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      02-17-2004           High     Low     Volume Advance/Decline
DJIA    10714.88 + 87.00 10735.25 10628.74 1.82 bln   2379/ 888
NASDAQ   2080.35 + 26.80  2084.72  2068.01 1.64 bln   2067/1125
S&P 100   571.24 +  5.32   572.28   565.92   Totals   4446/2013
S&P 500  1156.99 + 11.18  1158.98  1145.81 
W5000   11284.06 +110.10 11298.52 11174.00
RUS 2000  594.48 +  9.34   594.48   585.14 
DJ TRANS 2920.74 +  4.20  2926.70  2896.59   
VIX        15.40 -  0.18    15.96    15.32
VXO (VIX-O)15.56 -  0.07    16.15    15.24
VXN        23.87 -  0.27    25.40    23.66 
Total Volume 3,728M
Total UpVol  2,787M
Total DnVol    896M
Total Adv  4992
Total Dcl  2329
52wk Highs  746
52wk Lows     9
TRIN       0.65
NAZTRIN    0.66
PUT/CALL   0.88

Positive events in the chip sector and takeover speculation sent the indexes back to the top of their recent ranges. The coming option expiration probably helped with the futures up substantially before the cash markets opened for trading. For a month known for consolidations February is not following the historical trend.

Dow Chart - Daily

Nasdaq Chart - Daily

The morning started strong with the NY Empire State Survey at 42.1 and well above consensus of 39.5. This was a record high for this survey and suggests on the surface that the health of the manufacturing sector in New York is robust. However, New Orders were flat at 34.9 and shipments fell sharply to 26.6 from 41.4. The decrease in shipments came from only 17% of the respondents but it was enough to knock the number back to the October level. 57% of the respondents still expect growth over the next six months. Prices paid rose to 33.6 from 27.9 and the employment component fell to 16.5 from 24.5. This shows that while the overall outlook is good there are still some cracks in the foundation. The big drop in the employment component does not bode well for an increase in the various jobs reports in the coming months.

Industrial Production rose +0.8% in January and slightly over the consensus estimates. December's numbers were revised lower and knocked production back to +0.0% for the December period. Capacity Utilization finally moved back over 76% after nearly a year at lower levels. All the major components were either flat or rose in January. The bad news? Utility output rose +5.2% due to the cold weather and contributed strongly to the production gains. Since utility output is not normally a job creator or indications of a positive consumer trend the impact is really negative. The majority of news sources that report on this economic number will not likely disclose this impact. That means 99.9% of traders will only see the headline number and assume it was good news when in reality it is questionable.

The Housing Market Index fell again to 65 and the lowest level since last July. All components fell with present conditions falling to 72 from 76. The six-month outlook fell from 76 to 73 and the potential traffic numbers fell from 51 to 46. The drop in traffic below 50 indicates the majority of builders are reporting fewer lookers. On the surface this would look negative but I feel the weather is the main contributing factor. We have had a very cold January with multiple blizzards and those conditions do not prompt many buyers to cruise the suburbs looking for an open house. With interest rates still low I expect these numbers to rise dramatically when warmer weather appears.

Microsoft learned today that the EU had refused to accept their proposed antitrust settlement. Microsoft had offered to include a CD with competitors software with each Windows system released and the EU said it was not enough. Since the competition is only a download away today it remains to be seen what the EU wants. If you want to use Real Networks instead of Windows Media Player it only takes a couple minutes to download the software now but you actually have to decide you want to try it and go look up the website. If MSFT included a CD with every Windows system it might actually gain some impulse customers Real Networks might never have had. Evidently the EU wants Microsoft to include the software in the installation much like AOL is now. That way on every new installation you would have a couple more icons to move to the recycle bin once your system was running.

John Deere reported blowout earnings for the last quarter and soared +3.00 in regular trading. Earnings more than doubled over the same period last year. The blamed the gains on low interest rates, tax cuts and strong demand for agriculture products around the globe. DE reported +68 cents per share compared to analyst's estimates of only 52 cents. Caterpillar also reported a +11% growth in sales over the last 90 days with a +27% gain in North America. On a smaller scale Toro announced that they now expect to earn between 34 - 36 cents per share compared to previous guidance of 15 - 20 cents. It appears there is a revival underway in the outdoor equipment sector that spans all price ranges.

Amazon said it was full of hot air and the cost of that air was rising. AMZN uses plastic bags of air as packing material in their shipments. These air pillows are produced with natural gas and the spike in gas rates had pushed the cost of the air bags up by +40%. The stock lost another -85 cents and closed right on its 200 dma at 45.53. AMZN has been riding the line for the last ten trading sessions and was trying to rebound until the increased cost news hit the airwaves. Also making news was a drop of -7% in the shares owned by Bezos. He now claims ownership of only 26% of AMZN shares. Raising some vacation money Jeff?

Wal-Mart rose +1.20 on news that same store sales came in at the high end of its 3% - 5% growth estimate for February. The news came only two days before WMT is scheduled to report earnings. WMT said its average ticket was up and sales were in its high profit categories of apparel, pharmacy and Valentine's items.

Intel made several announcements today including upgrading its Xeon server chips to 64-bit technology. The announcements at its developer conference were aimed to gain support for its 64-bit product and delay acceptance of the AMD chip. Microsoft also made press releases about the progress of the Windows-XP64 product. CEO Craig Barrett said plans for product development and release were right on schedule. He also said they were seeing "sustained growth in processor sales" that indicated to them a continuing IT recovery. Twice during the speeches the comments provided a spike in the market. INTC rose +67 cents but did not get very far away from the $30 price magnet that has been tough to escape for the last two weeks.

After the bell BRCM announced it was holding a conference call on Wednesday to discuss a substantial improvement in their business outlook. The stock jumped +$3 in after hours trading. The call will be at 1:45 Pacific time. No further details were given and a spokesman would not say what period would be discussed. Month, quarter, year? It makes a big difference and no clues were available.

CSCO announced a new video over IP solution for corporate accounts. This Video-OIP solution will run $200 per user and is expected to take the Voice-OIP application to the next level. CSCO also announced that expensing employee stock options would have knocked -43% off its most recent earnings if forced to account for them in regular earnings. Earnings would have been 6 cents instead of a dime.

AT&T Wireless (AWE) finally got a bid it was happy with at $15, all cash, from Cingular Wireless. This will propel the SBC/BLS joint venture to the lead in the U.S. wireless race with 46 mil customers. The deal will still have to be approved by the government but is not expected to be denied. The baby bells see wireless growth as the only way to compensate for the drop in their traditional wireline business.

In other takeover news Disney declined the Comcast offer as too cheap. Comcast said they did not want to pay more and the companies are at a standoff. If another bidder does not appear and Disney stock drops once the speculation cools then Comcast will probably revive their offer. Until then it is a waiting game.

The Bureau of Labor Statistics cancelled the PPI release that was scheduled for Thursday citing "unexpected difficulties" in data conversion. They have not announced when the PPI will be rescheduled. It took me several minutes to access the BLS website where the notice was posted with a continuous message of "too many people accessing the website at this time". Evidently quite a few people were interested in the sudden cancellation.

The markets gapped open Tuesday and never looked back. The Dow came within 11 points of its two year high made last week at 10746. The index was very strong despite weakness in DIS, SBC and IBM. If the entire market was up to the Dow there would be little doubt we were going higher. However, the Nasdaq stalled against the upper resistance range at 2085 that held it back last week. The Nasdaq had a good day at +26 points but it just seemed to be filled with tension that it could break at any moment. The two strongest indexes for the day were still the SOX and the Russell. While neither are close to their highs they led the other indexes once again with the Russell closing near the high of the day.

Make no mistake this was a very bullish day. Advancers beat decliners 5:2 and up volume beat down volume 3:1. The only negative was light volume overall. All the indexes ended near the top of their recent range and there was no major selling at the close. The only negative after the close was an earnings miss by Agilent. They missed earnings by a penny. NTAP beat by a penny, PLAB beat by five cents, NTES beat by +4 cents and SIMG by a penny. The various futures are mixed but not showing any indications of selling before tomorrow.

For us to move up from here the Nasdaq has to break the 2085 resistance. Once that level is behind us the Dow could move to a new high. This may sound like overt bullishness but the supporting internals are very strong. Remember this is normally a consolidation month. ANY forward progress should be looked upon thankfully. The BRCM announcement after the close along with several positive tech earnings should keep the pressure on the bears and leave the bulls in control.

The potential problems are the pickup in economic reports the rest of the week and the AMAT earnings tomorrow after the close. Nobody is expecting any bad news from AMAT but you can never be too careful. Initial support for the Nasdaq is 2065 but it could easily drift lower if we run out of excitement. Initial support for the Dow is 10680 and then 10600 but we are at the top of the range. We could easily drift lower for sometime and still be in an up trend. Should we move up from here a move over 10750 should generate additional short covering and attract those earnings run buyers off the sidelines.

The Nasdaq pattern worries me. We currently have a lower high in progress with the Nasdaq struggling to break 2085. Should this resistance hold we could easily retest the 50 dma at 2034 or even horizontal support at 2000. We need to break the 2085 resistance quickly and strongly to banish thoughts of a retest and bring buyers back into the market.

There were several comments today suggesting this rally was option related. It could be but I have nothing to base that opinion on. The volume was light and normally option related rallies come on heavy volume. With expiration on Friday traders are running out of time to close positions. With the three-day weekend I would have expected most big players to have closed positions by last Friday rather than face the additional event risk of world markets being open while ours were closed.

Wednesday will be a pivotal day. If the Dow can move higher it could easily set a new high and help drag the Nasdaq through its current resistance levels. Just remember that any pullback to the middle of its range (10600) is just consolidation and would be normal. I would also consider it another buying opportunity. It is too soon to expect the April earnings run to begin in earnest so take whatever gains the market gives us with gratitude.

Enter Passively, Exit Aggressively.

Jim Brown


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