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Market Wrap

Inline Guidance?

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      03-04-2004           High     Low     Volume   Adv/Dcl
DJIA    10588.00 -  5.10 10603.25 10562.74 1.59 bln 1980/1227
NASDAQ   2055.11 + 21.80  2055.12  2031.84 1.80 bln 2091/1055
S&P 100   568.32 +  1.81   568.70   566.16   Totals 4071/2282
S&P 500  1154.87 +  3.84  1154.97  1149.81 
W5000   11288.38 + 50.10 11288.44 11226.22
SOX       508.70 +  8.20   508.78   500.55
RUS 2000  598.38 +  7.06   598.39   589.52 
DJ TRANS 2884.62 -  3.30  2888.27  2864.78   
VIX        14.40 -  0.15    14.50    14.19
VXO (VIX-O)14.71 +  0.01    14.99    14.57
VXN        22.50 -  0.59    23.30    22.38 
Total Volume 3,664M
Total UpVol  2,450M
Total DnVol  1,028M
Total Adv  4599
Total Dcl  2593
52wk Highs  591
52wk Lows     9
TRIN       0.96
PUT/CALL   0.71

After a day of mixed markets, sweaty palms and tension so strong you could smell it, Intel lowered its guidance ever so slightly. The initial reaction was negative until the spin doctors hit the airwaves and the damage was muted. The markets, except for the Dow, had ended the days at the highs on expectations of good news. Was it good enough to keep them there?

Dow Chart - Daily

Nasdaq Chart - Daily

Economically it was a strong day that helped build the tension in front of the Intel news. The retail same store sales for February came in at +6.7% and that was the strongest gain since records were first kept in Nov-2000 according to Thompson First Call. The gain was attributed to tax rebates, weather and strong discounting. This trend should continue for the next three months as tax refunds hit mailboxes across the country. Good spring weather would also help the change of seasonal merchandise. Wal-Mart said same store sales rose +6.2% and raised its guidance for March to 4-6% from 3-5%. Its total sales from all stores rose +14%.

Jobless Claims fell to 345,000 and a drop of -7,000 from the prior week. The prior week was revised upward to 352K. 39 states reported a decrease in claims for the week. Claims trending under 350K per week have historically been followed by job growth in the +150K per month range. That was the historical trend before three million jobs per year were outsourced overseas. We do not know what new level will be required to produce sustained U.S. job growth.

The final Q4 productivity was revised downward to +2.6% and was slightly less than expectations but still strong. You might remember the Q3 productivity was a very strong +9.5%. The final productivity for the year was +4.4%. There was a strong revision to the hourly compensation to +1.4%. This was significantly higher than the +0.5% initial number. The increase in compensation is surprising due to the higher competition for available jobs and the current reduction in benefits trend. Despite the bear market or maybe because of layoffs prompted by it the last two years of productivity growth were the strongest on record since the government began keeping records in 1940. Ironic since it also contained some of the largest job losses in recent history. But, fewer workers is what raises productivity. Using that analogy corporations could fire everyone and raise their productivity to 100%. Be tough finding consumers to buy your products with everyone unemployed. Obviously I say this in jest lest anyone take it wrongly.

Factory Orders for January fell -0.5% and slightly more than the estimates at -0.3% but the trend for increased capital spending is still up. The orders have been alternating up/down almost each month for all of 2003 and the minor drop after a +2.1% jump in December was nothing to worry about. December's numbers were revised up making the net change for January nearly flat. The biggest problem with the report was a -2.3% decline in durable goods but the non-durable continued to climb +1.6%. Much of the overall decline came from the transportation component which fell -10.3% but that component is normally discounted due to big swings. While the factory orders are showing overall uptrend improvement the gains are not as wide as analyst's would like. It suggests the recovery is narrower then previously expected and it will take a stronger surge going forward to keep the recovery on track. Analysts fear the narrow breadth could easily crumble if conditions stagnated even slightly.

In stock news the mouse house fired half of Michael Eisner and took away his Chairman duties. He remains CEO of Disney. They gave the job to a career board sitter Senator Mitchell who coincidently had nearly as large a no confidence vote (23%) as Eisner. Not being a DIS stockholder I have no opinion other than image is considerably important to stock prices. If 43% of the stockholders basically voted to cut Eisner then what is the board thinking by replacing him with somebody else they don't like? Why does Eisner need this aggravation? Take the money and run and let the peasants have a new king.

Dell Chairman and CEO Michael Dell must have seen the writing on the wall and he beat the rabble to the punch by resigning as CEO and appointing the President of Dell, Kevin Rollins, as CEO. Unfortunately Dell stockholders were not impressed and wanted Michael as the CEO and the stock fell on the news. Personally, if I were Michael I would give up both jobs and find a beach somewhere. He has turned a $1000 investment into an $85B company. Time to retire a hero Michael. Don't wait for the stockholders to give you a no vote when the next recession appears. (like they would really do that - grin) Dell has created more millionaires than almost any other company in history except maybe Microsoft. Michael Dell is following in the footsteps of Bill Gates who also stepped aside to let other run the company and give himself more time to be the visionary.

The big news after the bell was the Intel mid quarter update. Intel lowered their revenue estimates from a range of $7.9B to $8.5B to a range of $8.0B to $8.2B. That is .3 knocked off the top side and only .1 added to the bottom. To be fair this is not a big deal but the dueling analysts were trying to out spin each other after the bell. Various spinsters were pointing out that Intel usually revises to the high side of the range and a low side revision suggests that business was lighter than expected. Duh! Lighter because Intel has various ways to "account" for revenue that would allow them to adjust to the center of the range if they could. The idea here is that the best they could manage was lighter than expected. The positive analysts were pointing out that Intel was only a "rounding error" away from their midpoint and it was confirmation that the business was still strong. The phrase you will probably hear the most tomorrow is "sales consistent with the lower end of normal seasonal patterns" with the emphasis on the word lower. Traders always want to hear that sales are coming in at the high end of estimates. Intel initially fell on the news but recovered somewhat later in the session. Considering the bullish tilt to the tech stocks during normal hours and seeing the futures recover in after hours I am not seeing any major impact to Friday's market. We still have a lot of darkness before morning and we did close near the highs. I suspect the Employment Report will take the spotlight more than the Intel news.

The Intel weakness had been predicted by several analysts. There is apparently a short term glut of notebooks and the Banc America analyst today said it should only last 2-3 months. That glut came in a quarter that is not normally known for tech strength so it is being mostly ignored. HPQ also warned that things were not as hot in tech land as most expected when they said they were only seeing a +1% to +2% gain in IT spending for 2004. The Nasdaq has been listless and range bound for the last month as these factors have been digested.

Flextronics also provided an update after the close and it left its forecast unchanged. They affirmed estimates of 9-11 cents and analysts are already expecting 11 cents. Could be a challenge there. FLEX traded down slightly in after hours.

The next major hurdle is the Employment Report tomorrow morning. We finally saw some headline grabbing today with estimates well above the +125,000 consensus estimate. Those trying to grab the spotlight included Brian Wesbury a guest on CNBC who predicted +210,000 jobs. Steve Liesman then jumped out in front of the crowd with a size does matter +250,000 estimate in one spot and then declined to quote a number in another. Later an analyst on one of the later stock TV sound bites went all the way to 310,000. I did not catch his name. Thus it has begun. After a great deal of calm leading up to the event the expectations are finally being driven into a reporting frenzy. Fortunately this did not happen far enough in advance to build these expectations into the market. As it stands I think we are neutral and anything over +75K will be seen with some relief and anything over +125K could be greeted warmly. Anything under 75K should be seen progressively negative the closer to zero it gets.

We have not had any Fedspeak about jobs this week. That worries me. In the recent past they actually went on the attack and talked up/down jobs with a full court press that was sometimes contrary to the actual numbers in order to juice the markets when the actual numbers were announced. It was deathly quiet this week. Either the numbers do not need any makeup to improve the reception or they are laying low after the Greenspan attack on social security and the dollar had adverse results on the markets.

While techs were surging on Thursday the Dow was dormant for the entire day. It traded in a very narrow 40 point range and despite several tries was never able to hold over 10600 for more than a couple minutes. Except for the Monday bounce the Dow has been locked in a range from 10550 to 10650 and it is holding just under the midline at 10600. Trying to paint a technical picture of the Dow one would only need a piece of paper and a straight edge. Other than the Monday bounce absolutely nothing is happening. The one bright point is the ever rising 50dma currently at 10546. With current strong support at 10550 the addition of the 50dma support should make that level tough to break without a major Jobs failure.

Dow Chart - 45 min

The Nasdaq surprised everyone with a rise ahead of the Intel news and a gain of +21 points. The index rebounded from an early morning dip to 2031 and closed at 2053. There was a battle at 2050 most of the afternoon but short covering before the close finally broke the deadlock. The high on Tuesday before Greenspan tanked the markets was 2064. The rally this afternoon was a relief considering the -45 point drop from those highs to yesterday's lows. The Nasdaq rebounded to close right below the 50dma once again at 2059. That average is proving to be significant resistance.

After the bell today there was news from Intel, FLEX, HLTH, TIVO and SBL. SBL, a tech stock that trades on the NYSE missed earnings by -2 cents and dropped -$2 in after hours. While not a Nasdaq stock it is still a tech. Intel was trading down about -60 cents, FLEX about -30 cents and AMAT -50 cents. HLTH and TIVO were up about +70 cents each. The net impact to the Nasdaq at the open should be a small negative bias and probably generate some profit taking from today's gains. Considering it closed on the upside of its recent range it is in no apparent danger.

In advance of the Intel news the SOX rebounded off its support at 500 and turned in a +1.62% gain to close at 508. This should be high enough that any Intel/FLEX impact should fade before the 500 level is reached. (keyword = should)

The Russell blew out, literally. The Russell moved over its Tuesday high and the highs for February at 597 to close at 598.38. This is only three points from the January highs and five points from an all time closing high and a very strong performance. We are likely to get some pullback at the open from the tech news but I view any dip here as a buying opportunity. The Russell-2000 Ishares (IWN) broke out to a new all time high at 173.00. (optionable)

Russell-2000 Chart - Daily

The Wilshire-5000 moved within 18 points of a post 9/11 high and being the broadest measure of the markets still suggests the bullish undertone is continuing. Taken with the Russell strength this is a clear signal that bears should take to heart. The Dow is the current dog and the most narrow of indexes. 18 Dow stocks failed to close in positive territory today. Considering the rally in small caps the Dow components could be suffering from the same rotation that sent it to the 10750 highs at the beginning of February. Money that went to the safety of big caps then is fleeing back to small caps as we move into the time for an April earnings run to begin.

Internals were surprisingly strong today with advancers beating decliners nearly 2:1 and volume heavily weighted to the advancers. New highs are surging again and new lows are almost nonexistent.

In late news tonight the Banking Index BKX is splitting 10:1. The Philadelphia Stock Exchange announced today that the index currently at 1017.77 was being split to improve liquidity of the instrument and make it more attractive to a diverse set of investors. The index is up nearly 50% in the last year and outperformed the S&P for the last four years. The BKX is comprised of 24 national and regional money center banks. The BKX is also optionable. The split is scheduled for March 22nd.

For Friday our fate is tied to the Employment report and there is nothing we can do about it. Assuming the numbers are moderately decent I would continue to buy the dips in small cap techs as they have been the hot rods of late. Let the morning volatility fade and check the market direction before entering tomorrow. Remember, if the news is bad you can always wait for Monday and avoid the weekend event risk and let emotions die down. Cash is a position.

Enter Passively, Exit Aggressively.

Jim Brown


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