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Market Wrap

Bulls School The Bears

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     09-02-2003            High     Low     Volume Advance/Decline
DJIA     9523.27 +107.45  9535.97  9389.58 1.75 bln   2082/768
NASDAQ   1841.48 + 31.03  1841.48  1804.30 1.77 bln   2190/948
S&P 100   510.86 +  7.50   511.16   502.39   Totals   4272/1716
S&P 500  1021.99 + 13.98  1022.59  1005.67
RUS 2000  507.50 + 10.08   507.65   496.73
DJ TRANS 2745.84 + 64.60  2747.81  2683.46
VIX        19.95 +  0.46    20.93    19.79
VXN        30.06 +  0.54    31.78    30.05
Total Volume 3,902M
Total UpVol  3,127M
Total DnVol    724M
52wk Highs     987
52wk Lows       19
TRIN          0.73
PUT/CALL      0.72

Bulls School The Bears
By James Brown

It was a good day if you had horns on your head. A flood of positive broker comments combined with positive economic data and a little history helped lift the markets to new highs. Both the Dow Jones Industrials and the S&P 500 are at 15-month highs and the NASDAQ closed at 17-month highs. The bullish mood was very broad based with nearly all the major sector indices in the green and many breaking out to new highs or above resistance. The Industrials added more than 100 points to close above the 9500 level of resistance. Also breaking out above resistance was the S&P 500, up nearly 14 points to 1022. The NASDAQ couldn't help but soar with buzz over technology stocks this morning. The COMPX added another 31 points to close at 1841. Market internals were very positive. Advancing stocks trampled decliners almost 21 to 7 on the NYSE and nearly 22 to 9 on the NASDAQ. New highs between the two exchanges were a towering 627 against 9 new lows. We actually had some decent volume for a change and up volume beat down volume by almost 2.7 to 1 on the NYSE and 2.3 to 1 on the NASDAQ.

Chart of the Dow Jones Industrials

Chart of the S&P 500 index

Chart of the NASDAQ

Brokers were in a bubbly mood this morning and technology stocks were the focus of the day. First Albany came out with positive comments about the technology sector in general and advised clients to "overweight" in tech based on growing momentum in the markets and company fundamentals. Goldman was more specific and raised their outlook on the software sector from "neutral" to "attractive" claiming the mounting evidence for improving U.S. market conditions and the upcoming seasonally strong fourth quarter. Some of the bulls out there probably agree with Mark in our market monitor today. Goldman seems to be a little late to the party. The GSO software index is already up more than 40 percent from its April 2003 lows and up more than 75 percent from its October 2002 lows. Sounds like GS is merely "buying" the breakout we all witnessed in the GSO last week. However, Goldman wasn't the only one with positive words for software stocks. Prudential (PRU) upped their view on PeopleSoft (PSFT) from a "hold" to a "buy" and shares of PSFT added 3.4 percent. Rival software firm Oracle (ORCL) was also upgraded today, this time by Thomas Weisel from "peer perform" to "out perform". Shares of ORCL added 4.4 percent.

The hardware and semiconductor sectors also saw a lot of action. Goldman Sachs raised their view on the enterprise hardware sector from "cautious" to "neutral". GS also singled out Dell Computer (DELL) and raised their rating on the stock from "in line" to "out perform" based on the company's growth prospects and valuation. In an interesting move, DELL responded this afternoon with a very clear message; that the computer industry is NOT seeing massive growth. Who are you going to believe? Goldman's view of Dell's business or Dell's view of Dell's business?

Shifting from hardware and PC's to the chips that drive them and we see Bank of America (BAC) initiating coverage on chip stocks Micron (MU), Intel (INTC) and Advanced Micro Devices (AMD) all with "buy" ratings. More importantly, one should note why they are all getting buy ratings. The BAC analyst, John Lau, stuck his neck out and said we're in the "early stages of a multi-year PC recovery" (-DJ Newswires). Now I know at this very moment there is a multitude of bears out there trying hard not to die of laughter. Hey, I guess you have to ask, what if he's right? Mr. Lau believes that the recovery will be lead by Centino-based (Intel) notebooks in global sales and by desktop sales in Asia. I wonder if Lau also covers DELL. Maybe they should talk.

Potentially supporting Mr. Lau's assumptions was a positive report from the Semiconductor Industry Association (SIA). The SIA claims that worldwide sales of semiconductors rose more than 10 percent in July compared to July last year. Furthermore this is the fifth consecutive monthly increase for chip sales. Despite all this positive news the SOX chip index completely lagged the markets all day long and only closed in the green by the smallest of margins.

Not to be left out of this broker-tech lovefest was Smith Barney raising their price targets on several networking stocks. The NWX networking index rose 2.5 percent. Meanwhile, Dan Niles, the famous (or infamous) analyst with Lehman Brothers offered positive comments on IBM today. He believes that Big Blue's service business is gaining speed and they could potentially sign upwards of $15 billion in just the third quarter alone. Shares of IBM added 4.6 percent and was a lead contributor to the INDU's rally, right behind Eastman Kodak's 6.8 percent gain.

This flood of analyst comments was enough to launch the markets higher early in the day and then everyone held their breath for the August ISM report. Economists had been looking for a bump higher to 53.5 percent. The Institute of Supply Management manufacturing index actually rose to 54.7 percent in August. This is a big jump from July's 51.8 percent. Readings over 50 percent are translated as growth and readings under 50 as contraction in the economy. So with wild applause bullish investors, analysts and economists all shouted and jumped up and down pointing enthusiastically to this evidence that yes, indeed, the economy was improving. Well, that what you would have expected. In reality the markets sold off on the positive economic news. There are various components that make up the ISM manufacturing report and therein may be the clue to the market's reaction. The new orders component was strong, up to 59.6 from 56.6 and the production component was very strong, up to 61.6 from 53.3. What bothered Wall Street was the ISM employment index component, which declined 0.2 percent to 45.9. Hence the entire report became yet another billboard declaring the economy was improving but without any jobs. By late morning the major indices had all traded in their gains for small losses.

In reality we can't discount the entire ISM report just based on the employment component. The rising production numbers and new orders rate is a very strong sign for the U.S. and it's even more encouraging as we head towards the October third quarter earnings announcements. Offering potentially good news was the Challenger Monthly Planned Layoffs report. The outplacement firm reported that planned layoffs in August actually dropped six percent to 79.9 thousand; down from July's 85.1 thousand. The good news here is that August marked the fourth month in a row that planned layoffs numbered less than 100,000. Planned job cuts for August 2003 were also 32 percent less than the same month a year ago. Unfortunately, Challenger's vice president, Rick Cobb was quoted as saying August could be the "calm before the storm". Evidently, the last four months of the year average a 36 percent higher job loss rate. Merry Christmas, here's your pink slip. I wonder if President Bush and Alan Greenspan discussed that over lunch today.

The historical trend for the day after Labor Day can chalk up another one for the bulls. Today marks the eighth win out of the last nine years for a rally. You already know, the recent trend for a late afternoon rally held true again and it was breakouts galore. However, if one is to believe these historical trends, take note. The last 52 years have shown September to be the worst month of the year for equities. Of course August is supposed to be the second worst month of the year and we just closed August with a gain. Traders need to keep this in mind. Thus far, 95 percent of the S&P 500 has reported their second quarter results. The average profit was a gain of 9.6 percent compared to the same time period last year. Analysts are now predicting an average gain of 14.5 percent for the third quarter and a lofty 21.3 percent gain for the fourth quarter. Everyone knows the bar was set pretty low the first two quarters of 2003 but if corporations fail to deliver it could be an ugly second half for the bulls. We're stepping right into corporate confession season (a.k.a. earnings warning). Just in case you missed their announcements and back pedaling two weeks ago, Intel starts us off with a mid-quarter update on Thursday.

Watch those stop losses.


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