CLOSING COMMENTS 10-4-04

Even though the third quarter was disappointing for investors, the quarter ended with a strong finish, which extended into the beginning of the fourth quarter, with all of the indexes posting strong weekly gains. Once again, the Russell 2000 led the way, rising 19 points, or 3.4%, which has left small-cap stocks solidly in the black for the year, rising 5%. The NASDAQ surged 63 points, or 3.3%, and in the process cut its losses for the year by more than half. Based upon Friday’s close of 1942, it is down 3.1% this year. The Dow rose 145 points, or 1.4%, but is still off 2.5% this year. The S&P 500 gained 21 points, which represents virtually its entire gain for the year.

Friday’s gains, on heavy volume, have left the markets in an interesting technical position. The recent gains have set the S&P 500 up to test the key 1131 level, which represents the upper boundary of this year's bear channel and the September 21st high. With approximately 60% of the stocks in the Index trading below their 200-day moving average, breaking through the key technical level could be challenging.1964 represents the NASDAQ’s 200-day Simple Moving Average, while the Dow’s 200-day SMA is just 100 points above Friday’s close. With the indexes already extended, the Volatility Index reaching its all-time low of 12 on Friday (where the market has topped in the past) and oil prices closing above $50 last week, it would not surprise us if their was some corrective action this week.

What can investors expect this week? Even though Earnings Season does not begin in earnest until next week, companies may still issue significant warnings this week, as they compile results from the end of the quarter. There are few major companies reporting results this week, but Genentech (DNA) reports results after the close on Wednesday. Thursday morning, ATI Technologies (ATYT) and Costco (COST) report earnings. After the close, Alcoa (AA) issues results. Friday morning, General Electric (GE) announces Q3 profits. Medtronic (MDT) and National Semiconductor (NSM) meet with Analysts on Tuesday. Credit Suisse First Boston holds a two-day Medtech Conference beginning on Wednesday in Boston.

Monday, August Factory Orders will be reported. Tuesday, Fed Chairman Greenspan speaks before the American Bankers Association at 9:30 am. Challenger, Gray & Christmas releases its September survey of job cuts. The ISM non-manufacturing index is released the same day. Thursday, weekly jobless claims are announced, along with August Consumer Credit. Leading retailers report September same-store sales that day as well. The European Central Bank announces its decision on interest rates. Finally, Friday brings the eagerly awaited Employment Report, which economists expect to show an increase of 150,000 jobs. August Wholesale Inventories will be announced at 10 am that day. Friday evening, President Bush and Senator Kerry stage their second debate.

Stay Tuned!