Providing Independent "Buy Side" Research

April 17th, 2003

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The Dow Jones Industrial Average:

The Dow Jones Industrial Average closed Wednesday at 8,241.78 down 160.58 points. While I used to consider a 160 point move in the Dow Jones Industrial Average to be a sharp or big move, with the current market conditions I think moves of this magnitude are more normal and do not mean what they used to. I have felt for a long time the move to decimalization has increased the volatility in the market. This is due to the fact that the brokerage firms that "make markets" in NASDAQ stocks or the specialist who handle the trading in exchange listed shares would typically be able to earn the difference between the bid and offer prices on a stock. Decimalization has narrowed the gap between the bid and offer and as a result reduced the profitability of holding securities in inventory. What this means is that these brokerage firms are less willing to hold positions that at best are less profitable for them. It's a basic risk vs. reward decision. What this means is that with the brokers less willing to trade their own account, unless there is a customer limit order on the side of the market order, then a market order is more likely to impact the price of stock. The bottom line result is that an increased level of market volatility is here to stay. This also means that identifying the very short term trends of the market is going to be more difficult. As far of the Dow Jones Industrial Average is concerned, the short term upward trend still appears to be in place, but our indicators are pointing lower indicating we could see a trend reversal and move back to or below the 8,000 level.

Today's Opinion: Closed @ 8,241.78 Current Expectations: Called Higher on April 14th, with the close @ 8,351.10 The Index should move higher and test 8,521.97. However it looks like we could see a trend reversal with a move lower on Thursday.


The S&P 500:

The S&P 500 closed Wednesday at 878.68 down 12.13 points.

Today's Opinion: Closed @ 878.68 Current Expections: Called higher with the close of 885.23 on April 14th. The market should continue to move higher and test 895.90 on a closing basis. I have concerns that with today's move lower we may see a trend reversal to lower levels.

The NASDAQ 100 (NDX)

The NASDAQ 100 Index closed Wednesday @ 1,052.31 down 0.77 points. The index still appears to be in a slight downward trend, but our indicators are pointing higher. Therefore I am expecting the NDX to continue to move higher and finish filling the gap when the NDX gapped lower on March 24th from the previous day's close of 1,093.12 From there it appears the NDX will be at the upper end of the trading range that has developed this year. From there it is not clear what the NDX will do, but we should find out soon.

Current Opinion: Closed @ 1,052.31 Current Expectations: Called Higher with the close on April 14th @ 1,048.31. The NDX should move higher and test 1,093.12 on a closing basis.

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