking index and the SOX semiconductor index all turned in positive sessions. Leading the way were the storage and chip stocks.

Lending their efforts to help boost the U.S. markets were generally positive world indices. Japan begins a traditional weeklong holiday today but that didn't stop the NIKKEI index from adding 1.72% or +160 points to close at 9487. Plus the Hang Seng index rallied 1.49% or +148 points to break back above the 10,000 mark to 10,093. European markets were mostly positive but the gains were rather muted probably an extension of the range trading here domestically before the FOMC meeting tomorrow.

Not helping stocks was another drop in the bond market, which drove yields higher again with the 10-year note yielding 4.371% and the 30-year yielding 5.296%. Market internals were actually much more positive than the closing numbers may lead you to believe. On the NYSE advancers beat decliners 17 to 10 and on the NASDAQ gainers trumped losers 19 to 11. Up volume beat down volume by a margin of 2-to-1 on the NYSE and by nearly 4-to-1 on the NASDAQ. Despite it all the Dow Industrials remain below overhead resistance at 9300 and the NASDAQ Composite, which appeared to snap a losing streak, is still below the 1675 and the 1700 levels (not to mention its simple 50-dma).

Chart of the Dow Jones Industrials:

Chart of the NASDAQ Composite:

Most of the newsworthy stocks making headlines today were in the technology sector but stealing the show was conglomerate 3M (NYSE:MMM). Shares of MMM spiked higher with a late afternoon push after the company announced a 2-for-1 stock split. This is the first stock split in nine years for the highest dollar stock in the Dow Industrials. MMM last split 2-for-1 in April of 1994. MMM's strong $1.95 gain on the day was crucial to the Dow's 26- point gain on the session. MMM burst out of a short-term bull flag consolidation pattern and looks ready to breakout above current resistance at $142. Shares are currently overbought but with any shorts still in this high flyer probably looking for the exits it could get even more overbought. The split will take place on September 29th for shareholders on record as of September 22nd.

Giving the software sector a boost today was an upgrade for Oracle (NASDAQ:ORCL) from Merrill Lynch. MER's analyst lifted ORCL from a "neutral" to a "buy" citing limited downside risk and plenty of benefit should the economy continue its gradual recovery. Looking at the chart of ORCL it may take some faith to invest new capital as shares have fallen from $14 in mid-June to just above $11 late last week. Of course the timing of the upgrade may not be that bad given the stock was near serious support. Shares bounced more than three percent today but still closed under its simple 200-dma.

Believe it or not we still have corporate earnings to contend with. While we may miss the "Dude, you're getting a Dell!" commercials we don't want to miss DELL's earnings report. The PC giant will be announcing earnings after the bell on Thursday. What they have to say about end-user demand, especially during this back to school period, will help set the stage for any future technology moves throughout the third quarter. Current DELL estimates are for 24 cents a share. Additional tech earnings to watch this week are Applied Materials (AMAT) and Maxim Integrated (MXIM) who both announce tomorrow.

This is also a heavy week for retail business earnings announcements. The S&P Retail index (RLX) is currently near 52- week highs. The RLX appears to have broken out of a bull flag consolidation pattern but any follow through on the move will depend on corporate results. Tomorrow is a busy day with earnings from May Department stores (MAY), Abercrombie & Fitch (ANF), J.C.Penney (JCP), T.J.Maxx (TJX) and OfficeMax (OMX). The headline announcement to watch will be Wal-Mart's (WMT), which comes out on Wednesday. WMT announced today that they appeared to be "on track" to meet its August same-store sales growth. The news helped spike shares of WMT up to a new 52-week high early in the session before its gains faded into the close. Also announcing on Wednesday will be Ann Taylor (ANN) and Federated Dept Stores (FD).

The biggest event this week also hits tomorrow and that is the FOMC meeting. Everyone expects the Fed to leave interest rates unchanged at 1%, a 45-year low. A surprise cut could be seen rather poorly. Everyone would wonder what the Fed saw that scared them enough to cut rates again. The real focus will be on what the Fed has to say about current conditions and where they see the economy headed. The challenge here is that productivity was very high in the second quarter. Strong productivity gains coupled with low utilization capacity does not create a need for businesses to hire new staff. Everyone knows that as we approach this coming election year the number one topic will become job growth. We'll probably hear more comments about how the Fed is ready to be accommodative and their biggest concerns are inflation falling too low. The good news is that we probably have yet to see the bulk of any impact from those child tax credit (refunds) hitting the economy. Although the early signs point to families spending those checks at stores like Wal-Mart, which should be good news for the retail earnings announcements this week.

As traders our concern could be another "sell the news" event with the FOMC even though there doesn't appear to be any news to sell just yet. Thus far the traditional late-July to early October market sell-off has not yet occurred. We could be seeing some signs of it in the NASDAQ but investors don't seem worried yet, at least not from what the VIX and VXN are telling us. As Jim pointed out on Sunday, the longer we can trade sideways the better chance we have of building a new base before what is expected to be a ramp up into the fourth quarter. Unfortunately, we're starting to hear more "professionals" calling for a retracement of one third to one half of the March to June gains. Should the Dow/NASDAQ/SPX really breakdown then traders will need to be ready to switch to bearish strategies.

Watch those stop losses.



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