Watch This Red Flag

September 2, 2003
Vincent Mao

Stocks are
higher on this first trading day in September.Â According
to the Stock Trader’s Almanac, September has historically been the worst
month for both the Dow Jones Industrials and the S&P 500. Despite this, the
major indices are staging a modest rally this midday, as more economic reports
continued to support a recovering economy. In addition, positive comments from
the tech sector are boosting the rally. Manufacturing grew for a second straight
month as the Institute of Supply Management’s factory index in August grew at
the fastest pace in eight months. Separately, a report from Challenger, Gray &
Christmas showed a drop in lay-offs.

Strength in networking
(
$NWX.X |
Quote |
Chart |
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PowerRating),
hardware
(
$HWI.X |
Quote |
Chart |
News |
PowerRating), and software
(
$GSO.X |
Quote |
Chart |
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PowerRating) are helping to push the
Nasdaq Composite to its highest level since last April. Goldman Sachs upgraded
the enterprise hardware sector from “cautious” to “neutral”. It also upgraded
the software sector from “neutral” to “attractive” in anticipation of strong
fourth-quarter performance. First Albany was also optimistic on technology,
advising “overweight” tech issues. Lastly, the Semiconductor Industry
Association reported a 10.5% jump in worldwide chip sales in July. However,
caution should be used as semiconductor issue are not participating in today’s
rally. Bonds are down by more than a full point today as more data suggest an
economic recovery.Â Â

In economic news, the ISM
Manufacturing Index rose to a reading of 54.7 from 51.8 in August. This
surpassed economists’ expectations of a reading of 53.5. A report from
Challenger, Gray & Christmas showed a 6% drop in layoffs in July.Â

The 10-year U.S. Note
is -100 at 108 225.

The dollar is +0.75 at
98.85.

Gold is -1.40 at 375.40.

Crude Oil -1.748 at
29.38.

Volume is 686,000,000 on
the NYSE, and 927,000,000 on the Nasdaq.

Market breadth is positive,
with NYSE advancing issues over declining issues by 1.82, and up over down
volume by 2.52; Nasdaq advancing issues over declining issues by 1.61, and up
volume over down volume by 1.83.

Top Dow stocks are:

Stocks in the news:

Women’s apparel and accessories
retailer BeBe
(
BEBE |
Quote |
Chart |
News |
PowerRating) is higher by 7.5% after J.P. Morgan upgraded
the stock from “Neutral” to “Overweight”. Morgan told its clients that “much of
the production and inventory issues are now behind the company” and that they
believe that earnings are bound to gain momentum over the next 12 months.Â

Computer giant Dell
Computers
(
DELL |
Quote |
Chart |
News |
PowerRating) is higher by nearly 2% after Goldman Sachs raised the
company’s rating from “In line” to “Outperform”. Goldman based the upgrade on
valuation and growth prospects. The firm also expects a 15% increase in Dell
stock over the next 12 months. In addition, Goldman upgraded the enterprise
hardware sector from “Cautious” to “Neutral” .

Freddie Mac
(
FRE |
Quote |
Chart |
News |
PowerRating)
and Fannie Mae are higher by 1.3% and 3% respectively, after Merrill
Lynch upgraded the mortgage companies from “Neutral” to “Buy”.Â Merrill based the
pair of upgrades on the belief that both stocks have made bottoms. According to
Merrill, “we are encouraged to see both stocks trading better, even on the bad
news that Freddie Mac CEO Greg Parseghian will be forced to resign from the
company. This type of trading is usually consistent with bottoms in stocks.”

Consumer products giant
Gillette
(
G |
Quote |
Chart |
News |
PowerRating) filed a motion for a preliminary injunction against Energizer
Holdings
(
ENR |
Quote |
Chart |
News |
PowerRating), alleging patent infringement. Gillette is also seeking to
prevent the sale of Energizer’s “Schick Quattro” razor. Shares of Gillette are
fractionally higher ,while shares of Energizer are higher by more than 2.5%.Â

Teen specialty retailer Hot
Topic
(
HOTT |
Quote |
Chart |
News |
PowerRating) is lower by 1.2% after J.P. Morgan downgraded the company
to “Neutral” from “Overweight”. Morgan based the upgrade on valuation but thinks
that the stock could be a “long-term winner”.Â

Research in Motion
(
RIMM |
Quote |
Chart |
News |
PowerRating)
is lower by 4.7% after a Barron’s article raised concerns about the
company’s outlook. Barron’s highlighted the company’s legal battles with
Good Technology and NTP. RIMM’s valuation was also a concern.

Â If you have any comments or
questions, please feel free to email me.

Vincent Mao

vincentm@tradingmarkets.com

Watch This Red Flag

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