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STOCK MARKET DIRECTION by Steve Zito Newsletter with Top Stock Picks
Technical Indicator Analysis of the Dow and Nasdaq Composite Index
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STOCK MARKET DIRECTION by Steve Zito Newsletter for Monday, June 28, 2004

Information in this newsletter is based on prices from Friday, June 25, 2004
Dow Jones Industrial Average
---------------------------------------- 10,371.84 -71.97 (-0.69%)
Nasdaq Composite Index
----------------------------------------- 2,025.47 + 9.90 (+0.49%)
Standard and Poors 500 Index
----------------------------------------- 1,134.43 - 6.22 (-0.55%)
10-Year Note yield
-------------------------------------------- 4.645% -0.001

DOW JONES INDUSTRIAL AVERAGE analysis:
The Dow Industrial Average closed 10,371.84 -71.97 at 0.3% below the Dow's 7-day
short-term moving average, and I wrote for the past week and more about breakouts.
"It will take either a Dow close below 10,322 or close above 10,435 to break out."
Well, a fake break up happened on Wednesday but Dow stocks became very overbought,
which meant that the tendency after Wednesday's close would be for decline toward
the short-term moving average, which occurred on Thursday. Unfortunately, the Dow
completely broke down in last hour of trading on Friday. The TV media blamed it on
rebalancing of Russell 1000 and Russell 2000 Indices, that is, large cap coming out
of Russell 1000, replaced by other large cap stocks, in turn these removed stocks
coming out of Russell 1000 go into the Small Cap Russell 2000. Supposedly, index
fund managers who must hold stocks in equal proportions as the Russell 1000 had to
sell RUS 1000 stocks coming out on Friday's close to keep their funds benchmarked.

Anyone who uses only technical analysis to buy and sell stocks does not care what
reasons stocks have, they only care what the technical indicators like stochastics
say as to future direction. So explanations like Russell rebalancing are irrelevant
for technical analysis used alone. That is what makes CNBC so spurious, they tout
technical aspects all day long and claimed Wednesday an upside stock breakout from
recent trading range based on technical analysis. When Friday's Dow invalidated a
Wednesday breakout after Friday's dismal down close, CNBC blamed it on Russell 1000.

I use both technical and fundamental analysis in a hybrid method few follow. Either
it is too hard to understand, or most don't have that wide an education to apply it.
In any case, Dow falling below its short-term moving average (currently at 10,401) on
Friday's close was a serious negative. It was a surprise after Iraq had been replaced
in the headlines by Barry Bonds 12-game home run drought, or Kobe Bryant getting trial
date for a sexual assault a year after alleged, Shaq quitting the Lakers and selling
his Beverly Hills mansion, Dick Cheney using the "F" word loudly in Congress to curse
Democrats who were debating the Republican bill requiring decency in radio broadcasts,
Britney Spears getting engaged again, DodgeBall as the runaway hit movie of the summer,
or importantly, Bush again taking lead against Kerry in election polls, at 48% to 47%.

Where are the other 5%? Locked up in jail. America has 2.4 million in prison, 11,200
murders a year shows that the non-Arabs in jail are there for stealing and/or drugs.
By comparison, the U.K. has about 65 murders and Australia about 64 murders a year.
Canada even has more guns than the U.S. but Canada only has about 250 murders a year.
Why is the U.S. different? Protection of Property is what Americans value the most.

With the Dow Jones representing the largest most well known U.S. multinationals, and
trading down from 10,600 to 9800 and back to 10,500 in April, May, June, it appears
that for the first half of the 2nd quarter, investors thought the Dow 30 might have
some trouble to beat profit expectations for second quarter income, and only as the
pre-announcement season came and went with no Dow profit warnings on 2Qtr. earnings
for the current April-June period, did stocks rebound to recover April to May losses.

The rally stalled last week, however, because profits are likely to only hit targets,
and not exceed targets, leaving the Dow fairly priced just below 10,500. Geopolitics
and crude oil, inflation and Federal Reserve interest rate hikes, are all regarded by
TV financial news as the market movers, and then they turn right around and attribute
stock gains (or losses) to technical chart breakouts, momentum, volume and volatility.
Which is it, CNBC? Are technicals driving the Dow, or expectations of earnings gains?

Wednesday's breakout looks like a fakeout. If CNBC's Bob Pisani had not touted gains
in the Dow that took the Dow above 10,435 on Wednesday as a "real breakout" that day,
I would have had more confidence that it was. When CNBC says buy, it is time to sell.
The Russell 1000 and Russell 2000 rebalancing had nothing to do with Dow fall Friday.
The Dow fell because it recovered what it had lost in April and May, then had nowhere
to go by late Friday but down. The Dow will likely have 2 tales in coming weeks, with
Alcoa, a basic materials company (aluminum) reporting first and beating expectations.
AA closed at 33.49 +0.64 (+1.95%) and has shot up from 28.60 in only 27 trading days.
Alcoa is discounting better profits, so buy call options on any AA pullback to 31.50.
Stochastics are very overbought at 85%/84%. Alcoa will report earnings in early July.

Dupont and IBM, Intel and Microsoft, 3M Co. and Citigroup will show cyclical firms
gaining and technology steady, while financials suffer from the first Fed rate hike.
Financials like Washington Mutual that CNBC guests tout will decline on FED hikes.
In other words, the Dow will begin a yo-yo pattern of up one day (when Alcoa reports)
and down the next (when Citigroup suffers from lowering guidance on future quarters).
The best plan is remain in 3M Co. which is gaining in all segments and does not have
have damaging paranoia foreign customers experience visiting McDonalds or buying Coke.
Since bombs exploded outside McDonalds in Turkey one month ago, MCD has gone nowhere.
I said before, "If Wednesday was breakout, more Dow stocks would have shown strength."

Walmart, world's largest retailer, is hit with a class action lawsuit claiming female
Walmart workers have been paid less than male counterparts, and barred from promotion.
In a country where Condo Rice is in charge of preventing 9/11 attacks (and never did)
and Elaine Chao managed record setting losses of 2.4 million American jobs since 2001,
women should study how Oprah Winfrey became 2nd wealthiest entertainer in the country,
2nd to Mel Gibson. If Oprah can make $40 billion, anyone can. WMT 52.51 -0.64 (-1.20%).

Walt Disney had distribution rights to Michael Moore's new film, Fahrenheit 9/11, and
did not want to release a controversial tribute to George W. Bush in an election year.
They sold the rights to 2 execs at Miramax, who released it in 900 theaters on Friday.
Fahrenheit 9/11 promptly set new ticket sale records for a documentary film, and will
add a few $$million to Michael Moore's bank account. The film depicts George W. Bush
as a hypocritical leader who cares more about his golf swing than U.S. soldiers maimed
and killed in Iraq, then vacations 25% of the year in Europe at taxpayer expense when
not entertaining Saudi princes on his ranch in Crawford, Texas. That's far from freedom
lovers of America opinion about Bush, their higher authority creating a peaceful world.

Shame on Michael Moore disparaging George W. Bush, who has done more in his 3 1/2 years
to create job opportunities for long-term unemployed, the handicapped, and downtrodden
than any other President named George Bush in history. Long live our hero, King George.
DIS closed at 25.18 -0.16 (-0.63%) and the film they gave up, "F... 9/11" set records.
http://biz.yahoo.com/rc/040627/leisure_boxoffice_chart_1.html

3M Co. MMM closed at 88.66 +0.08 (+0.09%) and IBM closed at 89.55 -0.44 (-0.49%).
MMM stochastics are falling at 60%/76%. IBM stochastics are easing down to 24%/55%.
3M Co. has gained about 10% in the past few weeks, IBM lags behind, only gaining 6%.
IBM could surprise in next earnings report coming in a couple of weeks, and go to 95
as IBM July 90 calls to 5 by July 15. IBMGR 1.45 -0.20 B1.35 A1.45 v 2,215 oi 29,138.

I like 3M Co. and IBM in the Dow. CNBC likes 3 of what they call "old-line cyclicals"
General Electric GE, Boeing BA, and Honeywell HON. General Electric is quite obvious.
General Electric owns CNBC, General Electric owns the White House, and if Bush gets
re-elected, GE will get work in Iraq, North Korea, Iran, Syria, Cuba, wherever Bush
deems freedom does not exist. CNBC has been touting GE ever since it was 52 in 2000.

General Electric has profits using accounting gimmicks. It is a model for MBA studies
in how to earn $0 for tax purposes then report huge profits for stockholder meetings.
Boeing is a military aircraft contractor, as in attack helicopters. When the troops on
the ground have trouble shooting innocent 12-year old kids in the back (shown on CNN)
they need attack choppers to swoop in and napalm anyone with a turban who is running.
Civilians who are not running away are well-disciplined targets and easy to pick off.

Honeywell is a takeover target of GE, a merger was blocked by the Euro Commission on
anti-trust grounds. A few pro-Bush elections in Germany and France could change that.
In the past few weeks, overbought GE gained 8%, BA gained 18%, and HON gained 10%.
GE at 32.18 -1.09 (-3.28%), BA at 51.30 +0.95 (+1.89%), HON at 36.81 -0.25 (-0.67%).

Four years ago, when CNBC's Maria Bartiromo used to wildly scream from a NYSE floor,
"How high can we go, folks?" the dummies at CNBC were calling for inclusion of AOL
in the Dow, which eventually chose Microsoft and Intel as techs to replace Bethlehem.
That was when CNBC was touting AOL at 50 to unsuspecting viewers, later AOL lost 80%.
Time Warner merged with AOL in a disaster for shareholders, the current stock is TWX.
TWX has 30 million AOL customers paying $23.95 a month just to get parental controls,
and that number is going down, not up. AOL is a division of TWX which competes with
Yahoo YHOO, Microsoft, Netzero, SBC, Verizon, Comcast, and so many, you get the idea.
Does anyone want to pay what twice as much for AOL, after learning about cheap rivals?

Maria said, CNBC rates Time Warner TWX a 9 out of 10 on CNBC's website stock screener.
http://biz.yahoo.com/rc/040623/tech_aol_spam_3.html and claimed TWX has above average
potential with below average risk. CNBC said the same about GE at 52 four years ago.
TWX closed at 17.43 +0.01 (+0.06%) right on a moving average, stochastics up 39%/31%.

Stochastics for the Dow Industrials fell from 74%/75% on Thursday to 30%/68% on Friday.
Remember, over 80% is overbought and overbought has a high tendency to be followed by
some pullback. That's why the Dow fell on Thursday. Not 420 killed or wounded in Iraq.
Not bomb blasts at the entrance to Ankara (Turkey) Hilton where Bush would be staying.
Not 40,000 young Turks protesting in the street outside the hotel where Bush is hiding.
Not fear of FED hikes. Not durable goods orders down. It fell because it was overbought.

I wrote June 24, watch Friday's Dow close very carefully for a Dow close above 10,435.
Dow 10,435 is current upper level of April-May's trading range and market resistance.
Dow was trading near that level all the time up to just past 3 PM, when it collapsed.
The collapse was led by GE down 3.28% on poor opening of its new "Two Brothers" film.
Two Brothers did not even take in 1/3 of the revenues that "Fahrenheit 9/11" garnered.
http://biz.yahoo.com/rc/040627/leisure_boxoffice_chart_1.html

NASDAQ COMPOSITE INDEX analysis:
Nasdaq Composite closed 2,025.47 +9.90 at 0.9% above its short-term moving average.
Nasdaq stochastics went from 78%/82% on Thursday right back to overbought at 89%/86%.
Nasdaq, unlike the Dow, did not break out of its narrow range between 1960 and 2025.
It really tried on Friday, trading over 2031 at 3:59 PM, then lost 6 points at close.

INTC closed at 27.78 -0.17 (-0.61%) at 0.7% below trend, stochastics falling 36%/69%.
Readers sold Intel short January 9 at 34.50, and Intel is not going anywhere just yet.
If Intel's mid-quarter guidance $8 billion sales did not put it over 30, nothing will.

AMD closed at 15.50 +0.18 (+1.17%) at 2.2% above uptrend, stochastics up to 83%/82%.
Advanced Micro Devices like Intel in a weak summer sales season, not going far from 16.
In past years, AMD has had some serious damage done in July, if earnings missed badly.
If you hear rumors on TV financial news that Dell will begin to use AMD, just laugh.

MSFT closed at 28.57 +0.18 (+0.63%) at 1.3% above uptrend, stochastics up to 90%/78%.
Despite endless mutual fund managers (on FOX and CNBC last week) rating it top pick
for reasons from "cash flow" to "undervalued" to "dominant software developer" these
fund managers don't have their own money in Microsoft. If MSFT products are so great,
why software security industry earns $billions on anti-virus for Microsoft browsers?
If Defense Dept. software was as bad as MS Windows, U.S. may be part of Russia by now.
Russian Internet hacker exploits unsolved vulnerabilities in Microsoft server products,
http://news.yahoo.com/news?tmpl=story&u=/cmp/20040629/tc_cmp/22102487

CSCO closed at 23.43 -0.25 (-1.06%) at 0.2% below trend, stochastics fell to 45%/72%.
Cisco has granted CEO and execs $$billions in valuable stock options and unlike IBM,
Cisco has not expensed costly stock options against earnings, inflating CSCO profits.

ORCL closed at 11.80 +0.30 (+2.61%) at 3.4% above trend, stochastics steady 79%/70%.
In software, Oracle is only #3 to Microsoft and IBM in sales, bidding on National I.D.
Strange to see Oracle, the only large Nasdaq stock that was not overbought listed in
Thursday's newsletter, suddenly make an upward move while the rest hit a brick wall.

DELL closed at 36.02 +1.10 (+3.15%) at 2.3% over sideways trend, stochastics 100%/81%.
Michael Dell must be getting some new field laptop PC orders from his best buddy Bush,
that's what Iraq needs, more PC's. Bush supporters boasting that Iraq Internet usage
is +10000% since Bush invaded Iraq. Too bad 100 million in U.S. cannot afford Internet.

SUNW closed at 4.41 +0.13 (+3.04%) at 3.3% over a slight uptrend, stochastics 84%/83%.
Sun Micro is emulating low priced gainers Friday like Lucent, Nanogen, Level 3, which
shows speculative public which buys these no earnings stocks are jumping on a rally
maybe about to end at Nasdaq 2025. Ever been last one to a party? Ever vote for Bush?
Since Bush in 2000, Sun went straight down (peak at 64) to $2, Dell took Sun's orders.

ACN closed at 27.47 +0.05 (+0.18%) at 1.9% over steep uptrend. Stochastics 75%/79%.
Accenture Ltd Bermuda Class A used to be called Andersen Consulting, when it was the
consulting division of Arthur Andersen world's #1 CPA firm, Enron and Worldcom auditor.
Accenture's spokesman is Tiger Woods, world's highest paid athlete, and college dropout
who makes $50 million a year to swat a little white ball in front of 99% white crowds.
Accenture is the world's leading consultant for Job Outsourcing by U.S. multinationals.

Outsourcing is training a foreign student, then your job goes overseas to that student.
Watch Lou Dobbs on CNN evenings blasting Fortune 500 firms for "cheap labor outsourcing."
Never does CNN Lou Dobbs critique U.S. MBA programs which teach that outsourcing is good.
It is not surprising that Lou Dobbs entertains the likes of Steve Forbes on his CNN show.

If ACN is doing so well that it rose from 23 to 28 in the last 21 days, then ACN's chief
rival IBM, should be reporting the same jump in consulting revenues in its next report.
Congress has shelved legislation to bar $10 billion in Bush contracts to Accenture Ltd.

That is $1 billion per year for 10 years to develop fingerprinting and retinal scans
of all visitors entering the U.S. in order to track movements throughout the nation.
Why doesn't IBM get that contract? IBM is headquartered in Armonk, N.Y., whose rep
in Congress from New York is Senator Hillary Clinton. IBM should move HQ to Texas.
Headquarters of Enron in Texas is probably available, Ken Lay is looking for a job.
Ken Lay is the former CEO of Enron, and a best friend of Texas buddy George W. Bush.

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