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Market Wrap

Markets Blossom Green on St. Patrick's Day

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     03-17-2004            High     Low     Volume Advance/Decline
DJIA    10300.30 +115.63 10326.52 10184.30 1.85 bln   2247/ 623
NASDAQ   1976.76 + 33.67  1980.31  1956.52 1.67 bln   2294/ 765
S&P 100   551.48 +  5.92   552.64   545.56   Totals   4541/1388
S&P 500  1123.75 + 13.05  1125.76  1110.70 
RUS 2000  578.57 + 11.93   578.92   566.64
DJ TRANS 2847.65 + 59.30  2855.61  2790.04
VIX        18.11 -  2.23    19.55    17.95
VXO        18.14 -  2.57    19.73    18.07
VXN        24.75 -  2.59    27.31    24.50
Total Volume 3,878M
Total UpVol  3,192M
Total DnVol    631M
52wk Highs     257
52wk Lows       25
TRIN          0.74
PUT/CALL      0.81

Markets Blossom Green on St. Patrick's Day
By James Brown

Stocks sprinted higher for the second day in a row buoyed by tame inflation data and positive earnings reports. The rally was very widespread with 27 of the 30 Dow components closing higher. Buying was very strong in technology stocks, airlines and oil services. The only sectors trading lower were the DRG drug index and the DJUSHB home construction index. Bullish sentiment was strong enough to shake off news of the Mount Lebanon hotel bombing in downtown Baghdad, which hit the wires mid-afternoon.

Global markets traded higher as well. The Japanese NIKKEI added 194 points to close at 11,436. The Hang Seng stepped up 43 points to 12,975. The British FTSE jumped almost 28 points to 4456. Meanwhile the German DAX and the French CAC both soared with 1.9% gains. The bombing news sent gold futures to $4.50 gain to end at $407.10 an ounce.

Market internals for the U.S. exchanges were very bullish but less than stellar volume casts doubt on the true strength of the rebound. Advancing stocks rushed past decliners 22 to 6 on the NYSE and 23 to 8 on the NASDAQ. Up volume was an impressive 4.4- to-1 winner over down volume on the NYSE and 5.2-to-1 gainer on the NASDAQ but these readers don't compare to the extremely bearish readers we witnessed on Monday when down volume was 9-to- 1 and 10-to-1 respectively. Overall volume hit 1.85 billion on the NYSE and 1.675 billion on the NASDAQ.

There has been a lot of talk this week about market volatility and investors shuffling positions ahead of this Friday's quadruple-witching expiration where index options, equity options, index futures and single-stock futures all expire. This could explain some of the rebound. However, we shouldn't forget that the Dow and S&P 500 both traded near their 5% correction levels while the NASDAQ hit a 10% pull back from its highs. There are a lot of investors, both big and small, that have been waiting for just such an event and are using the recent weakness to buy the dip.

The Dow Industrials closed right at the 10,300 level and has broken the very minor trend of lower highs. The next challenge for the bulls is to push the Dow through its simple 10-dma at 10,342 as well as overhead resistance at 10,400 and 10,500. I believe that the 10,500 level could be the real battle. A failed rally at that level will look like a huge entry point to short the market. Fortunately, we do have the April earnings season just around the corner and the recent trend of positive pre- announcements could still inspire an earnings run.

Chart of the Dow Industrials:

The rebound in the NASDAQ looks less convincing. The simple 10- dma will be short-term resistance here too but the Composite also has minor resistance at the 1982 level. The real challenge here may be the 2000 level and the host of moving averages still above it. It's a common belief that the semiconductor sector (SOX) tends to lead the NASDAQ higher or lower. If the SOX can keep the rally going then the NASDAQ should be able to challenge the top of its new descending channel. Unfortunately, the SOX has its own challenges to deal with.

Chart of the NASDAQ Composite:

Chart of the Semiconductor Index (SOX):

The major economic report out today was the CPI. Economists were looking for a 0.3% rise in February and the headline number matched expectations. The core CPI, which excludes the more volatile food and energy components, jumped 0.2%, which was above estimates for a 0.1% gain. Energy prices have been on the rise and the energy component for February rose 1.7%. Investors were happy with these numbers because it soothed fears that the expanding global economy had not yet sparked a dangerous rise in inflation. This follows yesterday's statement from the Federal Reserve who said the risks of inflation and deflation were almost equal.

The same cannot be said for the risk of higher oil prices. Crude oil closed above $38 a barrel for the first time in 13 years. Oil saw intraday spikes to $39.99 last year during the Iraq war and it spiked to $41.15 during the 1991 Iraq war but the last time crude oil closed this high was September 27th, 1990 at $39.54 a barrel. Recent reports have begun to show a trend of falling supplies for crude oil and gasoline here in the states. Demand continues to grow and we are approaching the summer driving season, which will not allow for any slack to rebuild our stockpiles. The markets are concerned that OPEC may follow through on their previously forecasted production cuts in April. Combine concerns that Venezuela is threatening to cut its supply to the U.S. and many are forecasting oil to hit $40 a barrel or higher. Now most industry experts don't really believe that Venezuela will follow through on such threats since they need the money but it doesn't help the situation.

Speaking of needing the money the drop in mortgage rates has re- ignited the refinancing boom. The Mortgage Bankers Association of America reported that mortgage applications rose 25.6% last week to their highest levels since July 2003. The increase in applications for home purchases was only 5.6% but the increase for refi's jumped 39.7%. Major mortgage lenders like BAC, CFC, WFC and WM didn't move much on the news but then these stocks didn't suffer very badly during the recent sell-off.

One of Wednesday's headliners was Bear Stearns (BSC). The Wall Street broker-dealer reported earnings this morning that beat estimates by 57 cents. Analysts had been looking for $2.00 per share and BSC reported profits of $361.1 million or $2.57/share. Revenues jumped from $1.5 billion to $1.7 billion for the quarter. This news follows Lehman Brothers (LEH) earnings report yesterday who reported earnings of $2.21 versus estimates of $1.66 per share. Tomorrow we'll hear from Morgan Stanley (MWD) who is expected to earn 96 cents per share.

Boosting the Dow Transport index to a 2% gain was a very promising earnings report from Fedex Corp (FDX). FDX reported its Q3 earnings this morning of 71 cents per share, which was 5 cents above estimates. Revenues jumped 9.3% to $6.06 billion and were boosted by its recent $2.4 billion acquisition of Kinko's. The delivery company raised its estimates for the current quarter to $1.15-1.25 per share placing it above average analyst estimates at $1.16. The stock soared 4.61% and broke out above resistance at the $70.00 level.

Internet stocks were the best performing group today. The INX's 4.1% gain out did the 3.39% bounce in the XAL airlines index. Driving those gains in the Internets was Yahoo! (YHOO). The stock vaulted to a 5.35% gain on big volume after First Albany and Smith Barney upgraded the stock. First Albany raised YHOO from a "neutral" to a "buy" and inched up its price target from $47 to $48. Smith Barney was more bullish and raised its price target from $50 to $60 while lifting its rating from "hold" to a "buy".

Lately option expiration Friday's have been rather mellow. That means that if we're going to see any more volatility related to investors restructuring positions ahead of expiration then tomorrow is the day. Adding to the excitement will be the long- awaited January PPI report. This was scheduled to be released back in February but has been delayed as the government dealt with various data conversion "difficulties". They still haven't told us when to expect the February PPI index but look for January's tomorrow morning before the bell. We'll also get the weekly initial jobless claims, the February leading indicator numbers and the Philly Fed manufacturing survey.


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