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Stocks gain on ISM data

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Stocks shrugged off a weaker than expected weekly jobless report in the early part of this morning's session as the Dow Industrials (INDU) built a 50-point gain. Then, at 10:00 AM EST, stocks jumped to their best levels of the session after the Institute of Supply Management said that its gauge on the factory sector rose to 54.7% in December from November's 49.2%.

The Dow Industrials (INDU) 8,524 +2.2% currently posts a 183 point gain after jumping to as high as 8,562 as the ISM index breached the 50% barrier, a level that indicates expansion, for the first time in four months.

In this morning's market monitor at OI, I've discussed some thoughts as it relates to the technicals of the market, which at this point continue to have me advising CAUTION toward the bullish side of things.

In Tuesday's "Index Trader Wrap" we looked at 2002 as a whole, and only reviewed one chart of the indexes, which was the S&P 100 Index (OEX.X) 454.13. This is also an index, like other, where we looked at the point and figure chart and actually tried to "envision" a short-term oversold bounce in the OEX back to the 455 level on the traditional $5 box scale. In this morning's market monitor, we looked at the OEX chart on the $2.5 box scale, which introduces more "noise" and still we do not see any sign of meaning strength as a p/f "buy signal" has not been generated. As such, my observation at this point is that the markets are getting a shorter-term type of oversold bounce.

Stocks in the news have banking giant and Dow component J.P. Morgan (NYSE:JPM) $25.05 jumping 4.3% after the stock was halted for trading at the open with news pending. The company later announced that it had settled its dispute with 10 of 11 insurance companies regarding the surety contracts issued by those companies that guaranteed obligations of Enron to J.P. Morgan under prepaid commodity forward contracts. Under the agreement, the insurance companies will pay approximately 60% of the amount of surety bonds they wrote. Later today, at 01:00 PM EST, a conference call (973-582-2754) will be held to discuss the financial implications of this settlement as well as the amount of any additional reserves that J.P. Morgan may need to establish.

The ISM data has been received as a near-term positive by the markets and some of the more defensive buying of Treasuries over the past two weeks is seeing some sellers across the board with biggest losses coming in the longer-dated maturities. The benchmark bond's 10-year Treasury futures (ty03h) 113'170 -1.32% is getting hit to the downside with the bond's YIELD ($TNX.X) jumping to 4.029% from Tuesday's closing YIELD of 3.823%.

In recent updates and "Index Trader Wrap" we discussed the potential for a "tax loss" bounce. This may be partially in play here. One thing I did was take our 10 "Dow Dogs" and split them into two groups, "lower priced and "higher priced." I'll show this in the 01:00 Update how this can be done with q-charts and the portfolio function, but a quick look has the 5 lower priced components up 3.4% as a whole versus the 5 higher priced gaining 2.9%.

Another indicator I would use for "tax loss" bounce, which would come simply from a lack of selling for 2002 tax purposes, is new 52-week lows. A quick check here shows just 8 new lows on the NYSE versus 36 new highs (not all that bullish on the new highs) and 13 new lows on the NASDAQ versus 30 new highs (not all that bullish on the new highs). While just one-quarter-day's observation, the new-lows does hint that selling of weaker stocks has subsided a bit, but the rather small amount of new highs on a rather bullish morning session may hint that there's some "tax gain" selling of last year's bigger winners that has a bit of a lid on the new highs indicator.

Individual equity bulls may want to look for pullback entry points on STRONGER stocks that had been able to hold near their highs, looking for any "tax gain" selling to bring some STRONG stocks back into some nice pullback entry points, with the thought that longer-term bullishness and sponsorship will have the stock achieving a new 52-week high in weeks/days to come, once some "tax gain" selling is completed.

Jeff Bailey

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