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Wall Street Wilts Under Metal Melt Down

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     04-28-2004            High     Low     Volume Advance/Decline
DJIA    10342.60 -135.56 10476.95 10333.87 2.42 bln    595/2254
NASDAQ   1989.54 - 42.99  2026.44  1958.54 1.96 bln    631/2470
S&P 100   547.54 -  7.78   555.62   547.41   Totals   1226/4724
S&P 500  1122.41 - 15.70  1138.11  1121.70 
RUS 2000  577.06 - 13.70   590.76   575.82
DJ TRANS 2947.12 - 26.16  2975.24  2944.50
VIX        16.29 +  1.22    16.54    15.55
VXO        16.76 +  1.78    17.10    16.25
VXN        23.92 +  2.08    24.15    22.26
Total Volume 4,882M
Total UpVol    607M
Total DnVol  4,250M
52wk Highs     147
52wk Lows      257
TRIN          4.12
PUT/CALL      0.88

Wall Street Wilts Under Metal Melt Down
By James Brown

It was a tough day for stocks around the globe as investors reacted to earnings news and renewed fears over rates and geo- political tensions. I guess you could say it was just more of the same but this time the sell-off was market wide. Normally bulls will tell you that rising markets tend to climb a wall of worry. Well it looks like that wall could be getting top heavy and investors are taking some money off the table before it collapses on them.

I may be overstating the bearishness of today's decline. The major indices are still stuck in a trading range and they're likely to stay there as Wall Street digests the next several days of economic reports, data and the upcoming Fed meeting. However, the list of so-called "worries" is growing.

Fears of a rate hike killing the economy recovery, while overblown, still exist. Fears that the rising dollar will hurt profits at large multi-nationals is putting pressure on stocks. Fears that violence in Iraq and Syria are just the beginning of another round of terrorist activity don't help investor confidence. Concerns over the Presidential election continue to weigh on the markets. Worries about tougher quarter over quarter earnings comparisons will dampen earnings expectations. Tomorrow we'll get the first quarter GDP numbers and if they're too low investors will worry the economic recovery is already lapsing. If the numbers are too high the markets will worry that the Federal Reserve will be forced to raise rates higher and faster than previously expected. On top of it all China says it may put the brakes on its economy before it overheats. Such a move would impact a number of sectors worldwide.

The first to feel the pinch of any potential slow down in China were the metal stocks. Gold futures plunged $13.20 to $385.90 an ounce. This is a six-month low and the biggest drop since January. The XAU gold & silver index was crushed for a 7.13% loss as investors ran for the exits. China's red-hot economy has turned the country into a huge purchaser of all the major metals so any suggested slow down would immediately affect demand. Silver sunk and copper crumbled on the news. Not helping matters was an earnings report from Newmont Mining (NEM), the largest gold mining operator in the world. Analysts were expecting NEM to report earnings of 34 cents a share. Unfortunately, NEM disappointed with 30 cents a share, excluding items, in spite of a 50% jump in revenues that came in well above estimates.

Aluminum producer and Dow component Alcoa (AA) sunk 4% and broke down below technical support at its 200-dma on the China news. Meanwhile the 5% drop in copper prices pushed shares of Phelps Dodge (PD) to a 2.88% loss even though the company blew past earnings estimates this morning. Analysts were expecting PD to turn in profits of $1.78 per share but PD reported $2.02 per share. Revenues soared more than 63% to rush past estimates at $1.35 billion and hit $1.6 billion for the quarter.

One sector that held up reasonably well given the specter of a Chinese slow down was oil. The expanding Chinese economy has produced a voracious appetite for energy that ranks second behind the U.S. If the Chinese government were to hit the economic brakes then one might suspect a pull back in demand. Evidently that's not the case. Worldwide demand is still rising and the new constant threat of terrorism coupled with recent talks of OPEC raising its targeted price range actually sent crude oil to new multi-year highs today above $37.50 a barrel.

Boosting investor interest in the oil group were a number of positive earnings announcements. Traders ignored a lackluster report from Halliburton (HAL) and focused on positive reports from Cooper Cameron (CAM), ConocoPhillips (COP), and Kerr-McGee (KMG). CAM reported Q1 earnings of $0.35 per share, beating estimates by 7 cents and raising its forecast for the current quarter. COP turned in profits of $2.31 per share, beating estimates by 34 cents. KMG announced Q1 earnings of $1.48 per share, which beat analysts' expectations by 18 cents. Meanwhile Valero Energy (VLO), an oil refiner, reported earnings of $1.82 per share, 7 cents better than expected. However, the real headliner was in VLO's press release where management said the company could hit upwards of $3.00 per share in the second quarter versus current Wall Street estimates of $1.83.

Not all the earnings announcements today were so positive. Numbers from Dutch-English conglomerate Unilever and German giant Siemens were less than inspiring and both said they were facing increasing competition. The high-profile reports sent the European bourses lower and the weakness in the U.S. markets was the nail in today's coffin. The FTSE 100 fell 51 points to 4524. The French CAC 40 dropped almost 60 points to 3722 and the German DAX fell 68 points to 4065.

Here at home the damage was equally widespread. The Dow Industrials broke through the 10,400 level to close at 10,342, down 135 points. The NASDAQ composite dropped 2.1% or nearly 43 points to breakdown under the pivotal 2000 level again. The S&P 500 index slipped 1.37% to 1122. Despite the severity of today's drop we're still stuck in the previously mentioned trading range that's held the markets through most of April. Of course the concern now is will investors buy the bottom of the range again? Market internals were pretty dismal. Declining stocks towered over advancers 22 to 6 on the NYSE and almost 25 to 6 on the NASDAQ. Down volume numbers were equally impressive. Down volume outweighed up volume by more than 7 to 1 on the NYSE and more than 8 to 1 on the NASDAQ. Overall volume was pretty strong at close to 2 billion shares on each exchange. Volatility indices soared with the VXO up 11.8%, the VXN up 9.5% and the VIX up 8%.

Chart of the Dow Industrials: 4/28/2004 8:09PM

Chart of the NASDAQ Composite:4/28/2004 8:09PM

One of today's worst performers and a huge drag on the tech and telecom sectors was Canadian telecom/networking giant Nortel Networks (NT). Trouble began last October when the company said it was auditing its financials and would need to restate earnings. This morning NT said it would be restating earnings again, this time for 2001, 2002 and 2003. Furthermore NT fired its CEO, its CFO and its controller. Investor reaction was swift and sharp. The stock gapped down and closed at $4.05 marking a 28% loss in market cap. The company said its internal audits were ongoing and it would be forced to delay its announcement for the first quarter of 2004. Canadian and U.S. security regulators are also conducting their own investigations.

On a brighter note Dow-component Boeing's (BA) earnings report was much more positive. Analysts were expecting the airplane maker to report profits of 44 cents per share. BA surpassed those numbers by 22 cents with 65 cents a share, excluding a 12 gain due to a federal tax refund. Revenues jumped to $13 billion and above analysts' expectations. More importantly management said they are beginning to see a turnaround in the commercial airplane market and raised its earnings guidance for both 2004 and 2005.

The earnings parade continued after the market's close and TimeWarner (TWX), the globe's largest media conglomerate, beat estimates by 6 cents per share. Analysts were expecting 9 cents and TWX turned in 15 cents on stronger than expected revenues. Fortunately, TWX wasn't alone. Software designer and anti-virus champion Symantec (SYMC) beat estimates by a penny with profits of 35 cents per share (ex-items) with revenues soaring 68% to $556.4 million for the quarter. SYMC followed up by raising guidance for the current quarter. This is a sharp contrast to Network Associates recent miss and earnings warning.

Tomorrow morning will bring another round of earnings announcements. Some of the larger companies announcing before the opening bell are: Aetna (AET), Dow Chemical (DOW), Georgia- Pacific (GP), Gillette (G), GlaxoSmithKline (GSK), and ExxonMobile (XOM). Thursday also begins several days of major economic reports that surround next week's FOMC meeting. First and foremost is the GDP number for the first quarter. Currently estimates are set at 5% growth, up from 4.1% in the fourth quarter. We'll also hear the latest Employment Cost Index, the Help Wanted numbers and the weekly jobless claims.

The GDP result will likely set the tone for trading tomorrow as it comes out before the opening bell. Be careful and watch those stops!


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