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STOCK MARKET DIRECTION by Steve Zito Newsletter on Market Direction
Technical Indicator Analysis of the Dow and Nasdaq Composite Index
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STOCK MARKET DIRECTION by Steve Zito Newsletter for Tuesday, Oct. 5, 2004

Information in this newsletter based on prices from Monday, Oct. 4, 2004
Dow Jones Industrial Average
---------------------------------------- 10,216.54 +23.89 (+0.23%)
Nasdaq Composite Index
----------------------------------------- 1,952.40 +10.20 (+0.53%)
Standard and Poors 500 Index
----------------------------------------- 1,135.17 + 3.67 (+0.32%)
10-Year Treasury Note yield
-------------------------------------------- 4.173% -0.018

DOW JONES INDUSTRIAL AVERAGE analysis:
Dow Jones Industrial Average closed 10,216.54 +23.89 at 0.71% above Dow's 7-day
moving average. For months, TV media has called the Dow inconclusive, unable to
make new highs, lacking momentum, a "choppy market" when the Dow is none of that.

The Dow is a 30-stock index, a trading vehicle for pools of managed money called
funds, hedge funds, or wealthy private clients of N.Y.'s Wall Street brokerages.
Brokerages advise funds to invest or disinvest (sell short) and within days, send
well-known VP's and strategists (like Robert Hormats of Goldman Sachs or geriatric
Larry Wachtel of Prudential Securities) to make the rounds on CNBC and Bloomberg
to tout the opposite direction of bets of their wealthiest billionaire clients.

That way, the public buys stocks like what is occurring to start the 4th Quarter to
facilitate the dumping (called distribution) of Dow's large capitalization stocks
which have been held by funds and billionaires since Dow hit 9,980 only a week ago.

What were the headlines on CNBC and CNN only a week ago? Crude oil hits record $50
in trading, talk of $60 crude oil is widespread. Since then, crude was above $50
every other day, and yet Dow staged an impressive turnaround from 9,980 to 10,217.

A week ago, the daily death rate in Iraq began to escalate, Monday's toll 24 dead,
hundreds injured, compared to maybe 2 dead, 8 injured daily only a few weeks back.
Donald Rumsfeld and Condo Rice are making the TV rounds (Condo on Sunday TV shows
and Rumsfeld in speeches to private dinners in Washington) blaming the skyrocketing
death rate in Iraq on attempts to disrupt the upcoming Afghan elections and to sway
voters in the Nov. 2 U.S. Presidential election. Iraq has nothing to do with Afghan
voters, since most of 10 million new Afghani voters which Bush boasts, cannot read.
New Afghan voters have no idea what happened in Iraq. The Afghan ballot has 1 name.
If 10 million Afghan voters write in "Mr. Puppet" on ballots, they still get Karzai.

Bush's Iraq line has flip-flopped from "We had to go there, Saddam was a threat" to
"now we are in there, we must honor the dead by remaining there to finish the job."
That logic is as valid as buying Worldcom at $20 down to $0 to honor when it was $50.
In Wall Street, it is called throwing good money after bad. Bush should know better,
since he was taught at Harvard Business School that sunk money, money that has been
paid for a losing project, is gone, putting more money in a loser won't get it back.

Casinos love bettors who behave like Bush and increasing monetary demands for Iraq,
like a black and red player on roulette who loses and keeps doubling up his bets.
The cost of Iraq is enormous and hidden from scrutiny by asking Congress for 20% of
monies and shifting the other 80% of funds from other Defense Dept. appropriations.
It's a shell game, made necessary by lies to the American voter of purpose and cost.
The cost of Iraq will come out in 2005, when Bush no longer has a reason to hide it.

Interest rates and inflation will rise, job growth stall, stocks will discount soon.
Like in next few weeks, since the stock market always looks ahead 6 to 9 months, and
stocks have more correlation to the U.S. Gross Domestic Product than any other data.
This correlation can be seen by overlapping U.S. stock prices since 1900 to U.S. GDP.
Patterns are identical. When the stock market collapsed under Bush in 2001-2002, the
U.S. economy went bust, and the jobless rate went from Clinton's 5.3% to Bush's 6.5%.
The Friday jobs report was likely leaked to insiders on Monday and boosted stocks so
they became so extremely overbought and they had to fall in a late intraday reversal.

Dow stochastics fell from extremely overbought 100%/81% Friday to 82%/81% on Monday.
Readers who bought DJX Oct 102 and Oct 101 put options should continue to hold them.
If the Dow can gain 200 points in only a week watching Bush's election lead disappear,
the Dow can also fall 200 points AFTER Tuesday night's TV debate between Dick Cheney
and John Edwards, when the real power behind Bush's throne will demonstrate Edwards'
lack of political experience. Edwards is another VP Dan Quayle, not a Jack Kennedy.
That's a line Lloyd Bentsten used on Quayle in 1980 debate, when Dan ran with Reagan.
Because of that embarrassment, Ronald Reagan had George Bush Sr. for his VP in 1984.
Dow Jones option index DJX (the Dow divided by 100) closed at 102.17 +0.24 (+0.24%).

Retail Index RLX had a big upside day on perceptions that consumers will spend more.
I am a consumer, and like 80% of Americans, I can't save money, let alone spend more.
The increased spending is coming from credit card debt increases, and a bad upcoming
Personal Income (relative to Personal Spending) will dent any rosy retail perception.
Food stores are an exception, since reports are that 65% of America is getting obese.

When U.S. talk shows are focused on problems that 7-year old kids in America have
from EATING TOO MUCH FOOD, and top leaders like Dick Cheney have had 4 heart attacks
and get called a "hero" (maybe they meant hero sandwich, like a sub or hoagie), and
$83 billion is spent every year to feed pets in America (as much as Iraq in a year),
priorities in America are not Sex in the City, football, J-Lo, but eating more food.
When I was 22 pounds heavier and owned a beer belly, I got more dates in a month than
I now get in a year with perfect weight. All the slim girls moved west to California.
If the Farmers Almanac is correct and it will be very cold winter (record setter) buy
food stocks, since America will pig out watching ballgames. RLX 415.84 +5.17 (+1.26%)

AMEX Oil Stocks Index XOI closed 703.61 -3.53 (-0.50%) at 0.81% above its 7-day MA,
stochastics fell from overbought to 78%/82%. XOI is up from 618, a floor it put in
most of August before Bush surged in the election polls during Republican convention.
Oil stocks started their 27-trading day advance just before Bush was renominated and
are trading like the supply of crude oil in the ground will remain a bottomless pit.
Oil execs are quick to point out, undiscovered crude oil lies waiting in the Arctic
with a few seagulls and polar bears in the way of drilling the last untouched wonder.
When oil execs in Texas were asked, "why shoot a few birds and hunt down a few bears
to make the roughnecks moving north from Alaska safe, what do execs feel about that?"
Some said it's the best way to get a feel for trigger action on new assault weapons.

A ten-year U.S. ban on AK-47 clones and Bushmaster rifles ended just a few weeks ago.
Along with championing free markets, and buyer beware, Bush also champions the right
of every God-fearin' American to own and use a gun (and join the NRA), despite 39,000
injuries and deaths from guns in America every year. That's ten times the 9-11 deaths.

Oil Service Stocks OSX closed 122.06 -1.11 (-0.90%) at 0.88% above its 7-day MA,
stochastics falling to 69%/70%. OSX stochastics had been overbought for 27 days.
Oil service stocks began their 33-trading day advance earlier than oil on August 17
at OSX 102, and the OSX has had 22 up days and 11 down in its impressive 20% rally.

While oil stocks are buys with high cash flows, high dividends, captive customers,
and a President who cares more about protecting oil fields in the Middle East than
baseball fields in the slums of Detroit, oil service stocks are more risky and hence
more variable. When they gain, they outpace oil stocks. Oil stocks are the customers
of oil service firms, except for Halliburton, who biggest customer is VP Dick Cheney.
Question for Tuesday night, will Edwards playing Mr. Nice Guy attack Cheney for his
ties and political influence in no-bid contracts and overcharging by Halliburton?
Readers were advised to buy OSX puts for Dec. 90 at 0.10 and Dec. 95 at 0.30 lately.

Phila. Gold and Silver Stocks XAU closed 99.79 -1.27 (-1.26%) 0.39% above 7-day MA,
stochastics plunged to 40%/76%, and the XAU rally since August 26 was in two parts
on a sudden sharp rise to XAU 95 just before August XAU options expired, which gave
readers in XAU August 90 calls a 17-to-one return, followed by no movement through
Sept. options expiration, then a second sudden sharp upward move from XAU 92 to 102.
The TV media says to viewers when crude oil falls, so does gold. I don't know anyone
who puts gold into their gas tank or furnace, so why should gold fall with crude oil?
There is a relation between momentum money playing oil service stocks and gold stocks.

Phila. Bank Stocks BKX closed 98.92 -0.19 (-0.19%) at 0.68% above its 7-day MA,
stochastics overbought at 80%/89%, on upside reversal of a recent downtrend from
a mid-Sept. BKX peak at 99.90. Why would banks reverse to the upside with the jump
in interest rates from below 4.0% in the 10-year T-note to 4.173% in the last week?

Bush just introduced TV ads Friday to counter his TV debate loss on Thursday in
which Bush reiterates his defense of ownership as top American goal, focusing on
home buying, home selling, home renting, home loans, home building, and everything
except creating jobs for the homeless. Bank chains fuel 4-year home building craze.
Bank stocks are bets that Bush will emphasize home ownership in his next debate #2.

Biotechnology Stocks BTK closed 536.18 +5.43 (+1.02%) at 1.57% above its 7-day MA,
stochastics at 90%/82%. Up from the BTK low 448 on Aug. 10, appears to be stronger
than the other sector indices mentioned here. The biotech stocks peaked at BTK 569
at end of April and fell straight to BTK 448 in less than 4 months, before regaining
68% of summer's total decline in the last 37 trading days. Is it just a retracement?
Hard to say. Hard to determine if Kerry will be good for biotech research in 2005.
Kerry did step off a plane in Philadelphia on Monday and attack Bush policies that
prohibit Federal funding for stem-cell research, based on Bush's religious beliefs.

Phila. Semiconductor Stocks SOX closed 405.01 +3.10 (+0.77%) 3.32% above 7-day MA,
with stochastics overbought at 80%/79%. The SOX index is going to hit the skids on
Tuesday in reaction to AMD's revenue warning overnight on Monday, which sent Intel
lower in European trading (Europe is ahead of the U.S. time). Kiss the SOX goodbye.

NASDAQ COMPOSITE INDEX analysis:
Nasdaq Composite closed 1,952.40 +10.20 at 2.01% above its seven-day moving average.
Nasdaq stochastics fell from extremely overbought 100%/93% Friday to 83%/93% Monday.
Overnight, AMD warned that current revenues will fall short of expectations, and chip
stocks were falling in European trading, led by Intel INTC (last 21.13 +0.28 (+1.34%).

While the TV media makes a big deal on Nasdaq moving up 150 points just last month,
none of the popular TV personalities remind viewers of CNBC and CNN that Nasdaq was
trading over 5000 less than 5 years ago when Maria Bartiromo yelled from the floor
of exchanges, "When will the bubble burst? Folks, we're going to 10,000!" which was
the Nasdaq target for 6-foot-7 Joe Battipaglia, VP at Gruntal. My question to CNBC's
popular anchor in Jan. 2000, Maria Bartiromo, would have been, "Why are you so lame?"

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