EASTMAN KODAK HOLDS DOW UP -- AMR LEADS AIRLINES HIGHER -- SMALL CAP INDEX REACHES 2000 PEAK

TALE OF TWO STOCKS... For the second time in two days the Dow held up better than the Nasdaq. The Dow ended the day unchanged while the Nasdaq lost 23 points (1%). That discrepancy can be explained by looking at the divergent trends of two Dow stocks. Eastman Kodak soared to the highest level in six months today. That added 26 points to the Dow and was mainly responsible for holding the Dow up. One of the Dow's weakest stocks was Intel, which fell under its 50-day moving average today. Intel recently failed a test of its November high and has been slipping for the past couple of weeks. Its weakness is also having a negative impact on the Semiconductor (SOX) Index which lost ground today. Because of its size, Intel is also having a negative impact on the Nasdaq market.

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WORST NASDAQ LOSERS... All three fell on heavy volume. The biggest loser was SanDisk which gapped to the lowest level since December. That stock peaked during November and is headed toward its 200-day moving average. Tellabs is also falling on heavy volume. Today's downside move was the worst combination of price and volume action in months. The same is true for Siebel Systems. SEBL is threatening to fall beneath its 50-day moving average, which has acted as a support line for months.

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AIRLINES TAKE OFF... Airlines were the day's top industry group. The AMEX Airline Index climbed to the highest level in ten weeks. The relative strength line shows that the airlines have been market laggards of late. The RS line, however, may be turning higher. The climbing airlines explains why the Dow Transports closed higher today. The five top Transport gainers were all airlines. AMR was the best performer. Chart 7 shows AMR flying through its October peak on very heavy volume to reach a new 52-week high.

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RUSSELL 2000 REACHES 2000 PEAK... Small cap stocks have been market leaders for the past year. That's been a good thing for the rest of the market. It's necessary to point out, however, that the Russell 2000 Small Cap Index closed at 598 today after hitting 600 earlier in the day. That puts the index right up against the closing high it registered during 2000 at 606. Chart readers know that a test of a major peak is always a critical time in a bull market advance. We'll be watching closely to see if the 600 level causes any serious profit-taking in the small cap universe. Several major stock indexes like the Dow and the S&P 500 are very close to peaks formed near the start of 2002.

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