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Market Wrap

Monday Markets Misstep

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     11-10-2003            High     Low     Volume Advance/Decline
DJIA     9756.53 - 53.26  9824.38  9736.90 1.49 bln    950/1875
NASDAQ   1941.64 - 29.10  1973.08  1939.73 1.74 bln    995/2124
S&P 100   518.77 -  1.93   521.28   517.85   Totals   1945/3999
S&P 500  1047.11 -  6.10  1053.65  1045.58
RUS 2000  533.21 -  9.75   543.30   533.18
DJ TRANS 2953.25 - 26.04  2996.66  2952.99
VIX        17.62 +  0.69    17.88    17.53
VXO        17.95 +  0.39    18.40    17.87
VXN        26.49 +  1.29    26.56    26.15
Total Volume 3,569M
Total UpVol    947M
Total DnVol  2,555M
52wk Highs     600
52wk Lows       30
TRIN          1.41
PUT/CALL      0.91

Monday Markets Misstep
By James Brown

Monday felt rather slow for many traders but the trend was negative from the beginning and only began to pick up speed by the afternoon's close. This was especially true for the tech- heavy NASDAQ, which lost nearly 1.5 percent. The selling was widespread with only the utility, natural gas and insurance indices managing to close in the green. The heaviest selling hit technology with biotech, semiconductors, and hardware taking the most damage. Homebuilders put together back-to-back losses as investors took profits and even the airlines felt some turbulence today.

Pressuring stocks were comments from Lehman Brothers over Dow component Hewlett-Packard (HPQ) and a survey over technology spending that suggested corporations were still cautious. Chicago Fed President Michael Moskow's encouraging comments made from Prague today merely reconfirmed that the FOMC would keep interest rates low but were not enough to inspire new buying from the bulls. Meanwhile President Bush has a decision to make on his steel tariffs after the World Trade Organization (WTO) issued a final ruling that the U.S. tariffs are illegal. The President levied import tariffs in March of 2002 and they are not scheduled to end until March 2005. The European Union (EU) is threatening $2.3 billion in tariffs of their own if Bush doesn't lift his steel tariffs by mid-December. A Bloomberg article notes that it is a tough choice for Bush who is trying to protect the steel industry in Ohio and Pennsylvania. The EU's looming sanctions would hit industries in Florida and N. Carolina knowing they are politically important states to his re-election.

Monday turned out to be a downer for the markets worldwide. Asians stocks were lower with the Japanese NIKKEI falling 124 points to 10,504 after their country's recent election. Hong Kong's Hang Seng also closed lower. German and English market indices lost ground as well, both closing lower by almost one percent. Oil prices shot higher midday but were unable to maintain their gains. Traders speculate the rise was concern over the weekend terrorist car bombing in Saudi Arabia and yet another pipeline explosion in northern Iraq.

Market internals for U.S. markets were certainly bearish. The NYSE reported 18 losers for every 9 advancing stocks compared to 22 declining issues per 9 advancing stocks on the NASDAQ. Down volume was better than 2.5 times up volume on both exchanges. Gold surged $3.10 to close at $386.70 an ounce while the dollar fell against the yen. Bonds continued to drift lower, which pushed yields higher. Bonds had to absorb the government's 3- year note auction today and we'll see a $16 billion 5-year note auction on Wednesday and another $17 billion in 10-year notes on Thursday.

Chart of the DJIA:

Chart of the NASDAQ:

Twenty-three out of thirty Dow components were lower today with HPQ leading the declines down 4.3 percent to $22.01. Dan Niles, a well-known analyst with Lehman Brothers, issued cautious guidance for HPQ's first quarter numbers. Meanwhile Goldman Sachs wasn't hot on a key exec leaving HPQ and suggested investors may want to sell if the stock reaches $25. Meanwhile the Forester Research IT spending survey offered mixed messages. At least 32 percent of the 800 IT managers polled planned to increase spending next year but growth was only estimated at 4 percent.

Management at Germany's Infineon Technologies, a chipmaker, also produced some mixed messages today. The company announced earnings that beat by a penny. While they see increased demand and 18% growth for next year their CEO cautioned on becoming overly enthusiastic. Closer to home Dow-component Intel (INTC) received an upgrade from J.P.Morgan from "neutral" to "over weight" but shares failed to rally on the news. Even Merrill Lynch tried to offer positive comments by raising price targets on several chip stocks (LLTC, MCHP, MXIM, SMTC, and XLNX) but they too failed to rally. As a matter of fact, all 18 stocks in the SOX semiconductor index closed in the red, pulling the SOX down nearly 3 percent for its first significant decline in two weeks.

It wouldn't be a Monday if we didn't have merger news and a story or two from the weekend copy of Barron's (or as some traders like to call it Bear-ons). Our Monday merger hails from the printing industry. R.R. Donnelley & Sons (DNY), printer for Sports Illustrated and TV Guide, announced it would buy Canadian printer Moore Wallace Inc for $2.8 billion in stock. The Barron's stories making the rounds today involved two tech companies. Adobe Systems (ADBE), famous for its graphical-arts software, was portrayed as a company investors should be wary of since ADBE management has yet to curb their high-volume of stock option grants to employees. Barron's said the company issued options from 2000 through 2002 that total more than 20 percent of the 240 million shares outstanding. This is about ten times the average for a large company and certainly dilutive to shareholders. The bigger Barron's story was a positive spotlight on Intl. Business Machines (IBM). The article speculated that IBM shares could reach $100 as the company continues to be one of the best plays to catch any increase in IT spending. This pushed IBM to be the second best performer in the Dow.

Looking ahead to tomorrow the stock market will have to run on its own as the bond markets will be closed for Veteran's day. Not that it is likely to matter. Investors are already looking ahead to Friday's economic reports. It seems without constant stimulation investors are prone to take profits. What we believed to be compelling price magnets at Dow 10K and NASDAQ 2K may not be as strong as we thought. Topping the headlines tomorrow will likely be earnings reports from apparel retailers Abercrombie & Fitch (ANF), J.C.Penny (JCP), May Dept. Stores (MAY) and TJX Companies (TJX).


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