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Market Wrap

Stalemate!

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      06-22-2004           High     Low     Volume   Adv/Dcl
DJIA    10395.07 + 23.60 10401.18 10307.25 1.72 bln 1711/1481
NASDAQ   1994.15 + 19.77  1994.87  1964.53 1.71 bln 1766/1355
S&P 100   553.47 +  1.11   553.95   548.83   Totals 3477/2836
S&P 500  1134.41 +  4.11  1135.05  1124.37 
W5000   11032.13 + 41.26 11035.68 10933.20
SOX       466.69 + 15.65   466.70   450.77
RUS 2000  571.89 +  3.15   571.95   563.88
DJ TRANS 3077.83 + 12.59  3078.14  3042.28
VIX        14.31 -  0.95    15.64    14.31
VXO (VIX-O)14.10 -  0.53    15.54    14.02
VXN        19.29 -  0.44    19.90    18.72 
Total Volume 3,712M
Total UpVol  2,441M	
Total DnVol  1,144M
Total Adv  3900
Total Dcl  3275
52wk Highs  154
52wk Lows   119
TRIN       0.67
NAZTRIN    0.55
PUT/CALL   0.81

In a repeat performance of recent weeks the markets nearly made a complete round trip from resistance to support and back again over the last two days. The Dow, which topped at 10430 on Friday and Monday retreated to exactly the low of 10307 marking the bottom of the recent range that was made on the 14th. We then saw an end of day rally that returned us back to near the Monday highs. We are at a stalemate where the bulls and bears are evenly matched as long as we are within this range. Attempts to breakout on either side are met with firm support and resistance.

Chart of the Dow Industrials:

Chart of the NASDAQ Composite:

Chart of the SOX semiconductor index:

The morning was uneventful with no material economic reports and nothing to stimulate traders in either direction. The Dow took a slight hit after a Wal-Mart suit was upgraded to class action on sex discrimination action. WMT dropped -$1 on the news but recovered slightly at the close. Chain Store Sales only rose +0.1% last week and continued their summer doldrums. The small drop in gas prices should eventually see those dollars make their way back into retailer cash drawers but it could be a long dull summer for retailers.

It was not a slow spring for PalmOne. The company reported earnings at 32 cents which more than doubled street numbers at 13 cents. The stock soared on the news gaining +37% on the day. Sounds like they might have under estimated their sales. On purpose or on accident? If the rest of the tech stocks followed suit for the 2Q earnings we would not be worried about the Nasdaq breaking 2000 but 3000 instead. Unfortunately we all know that will not be the case. GS and MWD also reported blowout earnings with GS reporting $2.31 per share with estimates of only $1.95. MWD reported $1.10 per share with estimates of $1.06. Earnings for Wednesday morning include FDX with estimates of $1.33 per share and WOR at $0.76 per share. Earnings after the close include ARRO, BBBY, CDIC, COGN, MLHR, MU, OVTI.

The Nasdaq got help from the SOX after the index rebounded from support at 450 but that rally ran into trouble early in the afternoon. It was a technical bounce more than a fundamental rebound and sellers were still waiting just over 460. After a brief selling attempt the SOX rallied once again to a new three day high and led the Nasdaq back over its 1980 resistance. The SOX has tested 450 support for three days without failing and chip buyers became convinced that a bottom had formed. The SOX gained +3.5% for the day.

Traders watching the election surveys today saw their worst fears confirmed. The election is a toss up with a prior strong point for Bush swinging to Kerry's favor. The terror factor swung in favor of Kerry at 48% to Bush at 47% for those voters that expressed an opinion. What this means is the majority of voters now feel Kerry would be better at dealing with terrorist threats than Bush. This has long been a Bush strong point and one that helped him maintain a lead over the challenger. This makes the election a real tossup and adds more confusion to the investing future.

The clock is slowly ticking down to the June 30th event horizon and volume is ticking down with it. Monday's volume barely broke 3.0B across all markets and ranked as one of the slowest days of the year. Tuesday's rebound from the bottom of our recent range produced a slightly stronger day as buyers forced shorts to cover as volatility increased. The events facing us are the Fed meeting, Iraq turnover, end of quarter and the Russell shuffle. The following week sees a resumption of the major economic reports and the beginning of earnings season. Add in the July-4th holiday and the reasons not to trade over the next eight days outweigh the reasons to be in the market. I have covered all of these events before so I will not elaborate but suffice to say the cloud on the horizon has kept most traders on the sidelines but that may be changing.

The market is not producing anything notable to discuss and is following my game plan for the week exactly. I expected a continued range bound environment until after the FOMC meeting and then a possible uptick into the holiday weekend. So far so good but stay tuned.

The range is clearly defined from 10300-10430 on the Dow with a possible expansion of 100 points in either direction if a suitable news event appears. The Dow managed to cross that entire range in just the last two days. The rebound at the close today was nearly +100 points off the bottom but still could not muster enough excitement to break the 10400 resistance level and closed at 10395.

The Nasdaq range is 1965 to 2000 and we saw most of that on Tuesday as well. As I mentioned above the +3.5% gain in the SOX brought the Nasdaq back from 1965 to close at 1994 and near the high of the day. The Russell also helped to power the Nasdaq with a rebound off the 564 lows and support at 565 to close at resistance at 572. This +8 point jump off the morning lows was very strong and was partially due to the rebound in the SOX. Many of the chip stocks are big fish in the Russell pond and the three indexes are very interrelated.

The markets appear evenly mixed between the "doom and gloom" crowd expecting the worst from the next ten days and the "fears priced in" crowd. Those that feel the worst case scenarios have already been taken into account are using the dips to the bottom of the range as buying opportunities. Neither crowd has been able to break the range but I am going to give the nod to the bullish possibilities. I think the large amount of money waiting on the sidelines is getting nervous that a rally might break out without them. The last two times we saw an end of day rally it was on strong volume compared to the low volume gravity induced sell offs.

This puts the risk on the side of the sellers more than the buyers. With the various events so over analyzed I think anybody that wants to sell has probably already sold and buyers are becoming immune to the news. That news will increase as the day draws near but short of a real surprise I think there is a potential for a post Fed/Iraq rally into the holiday weekend and then again post holiday. Buyers are deciding that the risk may not be so great and maybe they should nibble at long positions in advance just in case.

I am far from expecting a blowout but you never can tell when the buying urge will hit. Just like every tick below our range increases fear of a breakdown, every tick above our range increases the fear of missing the rally train. We still have very strong resistance from 10400-10575 but that would more than double our current 130 point range. It may be a tough road but buying support appears to be building. I really liked the strength of the afternoon rebound despite the end of day stall.

There are no material economic reports on Wednesday with only Mortgage Applications and Mass Layoffs slated. The calendar picks up some on Thursday with Jobless Claims, Durable Goods, Help Wanted and New Home Sales. Friday sees GDP, Sentiment and Existing Home Sales. These reports will ratchet up the interest level for traders but should not be market movers. The two of greatest interest will be Durable Goods and GDP. The GDP is the final for Q1 and is expected to be +4.4%.

I am having technical problems tonight so I am going to cut this short. While I still think the possibility for a continued range bound market is strong I think we are starting to see the potential to begin testing the upper range and a higher high. I have shifted back to a "buy the dip" mode and suggest you do the same. Should we see a Dow move over 10430 we could see an acceleration of buying that just might overcome the resistance areas to the 10500 level. That would be my next pause point and one that should contain the markets until the 30th baring any spectacular news events.

Enter Passively, Exit Aggressively.

Jim Brown
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