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Market Wrap

Stocks Rebound on Relief Rally

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     04-12-2004            High     Low     Volume Advance/Decline
DJIA    10515.56 + 73.53 10526.27 10443.81 1.37 bln   1500/1313
NASDAQ   2065.48 + 12.60  2069.45  2057.64 1.47 bln   1793/1318
S&P 100   559.49 +  3.37   560.10   556.12   Totals   3293/2631
S&P 500  1145.20 +  5.88  1147.29  1139.32 
RUS 2000  599.65 +  1.77   603.04   597.88
DJ TRANS 2933.82 +  6.94  2945.79  2926.84
VIX        15.28 -  0.98    16.12    15.00
VXO        15.44 -  0.39    16.26    15.30
VXN        20.37 -  1.01    20.88    20.23
Total Volume 3,182M
Total UpVol  1,996M
Total DnVol  1,138M
52wk Highs     414
52wk Lows       57
TRIN          0.80
PUT/CALL      0.77

Stocks Rebound on Relief Rally
By James Brown

Stocks soared quickly higher at the open on Monday as investors breathed a sigh of relief that the holiday-long weekend passed without a terror-related incident. This allowed traders to focus on the Q1 earnings season, which is about to hit in force starting tomorrow. More than 700 companies are expected to report this week. Expectations for corporate profits to rise 17- 20% above last year's period have generated a bullish under current for the markets. However, some professional investors are worried if the rebound from the March lows has already baked in a strong earnings performance.

Money poured into energy stocks with the OIX oil index (+1.54%) and the OSX oil services index (+2.42%) turning in today's best gains. Driving the move was a 70-cent jump to $37.84 a barrel in crude oil futures. The International Energy Agency released their latest forecast showing worldwide consumption of oil will rise for the sixth consecutive month. While that's not a surprise given the U.S. economic rebound, expanding global economy and the voracious appetite from China's red-hot economy the breakout over resistance at $37 a barrel is a new 20-year high. Airlines, who suffer from higher fuel costs as crude rises, were understandably lower today (XAL -1.21%). Benefiting from the rise in oil were refiners. Dow component ExxonMobil (XOM) rose 2.1%, ConocoPhillips (COP), the U.S.'s largest refiner, added 1.7% and Valero Energy (VLO) soared 4.2%. Meanwhile retail gas prices hit another new all-time high at $1.786 a gallon.

Overall the U.S. stock markets were broadly higher with only a few sectors posting minor losses. The Dow Industrials added 73 points to break above what could have been resistance at 10,500. The NASDAQ Composite rose just under 13 points to 2065 and the S&P 500 added close to 6 points to 1145. Unfortunately, market internals were probably a little less bullish than I might have expected. Advancers outnumbered decliners 15 to 13 on the NYSE and almost 18 to 13 on the NASDAQ. Up volume was only 742 million versus 607 million in down volume on the NYSE. The NASDAQ turned in a stronger 10-to-4 ratio of up over down volume. However, total volume was very light on both exchanges.

Chart of the Dow Industrials:

Chart of the NASDAQ Composite:

Chart of the S&P 500 Index:

Boosting the Industrials this morning was Dow component DuPont (DD) who started the day by announcing plans to cut 6% of its workforce or 3,500 jobs. Investors applauded the news by sending the stock higher 1.45%. DD said the layoffs would result in a restructuring charge for its second quarter earnings of 17 to 19 cents per share. More than countering DD's positive influence on the Dow was Disney's (DIS) 2% drop on comments from a Bank of America analyst who expects that Comcast will drop its unsolicited $54 billion bid to buy Disney. Also limiting the Dow's gains today was a 1% decline in Hewlett-Packard (HPQ) after a Goldman Sachs analyst suggested investors sell the stock. The hardware company is seeing more and more competitive pressure in its crucial printer and ink business from the likes of Dell.

This morning also brought earnings reports from the likes of Gannett Corp (GCI) and the New York Times (NYT). Both companies announced a strong turnaround in March ad revenues with GCI seeing 10% growth (+25% for its USA Today operations) and the NYT reporting 8.6% ad growth. For the first quarter GCI reported earnings of $1.00 per share, which was inline with estimates. The NYT managed to beat estimates by 2 cents with net income of 38 cents per share.

Raising earnings estimates was Kimberly-Clark (KMB) the well- known maker of Huggies diapers and Kleenex brand facial tissues. Their press release said the company expects Q1 earnings of 91 cents a share compared to previous estimates in the 85-87 cent range. Management cited strong "top-line growth, along with success in reducing costs and a slightly lower effective tax rate. Net sales for the quarter increased approximately 10 percent to $3.8 billion." The company also said its full year numbers should be toward the high end of its $3.55-3.65 range but they'll be forced to raise prices on some products to offset rising raw materials.

One of the most closely watched sectors today was the semiconductor industry. The SOX added 0.67% and looks poised to breakout over resistance at the 520 level if Intel issues some good news at their earnings report Tuesday after the closing bell. Analysts expect Intel to report earnings of 27 cents per share, which is nearly double the 14 cents from a year ago. Of course many on Wall Street are curious to see where Intel's revenue number will fall. Early last month Intel guided revenues lower to the $8.0-8.2 billion range. Hopefully Novellus Systems' (NVLS) earnings report tonight is a positive sign for the industry. NVLS turned in earnings of 11 cents per share, which beat consensus estimates of 10 cents and a nice improvement over last year's 8 cents per share. Revenues were better than expected at $262.9 million for the quarter. NVLS said shipments soared 36% in the first quarter. Furthermore the company guided Q2 earnings higher to 18-20 cents compared to analysts' estimates of 18 cents.

For some investors trading semiconductor stocks isn't exciting enough. No, the new thrill ride on Wall Street are small cap security companies. If you watching the MarketMonitor today you already know about TBUS and MACE as Jeff Bailey kept us posted on their 73% and 133% one-day gains. However, you may not have heard about IPIX's 51% gain, ICTS' 71% gain and ARTX's 14% gain. Almost every single one of these small cap stocks, and I do mean small cap, were trading near $2.00 in the last week to three weeks but they've since exploded with 100%, 200% and 1000% gains as investors search for ways to play the rise in "geo-political" tensions. I'm certainly not making any recommendations on how to trade these. Personally, I tend to enjoy the fireworks from the sidelines where I can't get burned.

Tomorrow brings a couple of economic reports on top of the parade of earnings announcements. The business inventory numbers and retail sales for March should be out before the opening bell. We'll also hear earnings from Dow Jones (DJ), Dow component Johnson and Johnson (JNJ), Merrill Lynch (MER), Pepsi Bottling (PBG), State Street Bank (STT) and Infosys Technologies (INFY) before the opening bell.

Overall the broad-based rally was encouraging and I expect to see more of the same tomorrow. Let's cross our fingers and hope that Intel doesn't kill the momentum with any ill-placed comments in their conference call on Tuesday night.


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