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     03-15-2004            High     Low     Volume Advance/Decline
DJIA    10102.89 -137.19 10241.11 10092.47 1.90 bln    675/2160
NASDAQ   1939.20 - 45.53  1977.78  1939.20 1.71 bln    594/2453
S&P 100   542.26 -  7.66   549.92   541.67   Totals   1269/4613
S&P 500  1104.49 - 16.08  1120.57  1103.36 
RUS 2000  566.95 - 15.89   582.96   566.87
DJ TRANS 2790.53 - 72.56  2860.42  2789.81
VIX        21.13 +  2.83    21.39    18.86
VXO        21.38 +  2.66    21.64    19.22
VXN        27.13 +  1.83    27.30    26.07
Total Volume 4,025M
Total UpVol    398M
Total DnVol  3,598M
52wk Highs     170
52wk Lows       36
TRIN          2.82
PUT/CALL      1.05

Anymore Questions?
By James Brown

Last Friday's rally eased the pain from a brutal week in the markets but the question investors were left with over the weekend was, "Is it an honest reversal or just an oversold bounce?" Monday's 137-point loss answered that question. New evidence over the weekend linking the Madrid bombings to Al Qaida renewed terrorism fears around the globe and investors erased all of Friday's gains. Positive comments from GE and Wal-Mart were not enough to inspire investor confidence and mixed economic data only added to the turmoil.

Over the weekend Spanish officials reported that a videotape left in a trash can outside a mosque in Madrid held a message from an alleged Al Qaida spokesperson claiming responsibility for the train station bombings last Thursday. Officials were originally blaming the Basque separatist group Eta but when rumors surfaced late Thursday that Al Qaida may be involved the U.S. markets immediately tanked. Concerns that Al Qaida is still alive and well and planning attacks here at home have immediately put investors on the defensive. It didn't help that authorities in Pakistan found a bomb-laden car parked outside the U.S. consulate this morning or news that Greek officials discovered a bomb near a Citibank branch in Athens.

As if the terror threat issues weren't enough the surprise win by the Socialist party in Spain's general election on Sunday is a damaging blow to President Bush's global support network for the war in Iraq. The new Prime minister-elect has vowed to bring home Spain's 1300 troops in Iraq by June 30th. The combination of these variables sent the European markets staggering lower. The French CAC 40 index lost 2.4% or almost 88 points to close at 3573. The German DAX index lost 2.67%, a triple-digit loss, to close at 3810. The British FTSE slipped 1.22% to 4412. The picture was a little different across the Pacific with the Japanese NIKKEI adding 155 points to close at 11,317 and the Chinese Hang Seng only losing 12 points to 12,919. Most analysts believe the NIKKEI's gain was a reflection of our own rebound from Friday but with today's loss in the U.S. markets we could see Asian stocks retreat tomorrow.

One of my biggest concerns today is the market internals. One would expect them to be bearish with the major indices in the red but they're starting to get a little extreme. Declining stocks outnumbered advancing stocks 3-to-1 on the NYSE and 4-to-1 on the NASDAQ. New highs have all but evaporated during the recent sell-off. We were used to seeing new highs in the 400 to 800 range. Today there were only 131 new highs. What's really disturbing are the up and down volume numbers. Down volume was almost 9 times up volume on the NYSE and down volume did hit 10- to-1 levels versus up volume on the NASDAQ. Last week I commented on the upside breakout in the volatility indices and how the surge higher broke their longer-term down trends suggesting this sell-off was "for real". We're seeing another surge today on the VIX, VXO and the VXN.

The Dow Industrials did manage to close at the 10,100 level but today's drop was another new relative low and suggests the index is headed for the 10,000 mark. Currently the Dow is down 6% from its February highs, so we've satisfied those technicians crying out for a 5% pull back but the 10K mark has now become a magnet where bulls will wait to buy the dip to support and short-term bears cover positions for a profit. The S&P 500 index is mirroring the Dow's decline with another new relative low itself but it should find some support at its rising 100-dma near the 1100 mark just four points away. Currently the SPX is down 4.6% from its recent highs, which may be enough to satisfy those investors looking to buy after a correction. The NASDAQ Composite out performed both the Dow and the S&P 500 during the 2003 rally so it's no surprise that it's under performing during the pull back. Today's 2.29% loss is a new relative low and also happens to be extremely close to a 10% correction from the NASDAQ's January highs. Unfortunately, I wouldn't expect it to stop here. The 1900 level is the next real support level and its 200-dma near 1877 could also become a magnet pulling the index lower.

Chart of the Dow Jones Industrials:

Chart of the S&P 500:

Chart of the NASDAQ Composite:

Monday's economic reports were mixed. Lately we've been seeing a very steady trend. Economists have been expecting dips in a large number of economic survey's following some recent highs. Almost every time the dip has been deeper than expected, which is throwing doubt over the economic recovery. Case in point this morning's New York Empire State Manufacturing index showed up with a reading of 25.3 when economists were only expecting a dip to 38.7 from February's record setting 42.1 reading. Readings above zero indicate economic expansion and the Empire State Mfg index has been above 30 for the last five months in a row. New orders slipped from 34.9 to 23.5. What are really disturbing numbers were the employment component dropped from 16.5 to 9.7 and the workweek component dropped from 26.5 to 11.9. Later in the session the Federal Reserve reported that February's industrial production rose 0.7%, which was better than the expected 0.4% rise. Plus the country's capacity utilization numbers hit 76.6% in February, up from 76.1 in January and near pre-9/11 levels. This helped soften the blow from the New York readings but couldn't help stem the tide of selling.

Investors also chose to ignore positive comments from Dow component General Electric (GE). The massive conglomerate told investors it was confident that its Q1 and Q2 earnings numbers will come in at the high end of its range. That puts GE's earnings estimates at 32 cents for the first quarter and 39 cents for the second quarter, which is about a penny above analysts' estimates. Considering the market's renewed concerns over terrorism it was apropos that GE announce its plans to acquire InVision Technologies (INVN) for $900 million or $50 a share. INVN is well known as one of the leading manufacturers of bomb detectors for U.S. airports. Separately INVN announced that it has received an order from the Transportation Security Administration worth $105 million. Investors have been bullish on the stock after President Bush's proposed budget called for a 20% increase in airport security. Shares of INVN gapped higher and ended the session up 19.7% to $49.30.

Another Dow component to issue good news today was Wal-Mart (WMT). The retail titan said March same-store sales were coming in at the high end of its 4%-6% range. Sales were being driven by an increase in the number of tax refund checks their stores were cashing. WMT believes that retailers should do well in the first two quarters of 2004 due to larger tax refunds for consumers. Yet another Dow component in the headlines was United Technologies (UTX). Deutsche Bank upgraded the stock to a "buy" from a "hold" and told clients that the recent weakness was a buying opportunity. Analysts are bullish on the company's defense-related businesses and an estimated increase in commercial aircraft maintenance. Shares of UTX added 55 cents to close at $87.90 and was the only Dow component to close in the green in today's widespread sell-off.

I'm actually surprised that the DFI defense index didn't see a gain today with investors focused on terrorism concerns. What is not a surprise was the 7% drop in the XAL airline index. What probably started out as weakness related to terrorism concerns was exacerbated by an earnings warning from Delta Airlines (DAL). The company had already warned that it would lose between $300 and $350 million this quarter but now DAL is estimating its losses will be closer to $400 million. The airline cited sharply higher fuel costs but mentioned that weaker customer demand also played a role. Shares of DAL fell 12.2% to $7.76 and rival Continental Airlines (CAL) followed it with an 11.92% drop to $12.27. DAL's announcement shouldn't come as a surprise. We've mentioned before that the rising cost of oil would wreak havoc on the airlines. A quick glance at the charts for DAL and CAL and you can see that investors have been rotating out of the group for weeks. This problem is likely to spread with oil still rising. Crude oil futures jumped more than 3% today and closed above $37 a barrel.

Investor confidence is also suffering from a revival in corporate accounting concerns. Nortel Networks (NT) took the lead in today's parade of accounting calamities after announcing that they had put their CFO and Controller on paid leave of absence pending an independent review of the company's financials. You might remember last week that NT said it would delay filing its annual 10-K report because the company would probably have to restate its past results. J.P.Morgan downgraded the stock to "neutral" and shares of NT fell 18.5% to $5.24. NT's drop lead the NWX networking index to a 3.41% decline.

Software stocks were also trading lower led by a 6% decline in shares of Veritas Software (VRTS). The company said it would restate its results for 2001 and 2002 while delay filing its 2003 10-K as it dealt with various accounting errors. Management said that its delay would prompt a NASDAQ delisting notice but they would take the appropriate steps to come under compliance before any delisting deadline.

Investors were probably thankful to hear the closing bell this afternoon and put a halt to the market's decline but that didn't stop the bad news. P.F. Chang's China Bistro (PFCB) announced that it would be restating its financial results for the previous three years as it accounted for its partnership program. The company said it would take an $11.5 million charge in its Q1 earnings report and the stock dropped some 8% in after hours trading.

Fortunately not all the after hours news was bad. 3M (MMM) joined fellow Dow component GE and issued an upside pre- announcement for its Q1 earnings. MMM is raising its Q1 earnings guidance from 80-82 cents a share to 86-88 cents and raising its full year estimates from $3.46-3.52 to $3.52-3.62. Analysts' estimates had been 82 cents and $3.52 respectively. MMM said its industrial-related businesses were seeing strong growth trends and that currency effects were adding about 5% to its Q1 sales numbers.

Hopefully MMM's upside earnings guidance, combined with the underlying affects of GE's upside guidance and WMT's positive same-store sales guidance will start to sink into the collective investor mindset and stall the sell-off. If not we still have the FOMC meeting tomorrow afternoon to occupy traders' focus. No one really expects the Federal Reserve to alter interest rates but what and how they comment on the country's current economic status will have an impact on how we finish the week.

Keep an eye on the broker-dealers tomorrow. Lehman Brothers (LEH) reports earnings tomorrow morning before the opening bell. Estimates are for $1.66 per share compared with $1.15 from a year ago. Bear Stearns (BSC) will report on Wednesday and Morgan Stanley (MWD) will report on Thursday. The group has been flying past the estimates lately but that hasn't stopped traders from "selling the news". You'll also want to watch the homebuilders. The group has been weathering the recent downturn extremely well but we'll get the latest housing starts and building permit numbers tomorrow morning before the open.



 
 



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