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Technical Indicator Analysis of the Dow and Nasdaq Composite Index
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STOCK MARKET DIRECTION by Steve Zito Newsletter for Tuesday, July 27, 2004

Information in this newsletter based on prices from Monday, July 26, 2004
Dow Jones Industrial Average
----------------------------------------- 9,961.92 - 0.30 (0.00%)
Nasdaq Composite Index
----------------------------------------- 1,839.02 -10.07 (-0.54%)
Standard and Poors 500 Index
----------------------------------------- 1,084.07 - 2.13 (-0.20%)
10-Year Treasury Note yield
-------------------------------------------- 4.475% +0.043

DOW JONES INDUSTRIAL AVERAGE analysis:
Dow Jones Industrial Average closed 9,961.92 -0.30 at 0.9% below the Dow's 7-day
short-term moving average, and stopped going down, just prior to the Monday start
of the Democratic Party National Convention in Boston, birthplace of U.S. freedom.

Keynote speaker Monday was former President Bill Clinton, with a masterful speech
which Kerry will be hard-pressed to surpass next Thursday night. Former President
Clinton was SLIM, tan, in best form, telling the world he doesn't want the tax cut
that G.W. Bush sent to Bill, if it means all U.S. ports and railroads go unprotected
and policemen are laid off, just when the U.S. law banning assault weapons expires.

That's right, Bush and his cronies are not going to extend a ten-year ban on guns.
The next time downtown home boys load up the Chevy to go cruising, watch out for the
young Republicans sitting on their street corner, shining up their Uzi's and Tech-9's.

What, you say you are a card-carryin' Bush supporter, so your kids go to a good school
and never did anything wrong? Then who are the 6.9 million in the U.S. now in prison
or waiting for trial to get jail? The U.S. has the highest gen-pop in world history.

Most of the incarcerated (those who don't belong to the barrio boys or Aryan nation)
will end schizoid and face down in the shower, convicted for drugs or property theft.
What would Bush say? He can't say this time, "They are free, freedom is beautiful."

Bush might counter critics, "I raised myself up from nothing. My poppa only handed
me $2 million when I graduated college, not like Donald Trump who got $12 million."
That's right, Donald Trump graduated from the Wharton School in 1968, got $12 million.
Trump Casinos has declared bankruptcy 2 times, which shows money doesn't equal brains.

Bill Clinton gave a great speech and never even mentioned G.W. Bush by his name, but
everyone knew to whom Bill was referring when Clinton said, ..he's honest but wrong.
In fact, Bush is one of the most dishonest Presidents ever. Today, Bush fell off his
mountain bike flat on his butt on one of his 18-mile bike rides, and when aides asked,
"Are you okay, Mr. President?" Bush said, I'M NOT HURT," despite a cut on his kneecap.

Now any little boy would cry, I'm hurt, I'm bleeding. But not Bush on his trail bike.
Dude is 57 years old, and still falling off a kid's bike. Want his finger on a nuke?

Clinton created 22 million jobs, many of them in the high tech Silicon Valley area.
Ten million highly educated immigrants came into the U.S. during the Clinton tenure.
Under Bush, 2.4 million jobs disappeared, mostly to China and India, and anyone in
the U.S. without permission, who gets caught, gets a rubber room and a red jumpsuit.
The U.S. announced that all trains from Washington to Boston through New York City
with be searched with dogs from August 28 to Sept. 4 during the N.Y. Bush Convention.

Clinton talked about the Bush tax cuts which went to the top 1% of the U.S. earners.
At the same time, the record government surpluses under Clinton became big deficits
ballooning out of control under Bush, and recent borrowing to pay the tax cuts came
from China and Japan recirculating dollars they receive for selling goods to the US.
Clinton remarked, why should Bush enforce trade laws with China, if they are the bank?

Clinton talked about jobs, health care, environment, deficits and war, but did not
mention religion. He got a smiling Hillary to introduce him. He gave a great speech.
I would vote for him, if he was running. I won't vote for Edwards, and readers know
that biotech stocks have been completely trashed since Edwards was chosen by Kerry.
Latest victim was Imclone, which fell below $60 for first time in awhile. Did you
have your sell order in at $60 on Imclone? What, Martha Stewart did not tip you off?
That $60 was the supposed price Martha had told her broker before she got a sell tip.

Pathetic Dow stochastics stabilized from 15%/20% on Friday up to 19%/25% on Monday.
CNBC tried to claim the Dow was defending the 10,000 level Monday, then realized the
Dow was already 9,930 intraday when announcer Ted David said it was holding 10,000.
No one is forced to take an I.Q. test to work at CNBC, world leader in misleading.

CNBC followed that with a slick Alexis Glick claiming the VIX was acting the same
as it did the week before each of the last Dow rallies in late March and May-June.
The VIX measures options volatility, not the volatility of the Dow Jones Industrials.

VIX is saying that options volatility is lower today than during the rise last year,
and the time to buy index options is when volatility is low - near a turning point.
The case CNBC tries to make (since most of them never studied Finance or statistics)
is that VIX increases to historic highs right at a bottom, when everyone buys puts.
That is ridiculous. Bear market bottoms are not V-shaped spikes, but lack of interest.

Options premiums are a function of time to expiration, interest rates, the underlying
security's Beta (variability, both up and down) and liquidity (size of open interest).
These variables are inputted into a complex Black and Scholes formula which can be
entered using a handheld options calculator by floor traders just out of high school.
If options premiums increase, that increases the VIX, it could be from any variable.
For instance, a jump in interest rates will increase VIX. Check the rate moves lately.
Interest rates have moved up substantially this year, as the economy regains strength.

Yesterday, I wrote, ignore CNBC with its parade of pundits last week reiterating their
"Never sell a dull market short" adage. On Monday, Maria Bartiromo got into a shouting
match with a guest pundit on air interviewee who told CNBC's chief mouthpiece he would
not buy Google when it is overpriced for "institutional buyers" but that he expected
viewers of CNBC who are small retail investors would eventually pay $135 for Google.

CNBC's Maria became enraged and shouted, "So you think small investors are stupid?"
She blurted, "You think that the small investor can't do his own homework on Google?"
Bartiromo is so loud, she is at the same level as the reality TV lovers who watch her.
Bartiromo is an announcer who said June 18, "Folks, we're already in the 2nd half."
Google is an Initial Public Offering that may price on its 1st day at $108 to $135.
-----------------------------------------------------------------------------------
IDNX and FLIR are two airport retinal scan and facial identity screening companies
which have been touted as benefitting from the 9-11 Commission Report on Thursday.
IDNX closed at 5.26 -0.23 (-4.19%) and FLIR closed at 62.82 +2.01 (+3.31%) Monday.
They build machines to screen passengers getting on airplanes in 5-second tests.
So next time you are in a hurry to catch a flight, standing in line behind 500
people, don't worry, it takes 41.66 minutes to retinal scan and facecheck them.
---------------------------------------------------------------------------------
XAU closed at 82.64 -1.39 (-1.65%) as XAU continued to slide on recession fears.
Opened at 84.55 with a daily range 82.27-84.55 and XAU options are getting cheap:
Buy the following call option using GTC orders and pay no more than 0.20 to 0.25.
August 90 XAUHR 0.55 -0.35 Bid 0.50 Ask 0.65 volume 203 open interest 10,355 as
the open interest declined (bullish) hitting a new contract low for XAUHR at 0.50.
Buy the following call option using GTC orders and pay no more than 0.05 for it.
August 95 XAUHS 0.20 -0.10 Bid 0.10 Ask 0.25 volume 256 open interest 1,131 and
note the open interest steady, with the XAUHS hitting a new contract low at 0.20.
---------------------------------------------------------------------------------
Hoping XAU soars to 95. Remember, the Democratic Party Convention is Monday to
Thursday, and Democrats are deemed big government spenders, which is inflationary.
Wait until Edwards starts talking about universal health care, and then watch gold.
Where's Kerry Monday? He was in Florida giving a speech at Cape Canaveral (Kennedy).
Kerry should have been in Boston working on preventing Clinton from upstaging him.
CNN for its part, did the post-game analysis with Ben Affleck talking to Larry King.
King and the other talking heads praised Ben Affleck for his intelligence and charm.
No one on CNN seems to remember that this lame was close to marrying Ms. Lopez, J-Lo.
If you watched the political praise and viewers calling for Affleck to run for office,
try to rent a copy of "Daredevil" or "Gigli" and compare Affleck's work to Arnold's.

NASDAQ COMPOSITE INDEX analysis:
Nasdaq Composite closed 1,839.02 -10.07 at 1.9% below its short-term moving average.
Nasdaq stochastics rose from oversold 0%/18% on Friday to 10%/21% on Monday. Bottom?
Like the Dow, Nasdaq is in a clearly defined down channel which began July 1 at 2045.

Even if Nasdaq does rally, up to 50 points, readers holding the QQQ bought at 35.40,
which at Monday's low was showing a 4.8% loss, should take any gain in excess of 5%.
QQQ closed at 34.06 -0.15 (-0.44%) opened 34.24 with a daily range of 33.70 to 34.41
Option: Buy Sept 37 QQQIK 0.30 -0.00 Bid 0.25 Ask 0.30 vol 3,192 open interest 219,223
but buy contract at 0.05. As for holders of the QQQ, readers Stop Loss is still 33.60.

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