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InvestmentHouse Weekend Update:

http://www.investmenthouse.com/1weekendmarketsummary.htm

- Jobs burst higher, market does same, but still more work to be done.
- Best job growth in 4 years and upward revisions prove us wrong.
- Stocks post strong follow through as NASDAQ, SOX and small caps soar just like old times.

Happy to say jobs were a surprise.

We were more than happy to issue a special �jobs report� alert Friday in which we noted it was a pleasure to say we were wrong. It appears the ancillary signs of job creation trumped overtime worked, average workweek, and pay rates as non-farm payrolls surged and easily topped even the highest whisper expectation. Even tossing out 75K attributable to the end of the California grocery strike you still get a solid 233K new non-farm jobs. We make the distinction because when coupled with the 1.5 million or so jobs that have resulted from small businesses being created, there are a lot more jobs out there than reflected in the non-farm payrolls.

The market responded accordingly. Stocks opened higher and managed to fight off some mid-afternoon selling to post solid gains. The bond market tanked as strong jobs indicate the Fed will be honing up its rate hiking scythe; if we get two more solid non-farm jobs months the Fed will be ready to act. Higher potential rates mean bonds are valued less. In addition the dollar took off. It surged 36 basis points against the euro within 30 seconds and finished the day nearly 40 basis points higher. Gold plunged as the economy showed more strength. That indicates the price climb in gold has not all been based on inflation fears. If that were true gold would have surged on the news as it would have been even more concerned about building inflation. That was another piece of good news that was somewhat overshadowed by the jobs report.

Stocks rallied with money flowing mostly into techs, chips and small caps, the triumvirate of leaders in the 2003 rally. While NASDAQ looked solid all around, NYSE was rather weak. One obvious shortcoming was barely positive breadth. While not a condemning feature in and of itself, you want to see strong breadth on a follow through. The action Friday was solid, but we discussed last week that even with a strong report the market still had work to do. It still does.

THE ECONOMY

March jobs surge, January and February revised higher.

The economy is strong and there are many areas showing circumstantial evidence of job growth, just not the typical ones. Then again, this is hardly a typical recovery. And of course, there is the actual jobs number itself showing the strongest monthly jobs gain since April 2000. Many were quick to note that one month does not make a trend, but we have said often in the past that the revisions hold the real pudding (or we said something like that). January was revised to 159K from 97K; February more than doubled to 46K from 21K. That puts job growth in Q1 at 513K. That is a 2 million pace, and that was with two mediocre months. It may not be a trend, but it has a running start and the economy is not weakening. That means it could be at 2 million by the time the election hits. Again, some will still harp on the jobs lost, looking at where we were instead of where we are.

Where were we? The economy was slowing in early 2000, the market crashed, and the recession started late that year. Election chaos. 9-11. Corporate scandals. Afghanistan. Mutual fund scandals. Deflation fears. Iraq. Where are we? A string of the strongest economic reports in 20 years. Strong capital investment. Surging corporate profits. Strong stock market rally. Low interest rates. Low inflation. High levels of home ownership. Household wealth at all time highs. And the best part? It is still getting better.

Sure deficits are higher, but historically they are lower than they have been in prior recoveries and are even below historical averages. Deficits are a price that is paid to get growth going again. The growth coupled with some spending restraint that is now thankfully a higher priority in the government will take reduce deficits even further. We never want to eliminate them, however, because we cannot have growth without financing that growth through a combination of government, business and household debt. As we saw in late 1999 and into 2000, when you focus on debt reduction through keeping taxes higher than they need to be you end up choking off investment.

The numbers. Unemployment rose to 5.7%, but the rise was due to more workers out looking for work. 308K and solid across the board. 61% of the companies reporting added jobs, the highest since July 2000. Manufacturing still lagged, but it did not lose jobs for the first time in 43 months. Average hourly earnings rose 2 cents, but weekly earnings fell 88 cents. The workweek fell to 33.7 hours. Temps fell for only the second time in 11 months. Thus, the numbers were good but as we have seen all along, there are weak areas that do not suggest surging job growth. The key will be if it sustains itself. It is very good news, however, that the trend is moving higher and higher, and as we all know, trends continue to remain in place until something drastic happens.

Where enters the Fed?

Of course the news had the bond market and Fed Funds Futures contracts frantic. The contracts are pricing in quarter point rate hikes as early as July, then in August and September. Before we start thinking about the Fed popping prosperity again just as it gets underway, let�s be rational.

Many were saying a rate hike was coming soon. The Fed has indicated it will not pull the trigger until job growth is well underway. Some Fed governors have said that means three months of solid job growth. We opined last week that the Fed may know something as Greenspan�s gang was out the past two weeks saying that low rates would not last forever and that the Fed would, and we dreaded hearing this, be preemptive. Still, it won�t work to cut off the recovery until it sees the most lagging indicator, jobs solidly recovering as well. The Fed can raise rates 100 basis points and still be somewhat below parity with real rates. Thus a rate hike, regardless of what some say, won�t have a damning impact on the economy. Historically, the third hike starts to hurt, but historically rates have not been this far below the real rate of interest.

As for the Fed Funds Futures contract pricing in rate hikes in July, August and September, recall that the FFF is a good indicator with about two weeks to go before the actual meeting. It could price in the moon at this point and then completely change. We saw that over and over during the rate hikes and then when the Fed reversed and started cutting rates. It shows you the market�s present level of concern but that can change as quickly as the monthly durable goods orders report. Even if jobs soar the next two months, July would be the earliest it would happen and also about the latest. The Fed wants to see solid consecutive months of jobs growth, but it does not want to raise rates anywhere near the election. It has a window to do it mid-summer. After that it almost certainly will wait until after the election.

THE MARKET

The jobs numbers brought more buyers into the market with NASDAQ posting its first 2 billion share session in a month. Moreover the last one was on the downside. SP500 posted its own accumulation session as well. SOX led (3.7%), NASDAQ was strong (2.1%), and small caps were third (1.2%). The small caps hit a new high as well, rallying meteorically off of the recent lows. As we noted last week, many market commentators continue to say the small caps will be dropped in favor of large caps like a summer love at the end of break, but that just does not happen. Future economic growth gives continued life to growth stocks. When small cap prices �got right�, buyers moved in and voila, new high.

Good to see accumulation on the indexes. That continues the transition to accumulation. The patterns, however, even with the strong Friday moves, are not ready to make sustained breakouts to new highs, particularly SP500. It just broke lower and this is its first rebound. NASDAQ is not so bad, but its rebound has been straight up. SOX looks the best, having sold earlier; many chips are forming nice bases, but as with many stocks, they are still in the lower part of the base and still need work to complete the pattern.

The market may continue to run higher and higher from here, but that would put it in a very precarious position. We still think the market needs another test based on the patterns. NASDAQ is perfectly set up for a double bottom, but is still on the upswing and could continue the move higher given the great momentum. The gap higher, however, after a mostly lower volume move is typically filled; we think it will do that and test a bit deeper.

The action Friday on NASDAQ was a strong follow through to the rally that started two Wednesday�s back. Coming on the eighth day of the rally it was not as strong a signal as if it had occurred earlier. Still, it is follow through that sets the stage for another good upside run. It does not mean it would happen right away. Many stocks still need to work on their patterns and the indexes as well. The follow through confirms the reversal, and when the market is still working on its base, that can signal the transition from distribution to accumulation as stocks still work to complete their patterns as price/volume action improves.

In sum, no problem with the continued move higher in the rebound given the volume and the price gains. It is a positive development in the basing process, but in all probability it is not going to propel NASDAQ to a new high for the year just yet. We view it as another step in building for the next breakout. In the interim there is a continual stream of stocks breaking out though it is not a torrent. The majority of stocks, many leaders included, still need to complete bases before they are ready to move higher.

Market Sentiment

As we noted last week, the sentiment the past month had deteriorated with the put/call ratio spiking, the TRIN hitting high consecutive levels, terror fears renewed, jobs, economic worries. That rising tide of worry gave rise to the initial bounce. Good news has now shot it higher.

VIX: 15.64; -1.01
VXN: 21.35; -2.06
VXO: 15.56; -1.59

Put/Call Ratio (CBOE): 0.68; +0.07

NASDAQ

Gapped over the simple 50 day MVA, fought of some selling, and closed at the high on strong volume. Aces all around on Friday.

Stats: +42.16 points (+2.09%) to close at 2057.17
Volume: 2.214B (+19.48%). Big money was buying stocks Friday as volume hit its best level since early March. This is the strongest indication yet that the price/volume action has transitioned to accumulation, and even if the index tests back from this level we expect volume to be under control. One caveat is the SUNW volume at 214 million, 5 times normal as it announced a settlement with Microsoft.

Up Volume: 1.879B (+532M)
Down Volume: 281M (-177M)

A/D and Hi/Lo: Advancers led 2.26 to 1. A solid A/D line, good enough for a follow through but not blowout.
Previous Session: Advancers led 1.73 to 1

New Highs: 254 (+74). Nice increase and number given it is still well off the prior highs.
New Lows: 9 (-6)

The Chart: (Click to view the chart)

After seven sessions of the bounce off the 200 day MVA at 1900 NASDAQ found renewed strength and gapped higher on strong trade propelled by the jobs report. The move to this point was born in the worries about jobs (starting with the disappointing February report) and terror fears. Volumes were muted and the move was overall rather weak and looked ready to turn back. The news shot it higher yet again on volume and a follow through session. After an already substantial gain we expect NASDAQ to fill the gap at some point and better form the base. With this momentum it could continue higher. Resistance is at 2065 and 2090 where there is a range of prices that will try to hold it back, particularly after a 160 point move to this point. We have been looking for a deeper test to form more of a double bottom. With this move it may just test 2000 and the exponential 50 day MVA (2001) and form a reversed head and shoulders with that level being the bottom of the right shoulder, equal to where the left shoulder formed on the February low.

S&P 500/NYSE

Volume jumped as the large caps moved through the simple 50 day MVA. Not much of a correction and it is heading back toward a new high.

Stats: +9.64 points (+0.85%) to close at 1141.81
NYSE Volume: 1.609B (+4.8%). Another session of above average volume as the large caps post gains. After lagging far behind NASDAQ, accumulation has started in earnest as big money picks up small caps and a few large caps as well.

Up Volume: 1.105B (+52M)
Down Volume: 493M (+21M)

A/D and Hi/Lo: Advancers led 1.11 to 1. Surprisingly weak breadth given the small cap move to a new high. If NASDAQ breadth had been this weak we would be very skeptical of this move.
Previous Session: Advancers led 1.96 to 1

New Highs: 343 (+30). Continue to improve, helped by large caps moving to new highs.
New Lows: 28 (+20)

The Chart: (Click to view the chart)

Rallied through the simple 50 day MVA (1123) on the second consecutive session of rising, above average volume. It was not much of a correction, just two short legs down, and now it is knocking back at the door toward a new high (old at 1158). It is building strength as opposed running out of gas; the ticket is institutional support moving in. We don�t expect it to hit a new high on this run . The key will be how it holds on the test. First is the exponential 50 day MVA (1123).

DJ30

Nice volume as the blue chips moved off the exponential 50 day MVA (10,363), bouncing up and out of that short 4 week double bottom with handle on some solid trade. As with SP500, not much of a correction, but DJ30 has been a follower, not a leader. When the rest of the market started higher it joined in. Again, it was not a bad little pattern, and at least it has something to rally off of.

Stats: +97.26 points (+0.94%) to close at 10470.59
Volume: 243 million versus 218 million Thursday.

The Chart: (Click to view the chart)

THIS WEEK

Friday it was jobs, jobs, jobs, and they finally did not disappoint. The market has been rallying off the March lows, first on low volume but now showing accumulation with a big boost Friday on the jobs report. The big jobs number was not what we were looking for just yet, but we were ready for either way. With the market starting to show accumulation we have kept with the upside plays as well because there continue to be leaders that have formed up ahead of the overall market.

With the jobs number in its back pocket, this week it will be earnings, earnings, earnings. Stocks have moved up off the March lows, and they have done so in part in anticipation of this earnings season where profits are expected to be strong once again. Thus with a 160 point move on NASDAQ, it has already built in some of those anticipated earnings. As noted Thursday, many stocks have started turning off the bottom of their bases, and with a continued move into the first earnings they will be building the right side of the pattern. After this run there will have to be a breather, and that will allow these stocks to form their handles, i.e., the portion where the last sellers are shaken out as the stock approaches the prior high and then falls back on lower volume. That sets up the bigger breakout and run.

The problem with the present situation is the pattern in NASDAQ and SOX needs another test. Prior to Friday�s surge we were looking for more of a double bottom. Now with such a large surge off of the lows on NASDAQ, a full test would be too severe. A push toward the 2100 range on NASDAQ on early earnings and then a test back to 2000 would set up the base for the breakout move. On that pullback we want to see the improved price/volume action continue: more rising volume on the continued move higher, lower volume as stocks pull back for the next test.

Thus far the development has tracked along expectations with the exception of the move Friday on the jobs report. Even with that there was surprising weakness in the internals on the SP500 and NYSE. Thus another test still seems likely, just not as deep. No problem with that. Overall the action is making the positive turn that we wanted: gloom and doom sets the stage for the rebound, price/volume action transitions to positive, early stocks start breaking out. Now another test back will set the stage as that will allow more stocks to complete their bases. Cannot complain about that, particularly as we have continued to move into stocks that have shown the good patterns and solid volume moves even as the market waffled some.

This week we could see further upside momentum into that range of resistance on NASDAQ. The start of a new quarter is when new money is put to work, and the jobs report gave even more incentive to do that. After that move we anticipate a pullback of a week or so to make the next test that sets the bottom. We will stick with solid stocks that breakout, rebound from breakout tests, or are moving up the right side of their bases. We started some of those last week and though more aggressive, if they have good accumulation at this point in the base they are far ahead of other stocks. They rally higher and will then form a handle at some point. That can give us some good gain up to that point that we can partially bank, and then on the breakout we can add some more positions, ride the breakout move and bank more of the early position along with the second position, be way ahead, and still have a position to work for us some more.

Support and Resistance

NASDAQ: Closed at 2057.17
- Resistance: 2057 to 1065, then 2089. This represents a range of prior price points. 2150.
- Support: The exponential 50 day MVA (2001). 2000, the top of the late 2003 base. The 10 and 18 day MVA (1992, 1986). Some prices from the recent March consolidation attempt (1943). Mixed tops and bottoms at 1900. The 200 day MVA (1901).

S&P 500: Closed at 1131.81
- Resistance: The January high (1155). Next is 1159 (February highs) and 1160 to 1175 the highs in that double top that spanned late 2001, early 2002.
- Support: 1125, still a key level. The exponential 50 day MVA (1123). The 10 day MVA (1123). 1106 is a May 2002 top and represents some early 2001 lows. 1096 to 1100. 1075 to 1070 from the December consolidation.

Dow: Closed at 10,470.59
- Resistance: The simple 50 day MVA (10,461) is still not broken. September/November up trendline (10,570). 10,600.
- Support: The exponential 50 day MVA (10,363). The 18 day MVA (10,318). Then the 10 day MVA (10,321). 10,000 to 9900-9850. 9859-9855 is the next real support.

Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the �Economy� section.

4-05-04
- ISM Services, March (10:00): 61.0 expected, 60.8 February.

4-07-04
- Consumer credit, February (2:00): $7.6B expected, $14.3B January.

4-08-04
- Initial jobless claims (8:30): 335K expected, 342K prior.
- Wholesale inventories, February (10:00): 0.2% expected, 0.1% January.