PUBLISHED DAILY - STOCK MARKET DIRECTION - © June 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 Tuesday, June 10, 2003
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In this issue, online brokerage stocks could be one of the few winners in slow summer.
Ignore the hype by self-proclaimed experts who appear on TV financial news to con you.

Information in this letter is based on closing prices from Monday, June 9, 2003
Dow Jones Industrial Average
----------------------------------------- 8,980.00 -82.79 (-0.91%)
Nasdaq Composite Index
----------------------------------------- 1,603.97 -23.45 (-1.44%)
Standard and Poors 500 Index
------------------------------------------- 975.93 -11.83 (-1.20%)
10-Year Note yield
-------------------------------------------- 3.279% -0.073

Dow Jones Industrials closed 8,980.00 -82.79 at 0.3% above Dow's 7-day moving average.
For the past two weeks, the Dow Jones has traded above a 7-day MA but limited to 1.5%
above that short term trend line. Monday, traders tried to close it below the 7-day MA.
They failed, which is resulting in Tuesday morning gains in the Dow of up to 80 points.
The fact the Dow reacted less than expected on the downside to the Freddie Mac scandal
shows large investment pools are trading the charts (buying at trend lines), not news.

Stochastics for the Dow Jones Monday fell to 33%/55% but have turned higher on Tuesday.
Expect Tuesday strength to fade UNLESS the Dow Jones unlikely closes above 9115 today.
The likelihood of the Dow closing over 9115 on Tuesday is very low, I forecast drifting.
It is summer in New York, a time when trading activity slows, and prices change little.
Summer in New York is a time when the Hillary Clintons get outside and sign their books.

What was driving the big name Dow stocks for the past two weeks? Mutual fund cashflows
for the week ended Wed. May 28 were positive $3.3 billion, for Wed. June 4 just $300,000
according to Trim Tabs. The change in mutual fund cash from a geyser to a trickle shows
why the Dow Jones topped out last week. Fund managers just ran out of new cash to invest.
I wrote that new fund cash would be 95% invested by last Thursday. Prices reflect that.

Not to fear, Greenspan is printing money like there is no tomorrow and expectations are
Alan will cut interest rates again at the next Federal Reserve meeting. This may support
stock prices at current levels, but to continue stocks advance needs the public to buy.
Later I discuss growth in individual online trading this year, reversing 2001-2 trends.
If the public trader takes Ameritrade offers of 30 free online trades, prices will rise.
The public chases momentum, and has no clue to do fundamental valuation for risky stocks.
When the public sees John Murphy on CNBC telling them the US dollar will "have a bounce"
they buy without even questioning whether Murphy and Ted David have a total IQ over 100.

Nasdaq Composite closed 1,603.97 -23.45 at 0.4% below trend. Stochastics down 20%/45%.
Stochastics did not get any more overbought than Nasdaq stochastics were last Thursday.
Nasdaq was in blowoff stage where people are appearing at cocktail parties and bragging
how their Fidelity Select Financial Services fund is up 15% this year, or better, how
they bought homebuilders Lennar and Pulte touted on CNBC and easily made 45% to 50%.

My stock portfolio given to readers (w/o NT, LU, and SUNW) was up 61% as of Friday.
The difference is that my stocks represent earnings turnarounds, not momentum plays.
You can make 50% in housing stocks with great risk of buying at the top and being the
last one to the party, or you can buy low priced earnings turnaround plays with no risk.
A reader asked, what if your stocks go down? My answer is use a Stop Loss and get sleep.

SOX Semiconductor Index closed at 378.84 -9.35 (-2.41%) at 0.8% below no trend, with
stochastics very oversold at 10%/22%. Taiwan reported a 6.5 Richter scale earthquake
on their Tuesday (Monday U.S.) but it was centered in Northeast Taiwan, nowhere near
the Hsinchu Industrial Park location of Taiwan Semiconductor TSMC, United, and Acer.
Despite that, CNBC Leslie the Roach reported on Tuesday morning that Taiwan suffered
a 5.7 Richter scale quake 180 kilometers south of Taipei, which puts it right smack
in the Hsinchu area. This inaccurate reporting by CNBC's dolts makes me wonder why
the SEC chases Martha Stewart instead of locking up the bubble-touting clowns at CNBC.
Taiwan's earthquake fault lines are located in the eastern side of the island, and the
heavy industry in Taiwan is located on the western side, to the Mainland Chinese coast.

Overvalued Intel INTC closed 21.67 -0.09 (-0.41%) at 1.8% above trend. Stochastics
falling to 48%/68% as of Monday's close. Intel is bucking the trend as AMD and Motorola
MOT have fallen apart. What is the truth? Motorola said that SARS is now having a major
impact on telecommunications chips sales in China. That sent MOT, SOX down on Monday.
I wrote last week that if AMD closed below 6.85 last week, AMD would head for 5.00.
Looks like that is happening. AMD closed 6.55 -0.38 (-5.48%), 5.1% below downtrend.

Charles Schwab is reporting that online daily trade volume has picked up for 3 quarters
to the highest in year. Volume is irrelevant for market index prices, but very relevant
for the stock prices of online brokers like Schwab, Etrade, and Ameritrade AMTD (7.80).
Not only is Ameritrade up sharply in 2003, but AMTD has been a perennial takeover play.
In any case, judging by activity in low priced biotech stocks this week, the public has
come out to play and betting on stocks an old fashioned way, buying the biggest gainers.

Last Friday, CNBC Bob Pisani touted homebuilder and financial stocks as the place to be.
Monday, Freddie Mac sent financials down 3% and homebuilders lost even more in belief
that government regulation may choke the booming mortgage refi business. Fundamentals.
The lawyers at the SEC and New York Attorney General office want to put people in jail.
The fact that the jails are full with 2 million in the U.S. already incarcerated, and
thousands more in detention without being charged because they are Muslim matters not.
If Sam Waxsal is convicted today to 7 years, where is he going? Rikers Island is full.
Would you believe that a fellow began an online website to sell "SAVE Martha" T-shirts
and sells 10,000 T-shirts a day, with a million hits a day to his website? It's true.

My subscribers in Elan, the Irish Pharmaceutical, have made 157% in a couple of months.
That does not include the 333% made in Elan June 5 call options in the last two weeks.
Elan changed management early this year, sold assets to reduce heavy debt service, and
has in past derived 30% of its profits from its portfolio of small biotechnology firms.
Elan is run by doctors who are far better selectors of winning biotech stocks than CNBC.
While CNBC touts Genentech and Imclone all day, Elan's stock price has far outperformed.

My subscribers in Sun Micro, prime user of LINUX, have made 86% since mid-December 2002.
Recently CNBC has been spreading rumors that Sun Micro is a takeover target, but failed
to mention who would take Sun over, where the rumor started, or why they spread rumors.
Sun did make big gains when a private Microsoft memo was published from Microsoft's CEO
to all employees stating LINUX represented the greatest challenge to Microsoft's future.
Goldman Sachs who called Sun "back in the doghouse" last October, upgraded it to inline.

In fact, 9 of the 10 stocks on my recommended list have gained 10% or more since 2002.
Nextel was stopped out at 14 on Monday, as 14 was the lowest trade for NXTL that day.
Subscribers bought NXTL at 13.85 last month, but before Nextel began an idiotic TV ad
campaign during the Stanley Cup Finals for Nextel's coast to coast walkie-talkie, which
Verizon is going to compete with head-to-head beginning in July. Can you hear me? Good.
By using and raising Stop Loss orders on hot stocks, the inevitable selloff won't hurt.

Also, Priceline was sold at 4.01 (bought at 2.05) as I believe Homeland Security Dept.
will raise the terror alert 3 days before the July 4 holiday and hurt airline traffic.
Then when nothing happens, Tom Ridge will lower the alert 3 days after a major holiday.
That is what he did with Memorial Day, and that is when Priceline.com PCLN rally died.

Level 3 was sold at 6.90, for 25% gain. CNBC touted it last summer at 7.60 killing it.
No reason to expect CNBC will not try to connect Level 3 to Warren Buffet bonds again.
More often than not, when CNBC touts the stocks you hold, then it is time to sell them.

Gold Stocks, subscribers were holding Newmont Mining NEM and NEM June 30 call options.
"Get ready to sell and close out Newmont Mining June 30 calls when NEM trades to 33."
That is what I wrote last Thursday, and Friday to Monday, NEM traded up to my target.
NEM closed 32.65 +0.36 (+1.11%) at 3.9% above extreme uptrend, stochastics at 98%/96%.
NEMFF were sold (closed out) at 2.50 on Friday's close, 284% gain. Bought them at 0.65.
Newmont Mining had advanced 25% during a second quarter to 33. Subscribers should have
taken the 25% gain to sell at 33 Friday and Monday (traded 33 in electronic premarket).
If you hold Newmont still, Stop Loss should be at 30. Be warned, John Murphy likes gold.

The XAU closed 76.72 -0.36 (-0.47%) and forecasts the US dollar is ready to DROP more.
Gold and Silver index was 1.2% above Monday's close, but falling below trend Tuesday.
Stochastics at 72%/78% on Monday's close, but falling to very oversold Tuesday morning.
Ignore what you hear on CNBC by self-proclaimed expert John Murphy on advancing gold.
Not only has the guy been consistently wrong for years, there is no educational history
listed on his website. Like Arch Crawford who forecasts stock prices based on astrology,
these charlatans get TV publicity on CNBC and mislead naive public into disastrous loss.

John Murphy was introduced by Ted David as a "doctor" and I doubt Murphy is any doctor.
CNBC's Ted David is a former Disc Jockey who took one course in technical analysis at
some place called the New York Institute of Finance. Yet millions of viewers admire it.
At the Graduate level, I took 12 Finance courses, all "A"s and led my 12 group projects,
12 final papers, and 24 three-hour examinations with accredited professors, all doctors.
I also took 8 Accounting courses, 8 Information Systems courses, 17 other related ones
including marketing, economics, decision science, statistics, programming, and Chinese.
This list does not include the 40 courses I completed for my undergraduate BS Economics.

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