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Factory orders decline 0.8% in November

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Stocks are seeing a marginally lower trade after 90-minutes of trading with the Dow Industrials (INDU) 8,743 -0.35% off 30 points, while a more bullish tone lingers in technology shares with the NASDAQ-100 Index (NDX.X) 1,066 +0.5% holding a 5-point gain after this morning's economic data showed factory orders falling 0.8% in November.

For a third month out of the last four, the government said that factory orders declined, with November's decline reversing a 1.4% gain found in October. On a year-to-date basis, factory orders for the latest 12-months were 1.1% below last November's tally.

The key non-defense capital goods component of the November report showed a steep 3.6% decline in orders. The Federal Reserve is keeping close tabs on business investment, which has so far remained subdued as many companies struggle with profitability.

But more recent data from the factory sector, the Institute for Supply Managers December index released last week showed a rebound in the factory sector last month. Purchasing managers reported an expansion in business for the first time in several months rallying the stock market and lifting bond yields in anticipation the recovery could carry more punch this year.

Economists remain cautiously optimistic the recovery and factory sector improvement are on track, but probably will still see some trouble spots over the coming months.

Meanwhile, factory orders minus those for the transportation sector fell 0.7% in November. Demand for cars and parts fell 0.9% from a month earlier. Orders ex-defense fell 1.3%.

Durable goods orders minus Pentagon orders dropped 2.4%, the second decrease in the last three months. Capital goods for military use surged nearly 28% in November, helping to offset declines in other segments of the report.

Unfilled orders were down 0.9% in November as inventories slipped 0.3%, the biggest drop since May.

This morning's economic data did see the Dow Industrials (INDU), S&P 500 Index (SPX.X) and S&P 100 Index (OEX.X) fall to test their intra-day pivots of 8,725, 923 and 467 respectively, but a more bullish tone for technology sectors had both the NASDAQ-100 Index (NDX.X) 1,068 +0.62% holding above its "pivot" of 1,054 with a session low of 1,057, and Tracking Stock (AMEX:QQQ) $26.54 +0.83% holding above its pivot of $26.20 with a morning low of $26.25.

The bulk of technology sector are showing gains with the Disk Drive Index (DDX.X) 78.91 +2.74% extending yesterday's gains after a break back above its 200-day SMA on Friday, while the GSTI Software Index (GSO.X) 112.50 +2.54% is today's second biggest sector gainer with a move above its 200-day SMA here today.

Energy sectors are under pressure this morning with the Oil Service Sector (OSX.X) 82.92 -4.49% and Oil Index (OIX.X) 261.90 -3.07% seeing downside action.

March, Light Sweet Crude Oil futures (cl03h) $30.60 -2.67% are falling after Saudi Arabia, the world's largest oil producing country reportedly said it would back an OPEC production hike of as much as 1.5-2.0 million barrels per day to offset the loss of production in Venezuela, where a strike by oil workers there is now in its sixth week.

After a sharp round of selling on Thursday of last week, Treasuries are trying to mount a modest comeback today with marginal buying across the maturities. The 10-year March futures contract (ty03h) 113'155 +0.22% is higher by 8/32, with the benchmark bond's YIELD ($TNX.X) slipping to 4.03%.

On an intra-day basis, equity traders will most likely want to see this morning's lows and intra-day pivots continue to hold support, with little worry of the recent rally losing steam unless some first levels from our pivot analysis become tested. This would be divergence from the previous three sessions and first alert for any type of weakness.

Bears on the other hand get some marginal sign of near-term divergence from the past three sessions as pivot levels were at least tested in the Dow, SPX and OEX on an intra-day basis. Something we haven't seen since the New Year's trading began.

Jeff Bailey

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