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Drifting Lower

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We are not seeing a whole lot of momentum, but we are seeing a continuation of the trend of lower highs in the broader markets. The current drop has us at Dow 8525 / SPX 897.97 / OEX 457.21 / Compx 1384.42. The direction continues to be bearish, following the morning drop, but has slowed as we have approached Friday morning's lows.

This morning's drop came in spite of good news from Taiwan Semiconductor that it saw net sales in November increase 32% on year, due to sustained seasonal demand for chips used in personal computers and communications products. That news did not help the Semiconductor Sector Index (SOX), which broke back below Friday's low of 322. The SOX has found closing support over the 329 resistance level from early November for the last few days, so traders can look for resistance at that level on a bounce for short entries. The next likely levels of support are 310 and 300. SOX is currently trading 313.77.

The Nasdaq Composite has sold off after Friday's intraday bounce, following the SOX. Part of the reason was a downgrade to IBM, which is currently trading $80.05 (-2.27). The COMP traded as low as 1379.66, below Friday's low of the day (1391.10). After a sell-off from a high of 1521.44 last Monday, traders need to be aware of the possibility of a bounce. However, if that bounce fails under 1400, shorts may smell blood and we could see another leg down to support at 1319, with intermediate support at 1367.

The President officially nominated John Snow as Secretary of the Treasury. He talked about shared ideas (READ: Tax Cuts to stimulate spending), and underscored the administration's intent to get the Bush stimulus package through Congress in the near future.

The Retailers have taken a hit this morning, following Wal-Mart's announcement that same store sales came in at the low end of expectations last week. This is not a good sign heading into the holidays, just a week after the store set a record one day revenue total on the day after Thanksgiving. That record total now looks mostly due to a late Thanksgiving and a delay of the first day of the official holiday shopping season. Wal-Mart partially blamed poor weather for keeping shoppers at home - a sentiment echoed by Federated (owner of Macy's and Bloomingdale's), which also said it had a "difficult" week. During the summer and fall, nice weather was blamed for shoppers not purchasing sweaters and coats, and now cold weather is getting the blame for the lack of gift purchasing. Weather is a convenient excuse for low sales, and while it may have some effect, it does not mask the problem of low sales before Christmas. Sketchers (SKX)warned of a fourth quarter loss, versus the $0.05 profit expected by analysts and also said "Due to continued weak economic conditions, we are reevaluating our guidance for fiscal 2003." As we get closer to Christmas, we'll be seeing more aggressive markdowns, which will likely cut further into margins. Expect to see more disappointing numbers when we get results next month. The Retail Index (RLX.X) is down 2% to 278.24.

Traders should keep an eye on the Friday lows of Dow 8501.86/SPX 895.96/ OEX 455.94. On a breakdown, look for those levels to act as resistance before shorting ahead of a possible bounce.

Steve Price

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