Sunday, March 07, 2004

Weekly Outlook

U.S. stocks should continue drifting higher this week without much in the way of market-moving news. The Trade Balance, Inventories, Advance Retail Sales, Current Account Balance and preliminary reading of the Univ. of Michigan Consumer Confidence for March are the main reports scheduled for release. Oracle's(ORCL) 3Q report and Texas Instruments mid-quarter update are the only reports with market-moving potential this week. Other companies of note scheduled to report include Ann Taylor(ANN), Kroger(KR), Albertson's(ABS), Krispy Kreme(KKD), Talbots(TLB), El Paso(EP) and Border's Group(BGP).

Retail Sales and Consumer Confidence are the two most important releases this week. Advance Retail Sales are expected to have risen .6% in February vs. a .3% decline in January. The Univ. of Michigan Consumer Confidence preliminary reading is expected to come in at 95.4 for March vs. 94.4 in February.

BOTTOM LINE: I expect the majority of stocks to have a pretty good week. I will be monitoring tech closely for any signs that investors are shifting to a more positive stance on the sector as my short-term indictors turned positive on the group last week. As well, NASDAQ short interest relative to NASDAQ volume, a measure akin to the short interest ratio of an individual stock, is currently very high which will result in buying pressure as shorts cover their postions. Homebuilders have had a 20% move in just a few weeks, thus it is likely they will at least consolidate this week. Biotechnology, Financial Services, Retail and Basic Materials should continue to outperform with lower rates and a lower dollar. Overall, I will use pull-backs to buy in select areas and leave the Portfolio's market exposure relatively high. It is currently 100% net long.

I have five main concerns right now with respect to the U.S. equities markets:

1) The possibility of a terrorist attack on U.S. soil.
2) A change in the government's attitudes towards more protectionist economic policies and higher taxes.
3) A further rise in energy prices throughout the spring.
4) A sudden sharp move up in interest rates.
5) A continuation of the recent fall in consumer confidence over the next few months.

All five of these are currently not an issue, but any one could occur and would likely result in a change of my bullish outlook for 04.

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