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Inventories edge up, while PPI remains tame

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Economic data out this morning shows business inventories rose 0.2% in October, which was inline with economist's forecasts, while sales rose 0.4%. The inventory-to-sales ratio was 1.36, which is just above its record low of 1.35.

In a separate report, inflation remains tame at the producer level as the producer price index (PPI) fell 0.4% after a 1.1% jump in October. The core producer price index, which removes the more volatile food and energy prices, showed a 0.3% drop in November.

The November PPI shows prices of many goods are falling. However, the PPI does not capture the main inputs into many services, such as medical care and housing, which have seen higher prices at the consumer level.

Prices of intermediate goods, which need further processing before final sale, dropped 0.1% in November. Core intermediate goods prices, considered to be a good gauge of underlying inflationary pressures on goods, rose 0.1 percent.

Happy New Year!

It's time to roll those buy/sell programs to the next quarterly futures contract and that takes traders into the new year. Now you know one reason they're call "futures."

This morning's economic data had little impact on futures trading, which have been in the red since the early morning.

Make note of the new futures symbols, which have S&P futures (sp03h) down 7.7 points at 893.30. NASDAQ futures (nd03h) are lower by 13.5 points at 1,031 and Dow futures (dj03h) are off 85 points at 8,440.

Yesterday we made note of a break-out in gold stocks and gold futures and the February 03 Gold futures (gc03g) have broken to a contract high this morning with a morning high of 336.70, and currently trade 335.10 +0.9%. Considering this morning's PPI report, this begins to give some credence to yesterday's comments regarding a market that is beginning to worry about things on the geopolitical front.

Further confirmation of those thoughts is higher price action in the January 2003 Light, Sweet Crude Oil futures (cl03f) $28.27 +0.92% edging higher. The recent relative low on this contract was set on November 13th, just above the $24 level.

We also noted a defensive posture in the U.S. Dollar in yesterday's intra-day commentary and market monitor at OptionInvestor.com, and the Dollar is getting hit hard again this morning with the U.S. Dollar Index (dx00y) 103.93 -0.55% breaking firmly below upward trend on the bar chart and threatening its July 17th low of 103.54.

Yesterday's Dollar/Gold DIVERGENCE was viewed as a negative and that certainly look to be in play today, but now starting to impact the broader equity markets.

With the narrower bullish % charts of the Dow Industrials, S&P 100 and NASDAQ-100 in a more defensive posture, the price action between the Dollar and Gold has me cautioning broader market equity bulls that a more defensive posture needs to be taken toward equities.

Jeff Bailey

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