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Automakers see weakness after S&P downgrade of GM

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The Dow Industrials (INDU) 8,056 -2.4% slumped to its lows of the session (8031) after Standard and Poor's cut General Motors (NYSE:GM) $34.45 -6.13% long-term debt ratings to BBB from BBB+. Shares of GM fell rather sharply from the $36.00 level to a session low of $34.08 on S&P's downgrade.

Shares of #2 automaker Ford (NYSE:F) $8.10 -8.68% followed GM lower on the S&P debt downgrade, with market participants beginning to speculate that S&P would soon follow with a debt downgrade on Ford (F). S&P did place Ford on its "credit watch" list today.

The #3 automaker DaimlerChrysler (NYSE:DCX) $34.53% did see marginal selling on the GM debt downgrade, but is bucking the automaker decline after the company announced it had reached an agreement with its Canadian Autoworkers Union, which averts a strike.

Standard and Poor's didn't stop with the worlds #1 automaker as it then downgraded Sun Microsystems' (NASDAQ:SUNW) $2.78 -10.03% credit rating to BBB from BBB+.

The major market indexes continue to edge lower with the tech- heavy NASDAQ-100 Index (NDX.X) 910 -4.17% leading declines after disappointing earnings and forward guidance from chipmakers Intel (NASDAQ:INTC) $13.70 -17% and Motorola (NYSE:MOT) $7.88 -21.8%.

Shares of Intel (INTC) are the most actively traded stock in the market today at just over 104 million shares traded, but well short of its record setting 151 million share mark on June 7, 2002 after a disappointing mid-quarter update this summer. Motorola (MOT) heads the NYSE most active list at just over 48 million shares.

Concerns that IT spending remains weak among S&P 500 corporations has networking giant Cisco Systems (NASDAQ:CSCO) $9.99 -9% the second-most actively traded stock. Cisco's been hanging around the $10.00 psychological level for the past couple of hours after setting an intra-day low at $9.95. Key near-term support of $9.80, which was Monday's low look to be all that stands between current levels of trading and Cisco's 52-week low of $8.12. Earlier this morning, I felt put option traders may want to look for a bearish trade in the Cisco November $10 puts on an "earning's run" lower ahead of Cisco's November 6th after-market earnings report.

While the broader equity markets find some selling after a recent four-day rally, we're still not seeing a massive move back into the Treasury markets. The shorter-term December 5-year Note futures contract (fv02z) trades fractionally higher at 112'115 +0.01%, while the benchmark 10-year Treasury futures (ty02z) 113'080 -0.04% trades modestly lower, creating a somewhat mixed bond market today.

Key levels to be monitoring near-term is psychological support at Dow Industrials 8,000. I'm expecting some type of test of that level, if not a small undercutting. Key for traders will be to keep an eye on the Treasury market on such a test for a response. If Treasuries don't see some buying at that point, I'm looking for a broader market rebound and re-test of yesterday's highs.

Broader market action has volume at the NYSE and NASDAQ just over the 900 million mark at both the NYSE and NASDAQ with NYSE volume at 916 million and NASDAQ a little heavier at 969 million.

Intra-day breadth is negative with the NYSE showing decliners outnumbering advancers by a 3 to 1 margin, while NASDAQ breadth negative with decliners having the upper hand by a 5 to 3 margin.

The NYSE shows 19 stocks hitting new 52-week highs versus 67 stocks at new lows, while 16 stocks reach new highs at the NASDAQ versus 66 new lows. In all, breadth indicators show a more evenly distributed round of modest selling and perhaps not as negative as some had feared after weaker than expected technology earning's disappointments.

Jeff Bailey

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