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Decline in confidence has stocks turning south

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The major indexes have taken a turn lower after the Conference Board said that its consumer confidence index fell to 80.3 in December, which was below economist's forecast of 86.0 and below November's 84.9 reading.

The decline in the Conference Board's consumer confidence index contrasts the slight improvement we saw in the University of Michigan's consumer sentiment numbers in December, which rose to 86.7 from 84.2.

The "mixed messages" from both consumer confidence readings looks to be a "wash," but has had traders turning further defensive as the major indexes sink to their lows of the session.

Early trading had the major indexes hovering right near or slightly above our intra-day pivots, but a quick turn south had the Dow Industrials (INDU) 8,273 -0.71%, S&P 500 (SPX.X) 872 -0.82%, S&P 100 (OEX.X) 441 -0.8% and NASDAQ-100 (NDX.X) 980 -0.99% all trading their first levels of intra-day support that we had posted in last night's market monitor.

The more defensive selling in equities has found Treasuries catching further bids as the 10-year Treasury futures (ty03h) ticks to a new contract high at 115'155 +0.18% as investors turn toward the perceived safety of bonds. The 10-year YIELD ($TNX.X) 3.782% dipped to a low YIELD of 3.759%, which briefly violated the YIELD low found on November 12th, but has since edge higher as the markets digest the consumer confidence numbers. Still, the 10-year YIELD is well above its low YIELD of 3.559% found in mid-October, but looks to be headed back that way.

Earlier in the session, just prior to this morning's release of confidence data, sector action was mixed, but has now turned markedly negative.

Semiconductors as depicted by the PHLX Semiconductor Index (SOX.X) 287 -0.97% had posted a gain of 1% earlier in the morning, but have since given back those gains and violated yesterday's low. In last night's "Index Trader Wrap" we took a brief historical tour and some of yesterday's SIA data sounded very similar to that found 1-year ago yesterday. With the semiconductor sector looking to enter its seasonally slow quarter, the sector looks further defensive today and near-term vulnerable to lower Bollinger Band support of 271.68. Shares of sector bellwether Intel (NASDAQ:INTC) $15.53 -1.39% are today's most actively traded security, with volume currently at 20 million shares traded.

Shares of Honeywell (NYSE:HON) $23.12 +2.89% are today's Dow gainer. I don't see any news to explain today's action, but do note that the stock looks to rebound from lower Bollinger Band support of $22, which also marks a session low after a gap down on November 14th after the stock had been downgraded by Salomon Smith Barney on concerns that potential pension plan funding and significant company restructuring might have earning's under pressure.

After positive comments this morning out of Soundview, shares of International Business Machines (NYSE:IBM) $77.85 +2.11% holds the Dow's second largest gainer position and trades just off it's session high of $78.46, which is near a level of $78.50 where the stock begins to encounter some overhead supply that served as support earlier this month.

Shares of Tyco Intl. (NYSE:TYC) $17.17 +11.85% are the second largest gainer among all stocks after the company announced last night that its internal accounting review did find the company engaging in aggressive accounting and would have the company taking a pretax charge of $382.2 million in fiscal year 2002, but that it's accounting practices were not fraudulent. Today's action hints of some shorts getting squeezed.

Jeff Bailey

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