STOCK MARKET DIRECTION by Steve Zito Financial Newsletter Service
Technical Indicator Analysis of the Dow and Nasdaq Composite Index
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STOCK MARKET DIRECTION by Steve Zito Newsletter for Friday, May 7, 2004
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John F. Kerry and the stock market - George W. Bush and the stock market
Steve Zito's RECOMMENDED HOT STOCK BUYS, 17 of 18 up, average gain +210%.

The 10-year Treasury Note yield rose to the highest level since August 2002,
as the Bank of England raised its prime rate for the third time to 4.25%, and
the Central Bank of China clamped down on what China calls excessive lending.
The U.S. is the only industrial country keeping interest rates low this year.

Information in this newsletter is based on prices from Thursday, May 6, 2004
Dow Jones Industrial Average
---------------------------------------- 10,241.26 -69.69 (-0.68%)
Nasdaq Composite Index
----------------------------------------- 1,937.74 -19.52 (-1.00%)
Standard and Poors 500 Index
----------------------------------------- 1,113.99 - 7.54 (-0.67%)
10-Year Note yield
-------------------------------------------- 4.602% +0.032

DOW JONES INDUSTRIAL AVERAGE analysis:
The Dow Industrial Average closed 10,241.26 -69.69 at 0.6% under the Dow's
short-term moving average, which is still moving very slightly downward after
the stock market reacted negatively to more pictures of U.S. soldiers torturing
Iraq jail prisoners. Mr. Bush called "abhorrent" photos of a young U.S. female
soldier leading a naked Iraqi with a dog leash as he crawled on a filthy floor.
Abhorrent is the rarest word Bush used talking publicly since taking his SAT's.

Mr. Bush appeared on Arabic TV and said justice will be meted out to offenders,
but gave no details as to how to bring it on, and Bush made no apologies, with
notable exception of his claim of "I'm sorry" to the King of Jordan in private.

A CNN poll Wednesday said 75% want Bush to apologize directly to Iraqi people.
The other 25% who feel Bush owes no apology are likely the same supporters who
boosted sales at Neiman Marcus in Texas, or who flew on the Concorde at $2700.

There is always a scapegoat in scandals of the magnitude Bush finds himself
watching grow out of control with reports the CIA killed interrogating Iraqis.
Trying to explain how dead prisoners received broken ribs before they died, the
CIA claimed that's the way the prisoners are showing up after they are captured.
Makes sense, that a freshly captured Iraqi would break his own ribs in transit.
I wrote in 2001 that Bush was a fanatic after the Sept. 2001 speech he gave
which targeted Bush's Axis of Evil. No one agreed with me, but latest polls
show Kerry gaining 6% in less than a week to tie Bush at 47% for the election.

If I wrote that Kerry strength would boost the stock market, it sure did not
Thursday after Wednesday's 47%-47% poll (Nader dropped to 3%). The reason is,
Kerry should at least be 60% and Bush down to 34% with the downward spiral
in Iraq in the past two weeks. Kerry's lack of great movement stems from a
tremendous lack of knowledge by the public as to who Kerry is. John Kerry is
a 3-times decorated for bravery Vietnam War veteran, who enlisted, served, and
re-enlisted to go back and fight in Vietnam again. Bush is spending $$millions
on re-election TV advertisements and on Ohio Bus Trips that Kerry is a coward,
for not supporting Bush, that Kerry led protests against the U.S. government,
and that Kerry had an FBI file a foot thick in the 1970's. If Bush is correct,
one wonders how John Kerry could have served in the U.S. Senate for 25 years.

Bush will do anything to stay in power, a trait reminding of predecessor Nixon.
While the same could be said of all powerful Presidents, Bush makes no attempt
to hide it, with statements, "Bring it on" and "You're with us or against us."
The stock market on Thursday showed that traders are just as confused as 47%-47%
split amongst U.S. voters to re-elect Bush or Kerry. At first the Dow dropped 150
and then it recovered 80 of that to close down. Whoever was selling was offset
by buyers who believe that a rally at least to Dow 10,525 is in the offing.

Friday, the April U.S. employment report will be released pre-market, and with
payroll jobs up 308,000 in the last report for March, many expect another jump
in employment, predicted by drop in jobless claims released premarket Thursday.

Conventional wisdom is, big gains in payroll jobs lead to higher interest rates
and a selloff in bonds (higher yields cause lower bond prices). Learned minds
believe selloffs in bonds, especially when bonds are breaking above key levels
which have not been seen since August 2002, that a bond collapse will do the
same for stocks. I have said before, a weak bond market means a strong GDP
unless weakness in bonds comes from increased government borrowing, which is
called "crowding out" if the Bush administration competes with private loans.

Bush lowballed the Iraq appropriation and no one is paying attention to the
Congressional parade of criticism that Bush is misleading by asking $25 billion.
Intuitively, if 2003 needed $90 billion for Iraq, and 2004 needed $87 billion,
why would 2005 need $25 billion? Iraqi oil is not going to fetch $65 billion.
Bush can be excused for not understanding mathematics. He inherited his brains.

While Kerry has not demonstrated how he is going to pay for a cleanup in Iraq,
nor has Kerry outlined any economic proposals the average guy can appreciate,
at least Kerry appears more honest than Bush. If only Kerry was charismatic.
For all Bush's shortcomings in intelligence and speaking, 47% still love him.

The Dow may have recovered in mid-day Thursday as equity mutual funds put money
to work which they receive at the end of a month (end of April). Interest rates
are still very stable in the U.S., the dollar is cheap against foreign money,
and U.S. GDP growth remains higher than expected. If the jobs report on Friday
shows that the U.S. economy is picking up steam, stocks could rally in the face
of a very weak bond market. The bond market is ten times size of stock trading,
and if half of profits coming out of bonds goes into stocks in the next month,
the Dow could top 11,000 and Nasdaq make a run at 2300, even if bearish letter
writers call for doom all the way up, just to turn bullish when stocks peak.

Dow stochastics fell from neutral at 40%/36% to 23%/36%, not quite oversold.
Last week, I said to watch Dow's Walmart WMT and Home Depot HD for strength
and compare to Dow's Intel INTC and Microsoft MSFT. Walmart and Home Depot
were trashed on Thursday: WMT 54.58 -1.28 (-2.29%) - HD 34.36 -0.90 (-2.55%)
compared to 2 Dow techs: INTC 25.98 -0.22 (-0.84%) - MSFT 26.12 -0.18 (-0.68%).
Walmart reported April sales up 4.4% in line with expectations, so maybe global
expansion is a problem with WMT. If rates are rising quickly in U.K. and China,
it may be hard for Walmart to finance its megastore expansion around the world.

Dow component McDonalds is just not getting any respect. For 11 months, under
late CEO Jim Cantalupo, McDonalds improved its food, cleanliness, and service.
The result was 11 straight months of sales gains. Then Cantalupo died of heart
failure in mid-April just when McDonalds earnings came out. MCD fell from its
support at 28.00 as low as 26.40. Note that dead CEO Cantalupo had been eating
in McDonalds ever since taking charge in 2003. Now on Thursday comes news that
new CEO Bell of McDonalds, who is only 44, has colon-rectal cancer, and there
is no one to move up and replace him. Was Charlie Bell super-sizing it at MCD?

As if the bad press on McDonalds was not coming fast enough, on Friday, a new
documentary film opens whose sole subject is a director-writer's 1-month trip
in which he only ate his meals at McDonalds and super-sized every time he ate.
The result, shown in SUPERSIZE ME, was a 28-pound weight gain in one month, and
the film star claims, a feeling of ill health an hour to a day after every meal.

The film is a knockoff to the highly successful ROGER AND ME directed by noted
Academy Award winner Michael Moore, whose latest "Fahrenheit 9-11" exposes Bush.
The McDonalds expose was vilified by McDonalds chief nutritional vice president,
as she made TV appearances with a new Adult Happy Meal, she had very small buns.

NASDAQ COMPOSITE INDEX analysis:
Nasdaq Composite closed 1,937.74 -19.52 at 0.98% below short-term trend that is
going down again. Nasdaq headed for 1920 twice during the trading day Thursday,
and there were buyers waiting there, the trading range mentality I described.
Nasdaq stochastics went down from 45%/28% to 29%/30%, and yesterday I had said
that Nasdaq stochastics looked bullish. That was before those pictures from Iraq.

Pictures on Internet and in newspapers were U.S. female soldiers leading Iraqis
naked by dog leashes, with higher ranking soldiers piling naked Iraqis on top
of each other, face down, to pose them as if having sex with each other. In the
Arab world, it is the ultimate insult, to have one's picture having sex with men.
Imagine if Bush and Cheney had to strip down and lie on each other for a picture.

Hopefully the April jobs report will greatly overshadow these Iraq atrocities,
and get the tech stocks moving up toward Nasdaq 1980, which was the previous
support before breaking down on April 29. Nasdaq stocks which have held above
the support levels shown on recommended list in my April 7 newsletter are buys.

Thanks for reading this edition of Stock Market Direction by Steve Zito.
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