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Stronger than the market expected

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There could be any number of explanations for today's continued rebound for stocks as the Dow Industrials (INDU) 8,750 +1.72% reaches a session high as the bulk of sectors have the S&P 500 Index (SPX.X) 926.11 +1.92% trading up 17.5 points and at a matching session high.

While this morning's December ISM Services Index reading of 54.7 was a slower pace than November's 57.4 and slightly below consensus estimates of 55.5, today's broader market bullishness has man of the major indexes testing downward trends on their point and figure charts. Something I thought wouldn't take place so soon after the major indexes looked to be breaking down further just before the Christmas holiday.

While the ISM Services data looked to be a little shy of economist's expectations, today's delayed reaction and bullishness since the release may have some market participants thinking that the most bearish of bears found the numbers "strong than expected."

No one can quantitatively place a finger on it, a "lack" of selling brought on by a lack of "tax loss selling" from late December may also be having a near-term demand shift finding stocks higher in many stocks, especially those that had been beaten down into their end of year closes as sellers rid their portfolios of some losing stocks, took the loss, to write off those losses against gains found elsewhere during the 2002 tax year.

For example... shares of Nokia (NYSE:NOK) $16.97 1.79% traded down almost the entire month of December from its earlier month high near $20 to its December 31st close of $15.50, to jump $1.25, or 8.06% on Thursday after the New Year began, and extends some of those gains today.

Adding to today's bullish market tone was Challenger Gray & Christmas employment survey saying that U.S. businesses said they are planning fewer job cuts for a second straight month.

Companies surveyed said they would cut 92,900 positions in December, down 41% from the 157,508 reported cuts in November. For the year, this would translate into cumulative cuts of 1.46 million jobs, down 25% from a record 1.96 million in 2001.

While the trend looks to have the job market showing some lessening of declines, John Challenger, chief executive of the Chicago-based outplacement firm said that layoffs are still at a relatively high level and the recent reductions are not yet a cause for celebration. "We certainly aren't out of the woods yet," he said.

The greatest number of layoffs in the latest month came in the already hard-hit telecommunications industry, which sliced nearly 12,600 positions.

While the Challenger report showed the telecommunications sector still losing jobs, today's 8.6% gain in Dow component SBC Communications (NYSE:SBC) $31.38 and $2.50 jump remains today's Dow gainer after the Wall Street Journal reported that the Federal Communications Commission was planning to stop making local phone companies rent their networks at cheap rates to competitors, which could reduce competitive price pressures.

That news has the North American Telecom Index (XTC.X) 499.90 +5.16% holding a session high and the number three sector gainer just behind the Fiber Optic Index (FOP.X) 52.02 +6% and Disk Drive Index (DDX.X) 76.82 +5.92%.

Shares of Qwest Communications (NYSE:Q) $5.92 +10.03% is one of the bigger percentage gainers of the regional bells and trades at levels not seen since last summer (2002).

While equities find gains today, Treasuries are seeing selling with the 10-year March futures (ty03h) 113'045 -0.25% down 9/32, which has the benchmark bond's YIELD rising to 4.083%.

While off their lows, the Dow Jones US Home Construction Index (DJUSHB) 312.77 -0.45% trades marginally lower and lags the broader market's gains on the thought that a slowly improving economic environment may see Treasuries pressured and that the longer-dated 10 and 30-year YIELDS, which many mortgage rates are tied to having reached their peak lows in October.

Market volume is brisk with the NYSE just breaking the 800 million share mark, while NASDAQ breadth is just over 940 million shares traded.

With the bulk of sectors showing gains, broader market breadth is positive with NYSE showing advancers outnumbering decliners by a 3 to 1 margin. NASDAQ breadth isn't quite as positive as the NYSE, but still positive at 2 to 1.

One observation that the bulk of "tax loss selling" may have been done in late December is the new highs versus new lows category. The NYSE has an impressive 92 stocks hitting new highs versus just 9 stocks at new 52-week lows, while NASDAQ is bullish in this indicator with 82 stocks reaching a new 52-week high versus just 13 stocks hitting new lows. It is the disparity between the new lows and new highs, which gives some credence to the thought of "lack of tax-loss selling."

Jeff Bailey

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