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      05-20-2004           High     Low     Volume   Adv/Dcl
DJIA     9937.64 -  0.07  9970.64  9900.59 1.47 bln 1893/1374
NASDAQ   1896.59 -  1.60  1912.02  1890.18 1.54 bln 1330/1798
S&P 100   533.20 +  0.92   534.92   531.28   Totals 3223/3172
S&P 500  1089.19 +  0.51  1092.62  1085.43 
W5000   10578.93 +  5.70 10613.65 10542.79
SOX       453.88 -  3.90   461.05   451.49
RUS 2000  540.75 -  0.11   544.05   538.02 
DJ TRANS 2830.12 -  6.60  2849.24  2818.95   
VIX        18.67 -  0.26    19.25    18.55
VXO (VIX-O)19.36 -  0.01    20.11    19.05
VXN        25.54 -  0.55    26.31    25.51 
Total Volume 3,277M
Total UpVol  1,453M
Total DnVol  1,766M
Total Adv  3630
Total Dcl  3607
52wk Highs   45
52wk Lows   212
NasTRIN    1.02
TRIN       1.66
PUT/CALL   1.21

If you added the closing point changes for the day on the Dow, Nasdaq, S&P-100, S&P-500, Wilshire-5000, Russell-2000 and the SOX you get +1.45 points for the day. In any measure the markets were as neutral as possible on very low volume of barely three billion shares across all markets. Today they opened the markets and nobody came.

Dow Chart - Daily

Nasdaq Chart - Daily

SPX Chart - Daily

SPX Chart - 5 min

The markets recovered significantly off the closing lows last night with some positive action in the futures before the open. The Jobless Claims jumped to 345,000 for last week and +15,000 over consensus estimates. This knocked some of the bloom off the rose before the cash open could capitalize on those gains. The prior week was revised up slightly to 333K. The four-week moving average still fell to 333,500, the lowest level since the recovery began. Initial weekly claims have fallen to 2000 levels and should be predicting an eventual rate of unemployment under 4%. North Carolina had the largest number of claims. Most were from the textile and apparel sector where outsourcing is still a major factor. The slight bounce in claims over the last two weeks could be suggesting a Jobs gain in the June 4th report will be in the 175,000 range.

The best report of the day was the Chicago Fed National Activity Index which jumped sharply from 0.23 to 0.64 and a five-month high. 57 of the 85 indicators in the CFNAI contributed gains to the headline number. Employment added +0.18 to the headline number and its largest contribution in four years. The leading components were output related items which added +0.35 to the overall index. The jobless recovery appears to be adding jobs at a growing pace with only a minor slowing for summer.

The worst report of the day was the Philly Fed Survey which came in at 23.8, sharply down from April's 32.5. Consensus estimates were for 31.5 and this was a significant change. New Orders and Shipments dropped substantially although back orders rose from -2.5 to 12.8 on the backlog in the commodities. Inflation rose sharply in prices paid with a +8 point jump but prices received jumped a whopping +15 points. This shows prices rising but so far manufacturers are able to pass those prices on to buyers. The market took a dip on the news for the only real move of the day but did recover almost immediately. The prices paid component was the highest level since 1998.

The only other report, Index of Leading Indicators, was inline with estimates at +0.1% but well below the +0.8% from March. The large jump in interest rates was the main culprit. This is old data despite the title "Leading" and was ignored.

The price of oil rose to the highs again this morning at $41.65 but closed back down at 40.80. The minor dip came on various comments about increased production by OPEC. They are meeting in Amsterdam this weekend to discuss the current production limits. There are multiple rumors that one or more countries will agree to raise the limit by 1.5M bbls per day to help ease the crisis. Considering they are already producing and selling more over the current limit than 1.5M per day they may actually agree to ship less than they are currently shipping but appear to appease the critics. With oil at 41.50 the urge to cheat is so strong that nobody expects any reduction in the current over production levels.

The current oil prices are having more of an impact to the U.S. economy than multiple Fed rate hikes according to some analysts. At the current $40+ levels over $50 billion of consumer spending cash will evaporate this year. A survey released this morning showed that 21% are buying fewer clothes, 27% are eating out less and 31% are planning on curtailing travel. This is a far stronger impact to the consumer than any Fed rate hike series.

Airlines were the topic of the oil debate today when the actual loss numbers due to high prices were released. At $30 oil the loss for the year from the major U.S. carriers was placed at $800 million. At $41 that loss will rise to $3.2 billion. They have already proven to be unable to raise rates or apply fuel adjustment charges due to the very strong competition on the most heavily traveled routes. These high prices will force the airlines to dip into much needed cash reserves and will ruin the remaining health of the airline industry. Just the term "airline cash reserves" evokes a stunned expression from most since most have no reserve.

Bush was asked again today about the oil going into the strategic petroleum reserve. His comments were right on the money in my opinion. He said the threat of a terror attack on U.S. oil transportation, storage or production facilities could put us at risk of a major problem ahead. The reserves are for times of a national emergency not for price controls. If we allowed the reserves to be drawn down for convenience sake and something did happen then there would be a call to hang him for not protecting the country. He also said using the reserves to reduce prices in an election year could be seen as a political ploy to gain votes. Since the other side is already frying him on the airwaves for not releasing oil I am not sure that last argument works but I admire him for sticking his plan to build the defensive stockpile despite the political attack. With all the bad press politicians have been getting for not seeing 9/11 coming I can't blame anyone for trying to be prepared for future problems.

The Semiconductor Book-to-Bill report was released late tonight and it only rose to 1.14 for April from 1.10 in March. March was revised down to 1.09 from 1.10. New bookings rose +15.7% from $1.378B to $1.594B. Shipments rose from $1.268 to $1.401B (+10.4%). These numbers are all three month moving averages. Semi.org does not release the individual monthly numbers to keep the erratic flows from influencing the market. That means a +15.7% jump in bookings was probably more in the +20% to +25% range in order to cause such a sharp jump in the 3-mo average. The number last month only rose +4% suggesting March was nearly flat or even down to offset the gains from the prior two months. I have probably confused everyone but the bottom line was a very strong jump in bookings for April. Don't expect much market movement from this release because the late (6:PM) timing tends to see the report ignored.

TrimTabs.com released their fund flows for April and said there were +$21 billion in inflows into equity funds. When you consider the Dow hit a high of 10534 on April 27th there was no material downtrend apparent. April had actually seen a significant recovery from the march lows of 10007. May however has been nearly a straight downtrend since that April-27th high. We have traded at 9900 or lower for three days of the last two weeks. One more leg down and the cash flows for May could be really negative.

The Fed heads were out in force today with McTeer making multiple appearances. He continued to parrot the company line of measured hikes but the more he talked the more it became possible that they may not hike in June. This rate hike is going to drive the analysts nuts. After one speech they start leaning to +50 points and somebody else speaks and they start thinking no hike. The problem appears to be an economy that is not as robust as people think. The oil price challenge is also weighing on the recovery. Inflation may be rising but several Fed heads today went out of their way to say they did not expect it to be a problem and that it would remain in check. Bernanke, Mr. printing press himself, echoed those thoughts that economic conditions have tightened and the risk of inflation had lessened. McTeer was asked if given the current environment and the oil problem would the Fed have to hike at all. He of course said the Fed would keep an open mind until the meeting and refused to speculate. When asked if a blowout Jobs report would force an earlier Fed hike than June he said not likely. When asked what might force the Fed to move he said a really bad inflation report but he did not see that on the horizon. Bottom line again, no hike until June-30th OR LATER.

The Dow closed yesterday just over 9940 and other than the post Philly Fed dip to 9900 we traded in a 30 point range around that 9940 number all day and closed at 9941. The 9930-9960 range was completely lifeless and completely the opposite of the monster ramp/decline on Wednesday. Traders are not chasing price up or down and based on the very low volume they are just content to maintain a bid at support to prevent a meltdown.

The Nasdaq has spent so much time at 1900 that number is about to burn in on my monitor. The Nasdaq traded in only a 19 point range today with the midpoint exactly 1900. The NDX has become fixated on 1400 as we await option expiration. The markets are so lackluster it is amazing especially when you remember the eruption on Wednesday.

There are no material economic reports on Friday or Monday and while Friday is option expiration I think most of the volatility has passed. We appear to be locked in a trading range on the Dow between 9900-10050 and 1880-1935 on the Nasdaq. Key support is the 200dma on the SPX at 1081 and that is the key to our future. I think it is too optimistic to assume we will continue to trade sideways until June 30th. At some point we are going to go directional again and I think the bulls would like to see one more big drop to really flush the rest of the weak holders before bargain hunting for a post Fed rally. If that is going to happen then I think my target of 9600 I have had since December will come to pass. That would require a break of the SPX 200dma at 1081 and that would be my recommended trigger for recognizing the event.

For Friday I would still recommend a neutral stance as long as we hold over that SPX 1081 level. Expiration Friday's tend to be boring and without an external event to move the markets it might be a good day to start your weekend early.

Enter Passively, Exit Aggressively.

Jim Brown
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