Stock Market Direction by Steve Zito Financial Newsletter May 4, 2003 Page

PUBLISHED DAILY - STOCK MARKET DIRECTION - © May 2003
STOCK MARKET DIRECTION by Steve Zito Financial Newsletter
Technical Indicator Analysis of the Nasdaq Composite Index
Individual analysis of the eight largest technology stocks.
Redistribution only with permission of the writer Steve Zito.
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Stock Market Direction by Steve Zito Email Newsletter for May 4, 2003
Closing prices from Friday, May 2, 2003
Dow Jones Industrial Average
----------------------------------------- 8,582.68 +128.43 (+1.52%)
Nasdaq Composite Index
----------------------------------------- 1,502.88 + 30.32 (+2.06%)
Standard and Poors 500 Index
------------------------------------------- 930.08 + 13.78 (+1.50%)
10-Year Note yield
-------------------------------------------- 3.913% + 0.057

Several readers like to email to me to disagree with everything I write. That's okay.
When you write back to me, it is not necessary to recopy the text from the newsletter.
My purpose is to present a logical view to offset the superfluous emotional TV picture
on which everyone depends to grasp what is happening in global financial markets today.
For instance, NBC showed video of street people in Baghdad loading up their car trunks
with satellite dishes supposedly forbidden under Saddam. The audio announcer annotated,
"the dishes cost $300 each in a country where $300 is more than people make in a year."
Then NBC flashed a Bagdad resident fanning a wad of $100 bills in U.S. currency, as he
handed the money over to a street vendor in satellite dishes. What is the message here?

That Iraqis are now free to watch satellite dish TV? That Iraqis are free to watch TV?
That Iraqis have $100 bills in pockets of Baghdad? I don't even have $50 in my pocket.
I wrote last issue that Bush was landing on aircraft carriers only to make speeches on
liberation of "third rate" countries. I apologize for that term. I meant third world.

Does third world mean liberated residents of Baghdad each have $300 to buy TV dishes?
Where did they get it? Robbing banks? Looting museums? Craps games with U.S. soldiers?
Those street urchins in Baghdad have more money than the average American, so why is
the average American paying taxes to liberate Iraq? Iraqis should pay to liberate Iraq.
Did you know Congress budgeted a billion dollars to create an Arab language TV network
run by the U.S. government and headed by former TV executives from major U.S. channels?
Why as a U.S. taxpayer am I now paying for Arab language propaganda to promote Bushism?

There are more news stories appearing about Sir Alan Greenspan these days than number
of faces on playing cards with Saddam's most wanted list (now available for purchase
online at $5.95 a set, make sure you get the whole set to be playing with a full deck).
Why is Sir Alan important? Whisper traders have it Greenspan will lower interest rates
again in Tuesday's Fed meeting to counter rise in U.S. jobless to 6% of the workforce.
A loss in April payroll jobs of 48,000 was greeted with cheers in S&P 500 futures pits
and U.S. stocks surged on that bad news to an 11-month high for Nasdaq and a breakout
above critical 8550 for the Dow Jones. Momentum is back, and will propel stocks higher.

The U.S. economy does not matter, as general expectation is that the Bush tax cut plan
will never pass, the Fed will lower rates one more time (notice stable 10-year Notes),
the war is over, and jobless situation will improve as consumers get out of the house.
If Americans get out for a change (nice weather) they won't have to read stories like,
"Israel and Palestinians fight over Proposed Peace Plan." Fighting over a "peace plan"?
http://story.news.yahoo.com/news?tmpl=story&u=/ap/20030504/ap_on_re_mi_ea/israel_palestinians_148

Stocks have been described by experts as moving to anticipate economic change. When
advancing like Nasdaq has last month with no visible signs of economic improvement to
justify higher valuations, traders, investors, finance professors remind us stocks are
a leading indicator (one of 10 in the Leading Economic Indicators published each month).
Stocks have been noted to rise 6 to 9 months before economic activity, which is October
to December, the 4th quarter for many firms. Retail does 33% of its sales at Christmas.
PC makers sell 40% of their products near year end. PC game makers do well in December.

On top of it, there will likely be a baby boom in the U.S. with military men returning
home in force last month, and now SARS keeping a billion Chinese indoors with nothing
to do except....I will spare you details. But the most important factor in raising the
U.S. stock market is sentiment, which has changed from gloom and dismay TO optimism.
I see it everywhere, in home pages for online journals, in smiles on CNBC announcers'
faces as they promote new books on their success all day, and the faces of thousands
who marched 20 miles in Massachusetts on Sunday to help feed that state's hungry poor.

Alan Greenspan has said the economy is poised to move into recovery, and stock markets
are backing up his claim. Whether the stock market is moving higher because Greenspan
has flooded the banking system with excess money, or whether the stock market truly
anticipates better times ahead will not be evident for six months. In the meantime,
rising stock prices cannot be ignored. Best gains of bull markets occur in the first
three weeks. That 9% Nasdaq gain in April represents about one third of maximum gains
to be achieved this year, which would put Nasdaq back to Sept. 10, 2001 level of 1680.
The rally will be maximized if Congress never passes the Bush tax cut. If the tax cut
plan is passed in fragmented piecemeal form like it is headed, the rally ends by July.
If the tax cut plan is passed as $550 to $784 billion like demagogic Bush is demanding,
the budget deficit balloon will send foreign investors running and cause the same type
of stock market crash similar policies by Ronald Reagan caused from Sept. to Oct. 1987.

Last week manufacturing continued to report a slump as stocks advanced. GM and Ford
offer zero % financing, yet car and especially truck sales fell 9% in April. Truckers
in U.S. are reporting record bankruptcies. On the flip side, Japanese carmaker Toyota
is ready to have a banner year, not only do they make superior products, but they are
picking up sales from other countries boycotting American goods. One lawmaker in Japan
stated the economic stimulus package pushed through will send the Nikkei Dow Jones to
10,000 in months, up over 22%. Find a Fidelity, Vanguard, or T. Rowe Price stock fund
which sectors in Japan and invest in. Read, Japan Package to Put Nikkei Over 10,000
http://biz.yahoo.com/rb/030504/economy_japan_1.html

In March, I recommended Germany and Japan as the best places for stocks, Germany's DAX
rose 20% in just April. Germany and Japan import 100% of their oil and lower oil prices
benefit them far more than the U.S. which controls U.S. gasoline prices artificially.
Germany and Japan sell on exports and are reaping a windfall from angry customers who
are switching from American suppliers to others in disgust over U.S. foreign policies.

The stock of Boeing, largest aircraft manufacturer is ample proof Bush is doing badly
in promoting U.S. trade. Bush may be selling his version of Christianity to the world,
not Boeing 777's or General Electric jet engines. Monthly trade deficit is $44 billion.
The U.S. buys $44 billion more from other countries than we sell to them, growing worse.
Clinton is an honorary member of Mensa, Bush is an honorary member of the Weakest Link.
Bush is to trade or competitive advantage what 1B Bill Buckner was to the 1986 Red Sox.
If you don't know who Bill Buckner is, he was the Red Sox first baseman who let an easy
routine grounder roll right through his legs in Game 6 of the Mets-Red Sox World Series.
As a result, Roger Clemens and the Red Sox lost Game 6, and then lost Game 7 as well.

Boeing BA closed 28.62 +1.51 (+5.57%) General Electric GE closed 29.08 -0.02 (-0.07%)

Dow Jones Industrials closed 8,582.68 +128.43 at 1.2% above Dow's 7-day moving average.
At last the Dow Jones closed above an 8520 level the TV media has labeled a barrier for
the last 28 trading days. Why is 8520 important? It isn't. It has the relevance of 7520
Dow Jones close on March 11. That turned out to be this year's low, successful test of
last October's intraday low 7180 at the end of a California dockworkers lockout strike.
A successful test is when an index declines near previous low and does not go below it.

The test of the Dow's low from October was successful on March 12, but from March 12
to March 21, the Dow rose from intraday low of 7420 to a close at 8520, a gain of 15%.
This was credited to the quick advances made by the U.S. military in Iraq when in fact,
the advance was more likely on stubborn refusal of Congress to pass Bush tax cut plans.
During the stock market advance, Congress cut Bush's tax cut from $784 to $375 billion.

The period from Dow 8520 on March 21 has seen repeated attempts to break above 8520,
each failing until Friday's close 8582. Just as the test of the October low succeeded,
the test of the 8520 ceiling failed and technical analysts everywhere are salivating.
The technical analysts have called for higher stock prices, fundamentalists are bears.

This technical breakout is not supported by fundamentals, on the contrary, the economic
news on Friday was more dismal than ever showing some 550,000 Americans have lost jobs
in the last 3 months. That is twice as many as the number of U.S. soldiers called up to
be deployed in the Middle East. While 7 of 255,000 U.S. military were celebrated POW's
who now have a "free lunch" from one end of America to the next, how many of the 550,000
a Bush economic team has put out of work are being celebrated as heroes? None. How many
jobless find CNN broadcasts their life stories, parading in ticker tape showered limos?

The answer is none, because in America, if you don't have bucks, you ain't Buck Rogers.
What is next for the Dow? Technically it is overbought, stochastics are high, 100%/79%.
The breakout momentum should carry the Dow higher on Monday, but the overbought cannot
last and will encourage profit taking. Look for Dow 8520 as a new support level and use
that as a target to buy on pullback. A pullback will come late Monday or early Tuesday.
The Federal Reserve is meeting on Tuesday. Do not expect them to cut interest rates yet.
DJX closed 85.83 +1.29. May 77 put options recommended at Dow 8300 are now worthless.
This loss on DJX puts highlights the risk of options which are bets on short term moves.
Studies show 95% of retail options buyers lose money. Floor traders take it from them.

Nasdaq Composite Index closed 1,502.88 +30.32 at 2.3% above trend. Stochastics 100%/81%.
Friday CNBC and CNN praised Nasdaq for gaining about 9% in April's "best gain in years"
but what they are not telling is if you waited for confirmation of upside to start the
second quarter, and bought Monday morning, April 7 at Nasdaq 1425, you made 2% in April.

Widely publicized 9% April gain was from illusion since April started at the 1340 level.
Nasdaq is a market weight capitalized index, which moves in relation to its very largest
stocks Intel, Microsoft, Cisco, Oracle, Dell, Sun Micro more than small unknown stocks.
These 6 comprise over 20% of the Nasdaq capitalization and account for 85% of its move.
Basically we watch these, largely held by mutual funds, safe famous tech stocks move up.
The advance-decline for this move is not representative of a bull market list, usually
advancing stocks lead decliners by nine to one ("rising tide lifts all boats theory").
Still this is a powerful rally, until it runs out later, coming either at 1525 or 1680.

XAU closed 67.55 -0.11 (-0.16%) at 1.3% above an uptrend. Stochastics up at 83%/76%.
Subscribers are holding XAU May 75 calls XAUEO at 0.10 -0.05 Bid 0.05 Ask 0.15 vol 62.
While these calls have not panned out like the May 70 puts held from XAU 77 in January,
there is time, and subscribers not holding XAUEO who want a lottery ticket, buy some.

June gold futures GCM went from $343 to $341. If you don't buy options, try NYSE-traded
closed end mutual fund (South African gold stocks) called ASA Ltd, closed 35.35 -0.31.

Why should gold and thus gold stocks advance? There is no war any more, the war is over.
There is no currency crisis or revolution. The falling dollar boosts gold, but not much.
There is Greenspan flooding the banking system with dollars and selling Treasury Notes,
$58 billion in coming weeks. The cash used from selling these 3-, 5-, and 10-year Notes
will be used to fund the ballooning Federal Deficit, a result of Mars projects and war.

If the Bush plan is not to tax Americans to pay for these grand endeavors, Treasury is
going to print more money. Eventually this erodes the value of dollars, boosting gold.
The resulting inflation from massive government deficit spending shown during Reagan's
first years in office when inflation soared to 16%, short-term money rates went to 17%,
and Gold hit an all-time high of $900 saw the ills of 1980 to 1982 ending in recession.
So Greenspan is creating money, lowering rates, Bush lowers taxes, then gold will rise.
If you don't agree, ask your dentist how much a gold tooth was last year and this year.

XOI closed 442.26 + 9.53 (+2.20%) oil stock index, leaders Exxon-Mobil and Brit. Pete.
OSX closed 85.69 + 1.12 (+1.32%) oil service and exploration index, leader Halliburton
BKX closed 806.74 +14.73 (+1.86%) bank stock index, leaders Citigroup and J.P. Morgan
BTK closed 388.81 +10.97 (+2.90%) biotechnology index, leaders Elan, Genzyme and Amgen

SOX closed 343.03 + 9.99 (+3.00%) at 2.1% above neutral trend. Stochastics up 92%/48%.
Semiconductors are going to lag groups this month. SARS is the reason. China is the
location. Over ten % of PC sales come from China, and that growth has disappeared as
Chinese stay home away from shopping malls. SARS is out of control in China, mutating
into virulence and spreading faster than a Wall Street telecom analyst recommendation.

Intel does 80% of its business with PC makers, and has 8% exposure in PC China sales.
AMD does 70% of its business with PC makers, and has 7% exposure in PC sales to China.
Intel and AMD are the two leaders in the SOX Semiconductor Index. Expect a slow May.

INTC closed 19.05 +0.50 (+2.70%) at 1.9% above sideways trend. Stochastics up 80%/50%.
AMD closed 7.40 +0.04 (+0.54%) at 1.6% below downtrend. Stochastics rose to 30%/22%.
Subscribers who are holding AMD July 10 calls, AMDGB last 0.20 Bid 0.15 Ask 0.20 vol 0.
Why would anyone buy calls trading at 0.20? If AMD goes to 13, these calls go to 3.00.

NVDA closed 15.90 +1.48 (+10.3%) at 8.9% above uptrend. Stochastics rose to 99%/81%.
This stock is blasting off, and a candidate for July call options. I wrote on Thursday,
"Watch Nvidia closely, if it breaks 15, there will short-covering, and a spike up to 28.
They make chipsets for game consoles and returning soldiers from Iraq are gameplayers."

MSFT closed 26.13 +0.42 (+1.63%) at 1.7% over uptrend. Stochastics overbought 82%/50%.
CSCO closed 15.27 +0.15 (+0.99%) at 2.5% over uptrend. Stochastics overbought 81%/79%.
For months I have written to sell Cisco short at 15. Now withdraw that recommendation.
This is the first time I recall withdrawing a recommendation in the past year but I do.
ORCL closed 12.20 +0.28 (+2.35%) at 1.8% over uptrend. Stochastics overbought 98%/60%.
DELL closed 29.57 +0.39 (+1.34%) at 0.6% over neutral trend. Stochastics rose 80%/50%.
SUNW closed 3.75 +0.41 (+12.31%) at 9.3% over uptrend. Stochastics overbought 100%/70%.
Subscribers bought Sun Micro last December at 2.98, and should place Stop Loss at 3.50.

IBM closed 87.57 +1.68 (+1.96%) at 2.4% over uptrend. Stochastics overbought at 100%/78%.
Subscribers holding IBM July 90 calls from IBM 78. IBMGR 2.75 Bid 2.60 Ask 3.00 vol 676.

Low priced turnaround candidates bought last October, NT at 0.48, LU at 0.75
NT closed 2.68 +0.11 (+4.28%)
LU closed 1.85 +0.06 (+3.35%)
ELN closed 3.85 +0.01 (+0.26%) at 8.5% above breakout uptrend. Stochastics at 95%/79%.
Subscribers bought Elan at 2.85 and should have raised Stop Loss from 2.50 to 3.00.

PCLN closed 3.14 +0.77 (+32.5%) at 30.8% above uptrend. Stochastics rose to 92%/90%.
Priceline.com reported a smaller than expected loss and huge 37% increase in revenues.
On an operating basis, PCLN broke even, and their best quarter is the 2nd (pre-summer).
Most revenue gains came from hotel room bookings. Try their service, you will go back.
Priceline competes with Expedia, Travelocity, Orbitz, CheapTickets.com on air tickets,
but unlike competitors, Priceline takes your price to find willing sellers. Hotels too.
Travelocity and Hotels.com were reporting a huge 40% increase in 1st Quarter revenues.
Subscribers were recommended to buy Priceline at 2.10 last week and many did, using a
Stop Loss at 1.90. Subscribers should raise Stop Losses to 15% below each day's close.

LVLT closed 5.70 +0.14 (+2.52%) at 0.0% on its sideways trend. Stochastics at 80%/50%.
Subscribers bought Level 3 last Monday at 5.50 and should have a Stop Loss in at 5.20.
EBAY closed 95.24 +2.54 (+2.74%) at 2.2% over a new uptrend. Stochastics up 100%/50%.
YHOO closed 25.15 +0.60 (+2.44%) at 0.4% above neutral trend. Stochastics at 74%/39%.
AOL closed 13.45 -0.13 (-0.96%) at 0.2% below uptrend. Stochastics neutral at 26%/30%.
AMZN closed 29.43 +0.77 (+2.69%) at 3.7% above uptrend. Stochastics rose to 100%/80%.
Buy EBAY, YHOO, AOL, AMZN on 10% pullbacks, from April 23rd closing prices.

Thanks for reading this issue, Stock Market Direction by Steve Zito.
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