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Iraq, Snow, and UAL Dominate the News

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Yesterday, Iraq delivered a 12,000-page dossier on its weapons program. Perhaps in an overt display of U.S. skepticism about the report's veracity, U.S. and U.K. troops this weekend began a joint exercise in the Persian Gulf. A Bloomberg article comments that the exercise was designed to test communications and command structure and involved about 1000 U.S. and 400 U.K. troops.

On CBS's "Face the Nation" this weekend, Florida Senator Bob Graham commented that the U.S. had collected compelling evidence of Iraq's weapons of mass destruction. General Barry McCaffrey, a CNBC guest this morning, commented that after the U.S. invaded Iraq, we'd be able to prove we were right, but most commentators believe that the U.S. will have to prove Iraq's duplicity before an invasion. To do so will require the U.S. to reveal at least some of that compelling evidence gathered through intelligence activities.

In economic news, the dollar fell overnight as a Washington Post article tapped John W. Snow, chairman of CSX Corp., as Bush's choice for Secretary of the Treasury. CNBC just reported that Bush would make the nomination today. Believed to be a proponent of a weaker dollar to spur exports, Snow also supports steps to end corporate misconduct. Television commentators this morning credited him as being a better salesman than O'Neill, too, something Bush needs as he attempts to convince Congress that economic growth requires tax breaks.

The Washington Post also mentions Steven Friedman, former Goldman Sachs Co-Chairman, as Bush's likely replacement for Lawrence Lindsey. Across the world, many welcome Bush's perceived new focus on the U.S. economy, the world's largest economy.

Today, Japan, the world's second-largest economy, saw the release of a troubling economic report. Overnight, a government report noted that machinery orders fell 4.1% in November after having risen 12.7% in October. Expectations had been for a fall of 3.5%.

In its fourth straight day of losses, the Nikkei fell .4%. Felt to be a leading indicator of business spending, the decline in machinery orders furthers the impression that Japan may be headed for another recession.

The outlook wasn't quite so gloomy in Germany. Industrial production decreased 2.1% rather than rising, as was expected, but German Finance Minister Hans Eichel reassured investors that the country was unlikely to sink into another recession. Still, European markets were down in midday trading, with the FTSE 100 down 1.35%, the CAC 40 down 1.23%, and DAX down 1.87%.

Gloomy outlooks in specific companies echoed the outlooks in the broader economies. Selling in Gucci may spill over into U.S. companies manufacturing or selling luxury goods. The world's third-largest luxury goods maker cut its earnings forecast by as much as 23%. Gucci warned that yearend holiday sales would not meet forecasts.

In addition, today UAL filed for Chapter 11 bankruptcy protection. The largest bankruptcy ever in the global aviation industry, the filing allows the company to continue flying. JP Morgan, Citibank, and Bank One provided the $1.5 billion in financing that allows UAL to continue operating.

At about six this morning, S&P 500 futures broke below a bearish rising formation and fell to 905.50, as of this writing.

On Friday, the S&P 500 closed just above important support at 911-912. If futures hold at their current levels, it looks as if markets may open below that prior support as well as below previous support at 906. A possible support area to watch now is Friday's low just below 896. Below that, the 50-dma just under 882 might provide some support, but strongest support lies between 874-877.

Daily (5)(3) stochastics show oversold levels already, so if markets gap down and then begin a push upwards, those 906 and 911-912 areas might now serve as resistance. On a move above those levels, watch the 919-920, 924, and 935 areas, as well as the important August peak at 965.

This morning, HL Camp & Company's website lists their fair value for the S&P 500 at 0.6, and notes that the price will not change during the day. They have set their computers for program buying at $1.44 and for program selling at -$1.32. They compute NDX 100 fair value at $.70.

Jeff Bailey

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