PUBLISHED DAILY - STOCK MARKET DIRECTION - © January 2003
STOCK MARKET DIRECTION by Steve Zito Financial Newsletter
Technical Indicator Analysis of the Nasdaq Composite Index
Individual analysis of the seven largest technology stocks.
Redistribution only with permission of the writer Steve Zito.
SUBSCRIBE Updates published DAILY Worldwide Readership Index
Last month, I picked Tampa Bay and Oakland for the Super Bowl.
Yao Ming stuffs Shaquille and Kobe, stars in Apple PC's TV ad.
Five-foot-five Warriors guard E. Boykins outplays Lakers Kobe.
Next section is one-month market forecast from Sunday, Jan. 12.
Jan. 10, 2003 closing prices
Dow Jones Industrial Average 8,784.89 +8.71 (+0.10%)
Nasdaq Composite Index ......1,447.72 +9.26 (+0.64%)
S&P 500 Index .................927.55 -0.02 (-0.00%)
10-Year Note yield ............4.152% +0.004
Jan. 7 yield for comparison
10-Year Note yield ............4.025%
With the American jobless increasing in December by 101,000
on top of November's 88,000, why are Ten-Year Treasury Notes
falling in price during the last week to add 0.13 to yields?
Bonds normally rise in price and Bond yields fall in periods
of economic slowdown. These days, there are three economic
factors causing just the opposite reaction in Bond prices.
First, the U.S. dollar is falling, close to a three-year low
versus European Euro and Yen. The value of the U.S. dollar in
foreign currency markets is a reflection of worldwide investor
confidence in the U.S. economy. Today the global perception of
the Bush economic plan lacks confidence. The falling dollar is
a vote of no confidence. As foreign investors sell out of U.S.
fixed income securities, prices fall, yields rise, dollars are
received, converted to Euros, and then repatriated to European
investment banks and large European insurance funds, causing an
increase in the value of the Euro versus the buck. These foreign
investment outflows from U.S. to Europe show lack of trust here.
Second, Alan Greenspan and the U.S. Federal Reserve have been
pumping excess money into a U.S. banking system to counter Alan
Greenspan's fear, "the patch has certainly been soft" expressed
in his speech to the Economic Club of New York. To read more:
http://biz.yahoo.com/rb/030112/economy_bush_greenspan_4.html
Greenspan has opposed deficit spending, which led to monetary
policies in 1990-1991 which George Bush Senior claimed created
the U.S. recession in early 1990's which caused voters to vote
Bush out of office in 1992, despite 90% popularity poll rating.
Like father, like son. Win the wars, lose everyone's job later.
The latest proposals for dividend tax cuts by Bush and Cheney
will save George W. some $44,000 in this year's taxes, and over
$327,000 will be saved by Dick Cheney, according to CNN reports
of a Bloomberg analysis. When Bush spouts his spin that average
families making $38,000 a year will get $1,083 in cash savings
on tax cuts, he fails to mention those left out. To get a break,
you have to be married filing jointly with 2 children under 18.
With 50% of marriages ending in divorce, or many couples living
together out of wedlock, tax benefits for the average Joe (or is
it Josephine?) are non-existent. That $1,083 average is based on
total tax cuts, rich and poor, divided by the number of taxpayers.
Mean. Like saying you will be a 5-foot-ten male because the average
American man is 5-foot-ten. In the U.S. the 7-foot Shaquille O'Neal
and 7-6 Yao Ming receive many millions, and the little guy is broke.
That is why averages are useless to describe individual situations.
Except for that 3-foot guy next to Yao Ming in Apple's new TV ads.
Alan Greenspan knows the current projected fiscal deficit by the
Bush administration for this year is $75 billion, and likely to
rise to $165 billion a year for the next 4 years. Clinton cured
this deficit problem inherited from George Bush Senior, who waged
his Desert Storm war on behalf of Kuwait but Bush Sr. neglected to
make Kuwait pay for final costs. G.W. Bush has managed to put the
U.S. back in deficit before his sequel to his dad's war has even
left the planning stages. Steve Forbes, a magnate managing Forbes
magazine, appeared on CNN Sunday and continued to tell viewers to
ignore these deficits, convinced they are only a small percentage
of overall GDP in the U.S. economy. Forbes has no idea California
is $35 billion in the red from the energy overcharging by Enron and
others, or that one million Pennsylvanians have no health insurance
even though governor Tom Ridge received $11 billion from the tobacco
settlement for PA health care. Where are states going to get funds?
Not from Bush. States will have to cut social services and necessary
programs which everyone takes for granted, police or fire protection.
California did find $1.1 billion Friday night, by settling for it in
their anti-trust lawsuit with Microsoft. Forced again to use Windows.
Third, bond yields rise as bond prices drop when portfolio money
shifts to stocks in what is called portfolio allocation. Wall St.
investment houses advise wealthy clients into standard percentage
allocations such as 50% stocks, 40% bonds, and 10% cash. Shifting
5% or 10% gradually each quarter, portfolios can be slanted toward
stocks or bonds based on prevailing forecasts. This is an approach
designed to take all emotion out of decisions. It creates jobs for
million dollar-a-year brokerage house strategists who appear on TV
with their allocations, like Abby J. Cohen, who has not been close
to right in 5 years. The public eats up every word from the lips of
these gurus, despite total incompetence, especially brokerage CEO's.
Nasdaq 100, NDX, QQQ and ETF's.
Nasdaq Composite 1,447.72 +9.26 (+0.64%) at 1.95% over its uptrend.
Stochastics at 86%/79%. So Nasdaq opened down 20 points on bad Dec.
employment report, and bounced right back. CNBC said it shows it is
a real bull market. In reality, stocks rebounded on rumors that Bush
might postpone Iraq invasion to next November. We know NO WAR is good
for stocks. Stochastics forecast profit-taking and Nasdaq stocks are
still precariously overbought. When a financial index rises 8.36% in
7 trading days, people feel like it is a big deal. After stocks had
worst December since 1931, why so surprising stocks had risen 8.36%?
Nasdaq is just below closely watched 200-day moving average, even as
Iraq looms closer. Despite CNBC bullishness, Nasdaq is about to fall.
The bubbleheads at CNBC will be touting the 200-day moving average as
that Nasdaq 1455 level, which if broken, will lead to fantastic gains.
In fact, I expect Nasdaq to peak out at 1455, and fail miserably soon.
Dow Jones Industrial Average, DJX Index
DJX closed 87.85 +0.09 (+0.10%) at 1.09% over uptrend. Stochastics
over bought 83%/78%. Dow Jones (DJX) up 5.2% in just 7 trading days,
after falling whole month of December. IBM in the Dow has gained 14%
this year, but IBM is near its November peak at which it will stall.
Subscribers who did not get DJX Jan 87 put option at 0.85 last week,
this DJX put opened at 1.20 Friday in the money and ended the day at
its low for the week, Bid 0.60. DJXMI closed 0.70 down 0.10 Bid 0.60
volume 1681 open interest 5452. There was one trend reversal Friday
morning on the open. Then rumors about Iraq postponed. DJX options
are cash settlement options, settlement based on Dow Jones opening
Friday, Jan. 17. The Dow Jones is due for a serious pullback, both
the war on Iraq, and the Bush economic plan will crush stocks soon.
Oil Services Index
OSX last 83.28 -0.10 (-0.12%) at 1.56% below downtrend. Stochastics
at 25%/20% are very inconclusive. While rising from extreme oversold,
the OSX is behaving very poorly in light of possibility for war in Iraq,
revolution in Venezuela, OPEC unable to raise production enough to ease
shortages which caused U.S. gasoline to spike $0.05 a gallon in the past
three weeks, according to the latest Lundberg survey. Read about it here:
http://biz.yahoo.com/rb/030112/energy_gasprice_1.html Schlumberger is oil
service, and SLB is a tech company with smart card franchising in Europe.
SLB might be bought as a bet on $40 oil or a bet that Bush postpones war.
SLB closed 41.77 -0.07 (-0.17%). Transocean RIG last 21.70 -0.30 (-1.36%).
Oversold. BHI closed 30.63 -0.32 (-1.03%). CAM closed 48.00 +0.10 (+0.21%).
Oil Stock Index
XOI last 446.60 -4.03 (-0.89%) at 0.65% below trend. Stochastics oversold
18%/19%. Gasoline prices are moving up quickly during a season when they
are normally weak. Higher crude oil resulting from 7 weeks of oil strike
in Venezuela and Iraq fear. Gasoline is averaging $1.47 a gallon in the
3 weeks ending Jan. 10, in Lundberg report. California is set to switch
to new gasoline additives from MTBE, will drain U.S. petroleum reserves.
Exxon-Mobil XOM and British Petroleum BP have high dividends. XOM last
35.24 -0.50 (-1.40%) and BP closed 40.61 -0.14 (-0.34%). Buy these two.
Gold and Silver Mining Index
XAU last 78.13 +1.61 (+2.10%) at 1% over sideways trend. Nowhere in 11
trading days. Stochastics are rising to neutral 45%/39%. Falling dollar
near 3-year lows versus the Euro is good for gold, as is tension between
Bush team and Iraq. Fifty percent of Americans oppose the war with Iraq,
and 87% Americans cannot find Iraq on a map. So 13% of U.S. knows where
Iraq is and just half of those want to fight and actually can find Iraq.
By time the American public stops what Bush starts, Iraq will be another
Afghanistan. Fundamentally, central banks globally no longer want gold.
Gold mining firms have increased production with advanced heap leaching.
Low demand, high production, is always bearish. Gold from $250 now $355.
Great gold mining stock selling opportunity. Buy XAU Mar 70 puts at 1.90.
Bank Stock Index
BKX last 790.49 -1.07 (-0.14%) at 0.9% over trend. Stochastics overbought
at 77%/78%. Banking index should be breaking to new highs by now. Instead
it is topping in 796 area for the fourth time, once in November, twice in
December. Why should banks lead the beginning of any genuine bull market?
Interest rates do not bottom until after stocks begin ultimate rise from a
cyclical low. Stocks rise in advance of economic activity. Only when actual
signs of growth appear do interest rates begin to rise. Lately, activity is
slowing markedly, evidenced by December employment report showing 1 million
US jobs lost in 2002, with 101,000 lost in December as retail did no hiring.
Yet rates are already rising, to compensate for a lower dollar. Rates rise
to keep foreign investors in U.S. assets. Stocks rise as money moves from
bonds to stocks. When rates rise high enough to entice money back to bonds
(at 4.3% on 10-year Notes) stocks will fall and bond prices rise. This will
happen. If interest rates were falling, bank stocks would be leading stocks
higher, and would be convincing evidence of the bull. Not the case in 2003.
U.S. has no economic brilliance, in wealthy Cabinet ministers with personal
goals. When Ronald Reagan ran for President on Reagan's trickle down supply
side economic plan, George Bush Sr. competed for the nomination and called
Reagan, "Voodoo Economics" in his campaign speeches. I know because I heard
George Bush's famous "Voodoo Economics" speech in Philadelphia. Voters will
believe anything. No matter, Congress votes the tax cuts. Female Democratic
Senators have just denounced the Bush tax cut plan as welfare for the rich.
Semiconductor Index
SOX closed 339.07 +8.07 (+2.44%) at 4.0% over trend, stochastics overbought
89%/77%. SOX index is well below its 200-day moving average at 360, and 376
December 2, 2002. Chips go into everything from cars to dishwashers. If the
Bush cabinet spent effort focused on improving America than changing North
Korea or Iraq, SOX would be at 600. Rumsfeld and Rice do not care about you.
You have to wonder if Condo Rice even cares about affirmative action in U.S.
The U.S. has great wasted potential, spare capacity, controlled by military.
Intel Corporation. Microprocessors.
INTC closed 17.42 +0.36 (+2.11%) at 2.1% above trend, stochastics rising to
80%/65%. Intel pays a modest $0.08 dividend so investors in 28% tax bracket
will save $0.0224 a share in tax cuts when Bush rams tax cut plans through
Congress. Great incentive. Intel reports earnings late on Tuesday, Jan. 14.
Investors will see wild swings in prices. Chip stocks (AMD, NVDA) will fall.
Microsoft Corporation. Software (for the agile business? Right).
MSFT closed 55.92 +0.11 (+0.20%) at 1.8% over trend, stochastics overbought
82%/79%. California settled with Microsoft on $1.1 billion on Friday night.
California is desperate. Bill Gates is not. California $35 billion in red.
Microsoft has $40 billion cash. Microsoft is in Seattle. Washington state
is so broke it is terminating Puget Sound ferry subsidy. While Bill Gates
hoards $40 billion, Microsoft employees have to swim Puget Sound to work.
When you hear CNN's Paula Zahn praise Bill Gates, he has kept 99% of cash.
Cisco Systems. Networking Hardware.
CSCO closed 15.22 +0.27 (+1.81%) at 4.9% over trend, stochastics overbought
at 80%/82%. CNBC Jim Cramer has been pushing this stock. They started rumor
Tuesday Cisco would begin paying dividends, then showed graphics of Cisco's
$21 billion in cash. I said CEO John Chambers would never pay any dividends.
I was right. Cisco issued a press release that $21 billion in Cisco's cash
balances will be used for stock buybacks. Alan Greenspan often criticized
Congress for double taxation of dividends by implying corporations buy back
stock instead of paying dividends because of double taxation. Don't forget,
a year ago, CNBC's Jim Cramer was touting Cisco trading over $20. According
to Nielsen, those CNBC evening programs like Cramer get 450,000 households.
According to CNN, CNBC programs only promote Republicans and GE's CEO Welch.
Oracle Corporation. Database Software.
ORCL closed 13.07 +0.06 (+0.46%) at 6.0% over trend, stochastics overbought
at 90%/80%. Subscribers went long on Oracle in November (and Dec.) at 10.50
with put protection. Subscribers should have Stop Loss at 12.15 and should
raise Stop to 12.50. Up 21.2% ytd. This stock is going to Pluto, as CNBC is
headlining Oracle is going to dividendize. Oracle has $5 billion cash, and
has not voted to pay dividends. Paying dividends doesn't increase the value
of Oracle. This CNBC story is just pure hype. Profit from it. I recognized
base in Oracle's chart back in late October, which Nasdaq has not mimicked.
Dell Computer.
Steve from Dell, actor crossed picket lines in SAG strike.
DELL closed 27.15 -1.15 (-4.06%) at 2.68% below trend, stochastics falling
to 5%/45%. Dell's using prison labor in unsafe conditions apparently caught
investors by surprise. I was not surprised to read it. Wondered how college
dropout Dell could be so smart. Note Dell Computer traded above its 200-day
moving average (26) since early August. During last 5 months, Dell gained 1
point since breaking through its 200-day MA. So much for 200-day averages.
Sun Microsystems. Network Servers.
SUNW closed 3.77 +0.01 (+0.24%) at 4.1% over trend, stochastics overbought
75%/76%. Subscribers went long at 2.98 on Dec. 20 and Dec. 23, have gained
26.5% compared to Nasdaq's gain of 8.3% this year. Subscribers who learned
how to use a Stop Loss, use 3.50. That is right, raise Stop Loss to 3.50.
Sun is overbought. Keep 26% profits. Subscribers know why I like Sun Micro,
CEO's management. More down to earth than Cisco, more human than Microsoft,
more humble than Dell, and more American than Bermuda tax-based Accenture.
Accenture Ltd (Bermuda). Outsourcing and IT Consulting.
ACN closed 16.92 -1.45 (-7.89%) at 7.0% below trend. Stochastics plunged to
5%/18%. I recommended shorting ACN over 19, and on Jan. 7, ACN jumped high
as 19.90. Then after a Bush speech on taxes, ACN dived to close on Tuesday
at 18.80 and very weak. When ACN released its financials, stock nose-dived.
Compare ACN price drop to rival BearingPoint BE, which closed at 8.20 -0.04
Subscribers shorted BE at 16 (May). If this year is a bull market in stocks
and tech you would never know from ACN. Buy May 15 put ACNQC last (CBOE) at
0.85, that seller closed out 2 contracts to make open interest 2. Bid 0.85.
International Business Machines. Information Technology Consulting.
IBM closed 87.68 +0.68 (+0.78%) at 3.4% above trend, stochastics overbought
at 94%/93%. Up 13.9% this year, IBM is leading software, chip sectors (they
make their own), IT information technology consulting (IBM has bought Price
Waterhouse Consulting) and now IBM is selling Cisco equipment under a brand
arrangement. I have written often IBM should compete with Cisco. Keep your
friends close, keep enemies closer. IBM can sell Cisco equipment to learn
inside information about Cisco's market. Then cut Cisco loose. IBM hit 89
the day Lehman Brothers Dan Niles upgraded it, Intel, AMD on Dec. 2, 2002.
Expect traders to start dumping IBM right at 89. Buying opportunity later.
On 10-point pullback in the next week, take hard look at 6-month IBM calls.
In other words when IBM falls back to 79, buy the IBM July 90 call options.
Low Priced turnaround candidates Nortel and Lucent were recommended at 0.75
NT closed 2.35 +0.20 (+9.30%) LU closed 1.70 +0.05 (+3.03%) Use Stop Loss.
Low Priced Elan (Irish pharmaceutical firm) recommended at 2.99 last week,
ELN closed 3.28 +0.40 (+13.89%) Subscribers who bought, set Stop Loss 2.95.
What about CNBC and Joe Kernen who only tout stocks after you are too late?
High dividend payers or breaking new highs recommended by CNBC on Jan. 10.
AEP closed 28.43 -1.57 (-5.23%) at 1.96% below trend, stochastics 10%/52%.
FRX closed 55.50 +1.25 (+2.30%) at 4.2% above trend, stochastics 100%/100%.
SLM closed 107.80 +1.37 (+1.29%) at 1.3% above trend, stochastics 78%/69%.
Let's watch CNBC Joe Kernen stock picks and see if they outperform anyone.
Most likely, AEP will fall, FRX will crumble, and SLM will peak out at 109.
Thanks for reading this edition of Stock Market Direction by Steve Zito.
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