PUBLISHED DAILY - STOCK MARKET DIRECTION - © March 2004
STOCK MARKET DIRECTION by Steve Zito Financial Newsletter
Technical Indicator Analysis of the Nasdaq Composite Index
Redistribution only with permission of the writer Steve Zito.
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STOCK MARKET DIRECTION by Steve Zito Newsletter for Monday, Mar. 8, 2004
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John Kerry and U.S. stock markets - George W. Bush and U.S. stock markets
Hold Elan Plc ELN up 1172% bought at 1.65 and Nanogen NGEN bought at 2.05.
Sun Microsystems SUNW recommended at 3.99 in this March 8, online edition.
Steve Zito's RECOMMENDED HOT STOCK BUYS, 16 of 17 up, average gain +230%.
Information in this letter is based on prices from Friday, Mar. 5, 2004
Dow Jones Industrial Average
---------------------------------------- 10,595.55 + 7.55 (+0.07%)
Nasdaq Composite Index
----------------------------------------- 2,047.63 - 7.48 (-0.36%)
Standard and Poors 500 Index
----------------------------------------- 1,156.86 + 1.99 (+0.17%)
10-Year Note yield
-------------------------------------------- 3.831% -0.198
OVERVIEW of U.S. stock market averages
Large U.S. stocks have done absolutely nothing since Jan. 23, with the 30
Dow Industrials down 27.63 (-0.3%) in the last 30 trading days. What's next?
More of the same meandering around the Dow 10,600 level as investors and
traders try to guess whether Bush or John Kerry will win the White House.
A win by Bush will be bad for stock markets, a win by Kerry very bullish.
Throughout history, stocks have declined under Republican presidents in
their second year of a term as government spending is shifted to defense.
Even astronaut John Glenn has blasted the Bush plans for space as a sham.
Spending trillions to find water on Mars is a cover for space-based weapons.
Heavily tech-weighted Nasdaq has lost 71.38 (-3.4%) since Jan. 23 as the
Nasdaq leaders Intel, Cisco, and Dell have corrected gross overvaluations
to which they were bid over the last 12 months. Why the huge gains which
are only now being unwound? Stock brokerages bought these tech bellweathers
heavily at bottom last March (last year) and had their tech stock analysts
tout their merits on CNBC for almost a year. With millions of viewers and
thousands of mutual fund managers pouring into Intel, Cisco, and Dell, these
three almost doubled on average over a year. Earnings for these tech giants
are mediocre at best measured on net income per share, creating P/E ratios
to match historic highs of early 2000. Intel, Cisco, and Dell are so large
that growth prospects cap at 15%, but the stocks act like growth will be 50%.
That got investors in trouble in March-June 2000, when the likes of Lehman's
analyst Dan Niles had $175 price targets on Intel (ended that year near $30).
DOW JONES INDUSTRIAL AVERAGE analysis
The Dow Industrials closed 10,595.55 +7.55 and lying right on the Dow's 7-day
moving average, which had been up 1/3 and down 2/3 of last 30 trading days.
The bulls are trying to break the Dow above 10660, the high made on Jan. 8,
in order to validate a theory called "January effect" which has it that as go
the first 5 trading days in January, so will go the rest of the following year.
Since Jan. 8, the Dow IA has only closed above 10,660 six times. Past stock
prices are only relevant in the extreme short run, such as one week or a day.
Trying to forecast the close on Dec. 31 this year based on January is useless.
Forecasting year end stocks based on who wins the Presidency is more valid.
The man in the street is starting to feel that Bush and his economic team are
stupid or liars. Only in January did Bush predict the creation of 2.6 million
new jobs in America this year in the President's Economic report. On Friday,
the U.S. Labor Dept. announced that only 21,000 jobs were created last month,
and also revised downward the job growth in January to under 100,000 new jobs.
U.S. Labor Sec. Elaine Chao appeared on TV and defended her record by stating
that in a U.S. Labor Pool of 146 million, only 300,000 U.S. white collar workers
have lost their employment due to foreign labor outsourcing. An outrageous claim.
There are 300,000 Americans employed in U.S. consulting for outsourcing alone.
There are thousands of foreign professors teaching outsourcing in MBA courses.
Last week, CNN interviewed one Indian professor who told TV cameras that the
future of job migration cannot be blocked, it is inevitable. Brush up resumes.
If highly experienced tech workers cannot find work in America, where will the
spending come for consumer goods that CNBC claims is boosting Bush's economy?
Charge cards, where else? Until newly unemployed Americans file bankruptcy.
Elaine Chao and her foreign accent do nothing to create jobs, except in China.
Without job growth and better wages, only wealthy foreigners will buy stocks.
Prospects of a turnaround in the U.S. dollar from record lows against Euros,
and multiyear lows on Yen are keeping foreign money flowing into U.S. stocks.
That money is recycled from exporters selling cheap products in U.S. markets.
As long as Bush appeases China's Communist regime, that regime will reinvest
billions into U.S. Treasuries and stocks. Until a March 20 Taiwan freedom vote.
Recently, 3 million (10%) of Taiwanese held hands and formed a 300-mile chain
to protest China missiles and weapons of mass destruction aimed at their island.
A vote to declare independence March 20 could trigger stock pullbacks globally.
At 42%/40%, Dow stochastics have moved sideways in neutral for most of March.
Watch for the Dow daily range to narrow more and more until volatility gets so
low that everyone falls asleep. Then a selloff coincident with Taiwan's vote.
NASDAQ COMPOSITE INDEX analysis
Nasdaq closed 2,047.63 -7.48 at 0.1% above its short-term bottom following
30 solid days of correction which began on Jan. 23 at Nasdaq 2119. Why did
Nasdaq top out at 2119? Why that is exactly 1000 points above the low that
the Nasdaq Composite made in Oct. 2002 at 1119. How interesting that traders
would top out the tech stock index exactly 1000 points above its 5-year low.
Stochastics fell to 51%/53% and forecast no direction in the next few days.
Blame Microsoft reporting earnings much less than expected, or blame Bush.
Expect another wave of Nasdaq selling to begin a week from today and take
Nasdaq down to the 1980 level. For each 80 points down, there are groups
of buyers wanting in, since most small traders missed last year's rally.
Those that claim to have bought Intel at 15, Cisco at 14, or Dell at 22
also say that they are dating Playboy's Playmate of the Month. Fat chance.
Those that bought biotech like I recommended in December 2003 have seen
Elan (ELN) soar to 17 and Dendreon (DNDN) rocket ahead to 15. Raise stops.
Remember, Elan is an Irish ADR (proxy for foreign stock) traded on NYSE,
and that company holds a great portfolio of small biotech firms on Nasdaq.
ELN closed at 17.11 +0.21 (+1.24%). DNDN closed at 15.41 +0.199 (+1.31%).
Philadelphia GOLD and SILVER Stocks Index - XAU
XAU closed 101.98 +2.85 (+2.88%) at 2.2% above 2-week neutral sideways trend.
The gold stock index lost 10% in mid-January which forecasted a drop in gold,
slow economic growth, and a rising dollar. All of those conditions came about.
The dollar has stopped falling against the Euro, and a 2-year plunge had been
a great contributor to gold's rise from $260 to $420 an ounce in 2002-2003.
The stability in U.S. interest rates lends support to slowdown in America's
economy this year, totally at odds with the Bush administration forecasts.
Why the slowdown? Record levels of short-term debt by consumers, many jobs
fleeing to India, China and Mexico where wages are 10% of U.S. pay rates.
While Bill Gates makes headlines that he can CURE EMAIL SPAM by charging
consumers to pay for email, Microsoft is quietly firing in Seattle to hire
in Asia. Microsoft is headquartered in Washington, state's jobless rate 6%.
XAU stochastics rose to overbought 100%/62%. XAU peaked over 113 on Jan. 5.
SOX Semiconductor stock Index
SOX closed 504.25 -4.45 (-0.87%) at 0.3% below SOX's 7-day moving average.
Stochastics sliding to 22%/24% as chip stocks search for a base around 500.
Intel INTC closed 28.95 -0.70 (-2.36%) at 2.9% below its 37-day downtrend.
If any company is vulnerable to conflict in Taiwan, it is Intel. I have been
telling subscribers that for the last year. On March 20, Taiwanese will tell
Mainland China to get lost. If China attacks, that will be the end of Intel's
motherboard supply. Intel also plans to build a billion-dollar plant in China.
INTC stochastics nearing oversold at 12%/32% and there was no shortage of
mutual fund managers waiting to buy Intel between 30 and 31, where it spent
most of February before cracking 30 late last month on news Intel underpaid
U.S. taxes for many years. I recommended on Jan. 9 to SELL Intel at 34.50.
Intel peaked at 34.50 on Friday, Jan. 9 a week before January options expiry.
AMD closed 15.36 -0.03 (-0.19%). SELL it at 18 again. It topped out at 18.
Microsoft MSFT closed 26.35 -0.02 (-0.08%) at 0.5% below 28-day downtrend.
Recommended Jan. 9 to SELL it at 28 and MSFT peaked at 28.80 on Jan. 26.
Stochastics are moving sideways at 23%/25%. Reported 17% drop in earnings.
Microsoft has lousy management, and nothing more than a legalized monopoly.
Cisco CSCO closed 22.89 -0.30 (-1.29%) at 0.9% below its moving average.
No one remembers when Cisco traded at 80 some years ago, then went to 8.
CNBC's Jim Cramer told viewers on CNBC two years ago to buy CSCO over 20,
and then gloated when it got back to 29 in mid-January. Since then, down 22%.
Fund buyers of Cisco can't remember number of lunch time martinis they drink.
Recommended Jan. 9 to SELL at 27, stochastics falling at 20%/22% are bearish.
Another high-flyer that was touted by CNBC to outrageous valuation, crashing.
Oracle ORCL last at 12.71 -0.29 (-2.23%) Hold. Closing 2.2% below downtrend.
Stochastics are bottomed at 0%/18% and recent high peak was 15. Recommended
to subscribers to buy Oracle back in January at 12 when it was trading at 15.
Only in the past week has Oracle been trading under 13 this year. Time to buy.
Oracle is a major vendor of customer tracking software to improving airlines.
Airlines will be mandated by the Bush administration to track all passengers.
DELL Computer closed 32.26 -0.87 (-2.63%) at 2.2% below 34-day downtrend.
Recommended Jan. 9 to SELL at 36, double top at 36 made Jan. 9 and Jan. 14.
Stochastics are low at 2%/30%. Dell CEO Dell set to sit aside for a new CEO.
Think Dell is going to trade at 50 this year? Think again. Should hit 25.
Sun Microsystems SUNW closed 4.80 -0.36 (-6.98%) at 6.2% below downtrend.
Stochastics are rock bottom at 0%/12%. Poster child for speculative low-
priced issues which short-term traders were buying for the last 10 months.
I wrote in January, Sun had chart gaps to fill on the downside 5.09 to 5.25.
On Friday, Sun broke and finally filled that chart gap nicely. Buy at 3.99.
SUNW was bought in Dec. 2002 at 2.98, rose to 5.60, sold at 4.59 last year.
Thanks for reading this edition of Stock Market Direction by Steve Zito.
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