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Market Wrap

Greenspan Calms, Markets Climb

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     04-21-2004            High     Low     Volume Advance/Decline
DJIA    10317.27 +  2.77 10332.88 10250.48 2.11 bln   1465/1385
NASDAQ   1995.63 + 17.00  1995.91  1973.25 2.04 bln   1848/1214
S&P 100   549.20 +  2.10   550.26   545.38   Totals   3313/2599
S&P 500  1124.09 +  5.94  1125.72  1116.03 
RUS 2000  583.22 +  7.41   583.22   573.58
DJ TRANS 2954.42 + 43.15  2957.49  2895.92
VIX        15.60 -  1.07    16.94    15.55
VXO        15.74 -  0.77    17.59    15.58
VXN        22.82 -  0.25    23.35    22.43
Total Volume 4,627M
Total UpVol  3,035M
Total DnVol  1,540M
52wk Highs     158
52wk Lows      217
TRIN          1.75
PUT/CALL      0.68

Greenspan Calms, Markets Climb
By James Brown

Stocks opened lower following yesterday afternoon's steep decline and proceeded to trade in choppy action into the lunch hour. Fed Chairman Alan Greenspan managed to soothe the market's inflation and interest rate fears after his comments sparked yesterday's weakness. Alan's comments were bolstered by a strong Beige Book report and the markets ended up generally higher by the close spurred on by positive earnings results. Gold stocks were the biggest losers and continued to take a beating as gold futures dropped almost $7 on the strong dollar. Elsewhere buying was strong in airlines, defense, healthcare, homebuilders, networking, semiconductors and Internet stocks.

Traders overreacted to Greenspan's comments yesterday and mistranslated his some of his answers as a sign that the Fed would have to raise rates much sooner than expected. The concern here is that when the Fed begins to tighten rates it could be the beginning in a series of rate hikes and that might choke off the burgeoning economic rebound in the U.S. thus negative affecting corporate profits which would impact stock prices. Alan helped put some of those fears to rest today when he said that if the Fed had to tighten there is no rule that says it has to be a string of rate hikes and that the Fed could stop at just one should it effective. Furthermore Greenspan was pretty bullish on the economy and despite the current environment of low rates he did not see any "broad-based inflation pressures...building."

As a matter of fact his comments here, "recent data indicate that growth of activity has remained robust thus far this year. Household spending has continued to move up, and residential home sales and construction remain at elevated levels. In addition, the improvement in business activity has become more widespread. In the industrial sector, nearly two-thirds of the industries that make up the index of industrial production have experienced an increase in output over the past three months. More broadly, indicators of business investment point to increases in spending for many types of capital equipment. And importantly, the latest employment figures suggest that businesses are becoming more willing to add to their workforces, with the result that the labor market now appears to be gradually improving after a protracted period of weakness." were echoed in the Fed's Beige Book report out this afternoon. According to the report growth was "widespread" as "economic activity increased across the nation". The Beige Book also said that manufacturing improved across the country and labor markets were starting to improve as well.

You can read Alan's comments here:

You can read the Fed Beige Book report here:

The Dow Industrials ended the session up less than three points at 10,317 but significantly off its lows near 10,250. The S&P 500 index also posted a single-digit gain but it too was climbing into the closing bell. The NASDAQ composite jumped 17 points to 1995 and while still under the 2000 level it turned in the biggest improvement as numerous tech stocks turned in positive earnings reports. The optimist in me is still hoping that the consolidation in the Industrials will turn out to be a bull flag pattern (see chart) but the freshly minted sell signal in the Dow's MACD makes initiating new bullish positions a big step of faith. Meanwhile the NASDAQ is also in a new declining channel and if it rolls over again under 2020-2025 then a test of the 200-dma might not be far away. Overall market internals trended up positively toward the close. Advancing stocks nudged past decliners 14.6 to 13.8 on the NYSE while on the NASDAQ winners outpaced losers 3 to 2. Up volume was approximately double the down volume numbers across both exchanges while total volume was decent at more than 4 billion between the two.

Chart of the Dow Industrials:

Chart of the NASDAQ Composite:

The earnings parade was marching past at full speed today and we had five Dow-components announcing with all of them surpassing analysts' expectations. First on our list is Honeywell (HON), a conglomerate, who turned in 34 cents per share. Analysts had been looking for 30 cents a share. Revenues soared past estimates to hit $6.18 billion for the quarter. Following HON is J.P.Morgan (JPM). JPM is the No 3 bank in the U.S. and currently in the process of merging with Bank One (ONE). Consensus estimates for JPM were 87 cents a share and JPM reported net income at 92 cents per share. Revenues also beat estimates at $8.98 billion. Coca-Cola Co (KO) is next on the list of Dow components and the beverage maker was expected to turn in profits at 44 cents a share. The biggest soft-drink maker in the world said net profits hit 46 cents a share on revenues of $5.08 billion, also above estimates. SBC Communications (SBC) is the fourth component and the telecom giant released earnings of 37 cents a share, which beat consensus estimates by 5 cents. Last but not least is another conglomerate United Technologies (UTX). Analysts were expecting UTX to report profits of $1.12 per share and revenues at $7.74 billion. The company turned in $1.14 per share on revenues of $8.65 billion. Out of the entire group only SBC managed to trade higher on its earnings news with a 41-cent gain to $24.77.

There were dozens and dozens of corporate earnings announcements today and the general trend has been positive. Unfortunately, just beating estimates by a couple of cents (or even a nickel like the few mentioned above) is not enough to inspire more buying interest. Analysts will tell you good news of that magnitude is already baked in so investors are using the reports as an excuse to take profits. However, there are a few noteworthy exceptions.

You've probably already heard of Motorola's (MOT) exceptional earnings report last night. The company turned in profits of 19 cents a share compared to estimates of just 7 cents and the stock exploded at the open today. Shares jumped almost 19% to close at three-year highs of $19.30 and lifted both the chip sector and the wireless sector. Before the opening bell Ford Motor Co (F) reported earnings (ex-items) of 96 cents per share. This was more than double last year's 45-cent number and this quarter's estimates of 44 cents per share. Revenues soared to $44.7 billion. The stock jumped more than 10% to close above several resistance levels at $14.94. Meanwhile, boosting the XAL airline index to a 2.46% gain was AMR Corp (AMR), the largest airliner in the U.S. Shares of AMR jumped more than 9% and closed above resistance at its 200-dma after reporting an earnings loss of just $1.03 a share, which is only a penny better than expectations but a vast improvement over last year's $6.68 loss per share.

After the closing bell the earnings downpour continued. Internet auction behemoth EBAY said its quarterly profits almost doubled while the value of goods sold soared to $8 billion. Last year EBAY earned 16 cents in the first quarter and analysts had raised their expectations to 25 cents. Depending on which number you use EBAY earned 30-to-31 cents or $200.1 million. Driving the numbers was a 59% jump in sales and a 87% rise in international revenues. EBAY also raised its full year earnings and revenue guidance. Investors were also eager to hear from Qualcomm (QCOM). The CDMA-wireless giant reported earnings of 53 cents per share, not counting profits from its QSI investment arm, compared to 38 cents a year ago and 48 cent estimates. QCOM also raised its earnings estimates for the current quarter to 44-46 cents versus analysts' estimates of 39 cents. The good news wasn't limited to Internets or technology either. Caffeine merchant Starbucks (SBUX) reported very strong quarterly earnings after the closing bell. Analysts had been looking for 17 cents per share compared to 13 cents a year ago. SBUX said net income jumped to 19 cents or $79 million, a 53% jump. Furthermore SBUX said that its same-store sales soared 12%, the strongest rise in more than ten years. Management followed the good news by raising their full year estimates to 90-91 cents compared to Wall Street's estimate of 88 cents.

If that's not enough earnings news for you the spectacle continues tomorrow. A few of the larger companies announcing before the opening bell are American Intl Group (AIG), AT&T (T), BellSouth (BLS), Beazer Homes (BZH), Caterpillar (CAT), Guidant (GDT), Hershey Foods (HSY), Kimberly Clark (KMB), Nextel (NXTL), Adolph Coors (RKY), Reebok (RBK), Schering-Plough (SGP), Textron (TXT), and UPS (UPS). Remember, that's just a select few before trading starts! Wall Street will also be eagerly looking for the March Producer Price Index (PPI) for any signs of inflation. Economists expect the delayed report to show a rise of 0.3% compared to a 0.1% in February. We'll also see the weekly jobless claims that are expected to drop to 340,000. Last but certainly not least will be THE earnings report of the day. That's right; Microsoft (MSFT) is due to report after the closing bell. Estimates for the software titan are at 29 cents per share.

Trade carefully. The bullish side of my brain would like to think that investors will respond positively to the string of great earnings reports after the bell on Wednesday. Unfortunately the major averages have some significant resistance to break through before we can make any serious progress and odds are we could be stuck in a range bound market between now and the May 4th FOMC meeting. It's not that we're expecting any change in rates at the meeting but it's something investors can focus on as an excuse to be patient.


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