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Michigan sentiment shows improvement

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The University of Michigan consumer sentiment index rose to 87.0 in early December from November's 84.2 and was an upside surprise to the forecasted 85.0.

Just after the release of the Michigan sentiment numbers, stocks found their intra-day lows as the Dow Industrials (INDU) 8,455 -0.96% found some technical support at its rising 50-day SMA of 8,409 and a "sentimental" rebound from the Michigan numbers after trading a session low of 8,422.

However, as has been pointed out before, both the Michigan sentiment and consumer confidence readings tend to follow stock market action and both have been bolstered in recent months by the rebound in stocks. This leaves some market pundits questioning the recent positive outlook from these consumer readings should the equity markets continue their recent two week decline.

The sentiment numbers did have the Retail HOLDRS (AMEX:RTH) 72.35 -1.29% showing some relative strength versus many other sectors in the early going, but have since faded back and trade at a session low. This gives hint that institutional money isn't putting much faith in the recent rebound showing up in the sentiment and confidence numbers.

Sector action is broadly negative with technology sectors seeing greater percentage declines. The Semiconductor Index (SOX.X) 309.28 -3.68% leads today's sector loser list, with Internet (INX.X) 96.31 -3.2% being rejected after yesterday's rally back to the psychological 100 level and looks short/put here with a near-term target of the 200-day SMA down at 85. Also sporting a decline of more than 3% is the GSTI Software Index (GSO.X) 103.56 -3.01% as sector bellwether and QQQ/NASDAQ-100 heavyweight Microsoft (NASDAQ:MSFT) $52.90 -2.3% falls below its rising 50- day SMA and tests its trying to round out 200-day SMA of $52.78. Today, The Register reports that MSFT denies any interest in making a competing bid against IBM (NYSE:IBM) $78.80 -1.7% for software maker Rational Software (NASDAQ:RATL) $10.41 -0.35%, but refused to comment on a possible acquisition of Borland (NASDAQ:BORL) $12.92 +5.02%. In recent months, it has been rumored that MSFT may look to spend some of its building cash reserves in order to revive its application design and modeling offerings.

Sector gainers is limited today with the Natural Gas Index (XNG.X) 145.73 +2% leading this morning's winner list. Action in the sector looks as if this basket of stocks are attempting to play some catch up to the commodity itself after a torrid three- day rally in the gas futures market. Today, the March Natural Gas futures (ng03h) look to digest some of yesterday's gains and currently trade at $4.77/btu, down 2-cents, or 0.41%.

The U.S. Dollar (dx00y) 104.03 -0.44% broke below its upward trend and looks to challenge the lows of 103.54.

In this morning's market monitor, John Seckinger noted selling in Treasuries, due in part to lack of buying buy FNMA as potential reason that Treasuries aren't finding a normal bid on equity weakness. I also made note of this, but refer back to comments made months ago that any weakness in the U.S. Dollar combined with selling in Treasuries could spell doom for the broader equity markets. Thought from the supply/demand side of things is that this type of action may hint that foreign investment looks to flee the U.S. under the scenario of geopolitical events. While it is too soon to tell for sure, the recent Dollar/Gold action and some Dollar/Bond divergence may underscore such thoughts. As such, a more cautious outlook may be given to the broader equity markets.

Jeff Bailey

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