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Lacking confidence puts lid on gains

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The major indexes are off their best levels of the session, but holding marginal gains after the Conference Board said its consumer confidence index fell in January to a nine-year low to a reading of 79.0 from December's 80.7 as "Iraq war fears" along with a sluggish economic backdrop casts a dark cloud over consumer's outlook toward the future.

The Dow Industrials (INDU) 8,020 holds onto a 30-point gain after reaching a morning best of 8,078 after further economic data released showed that new home sales for December were up 3.5% at 1.08 million units, which was above economist's forecast for a decline to 1.04 million units. Earlier this week, the National Association of Realtors said home resales will most likely slow modestly in 2003, but should finish second only to 2002's high- water mark for the real estate market. Resale of homes represents the bulk of sales in the housing market.

4-lettered stocks as depicted by the NASDAQ Composite Index (COMPX) 1,325 currently trade unchanged, with the various sectors we follow showing a rather mixed look after being broadly higher before the intra-day release of economic data.

The Gold/Silver Index (XAU.X) 78.30 -1.6% leads the late-morning sector weakness list, while the Disk Drive Index (DDX.X) 71.31 -0.83% and Semiconductor Index (SOX.X) 277.70 -0.69% are now at their session lows after trading with marginal gains after the open of trading. In recent sessions we've discussed the "reverse head and shoulders" pattern in the Semiconductor HOLDRs (AMEX:SMH) $21.95 +0.95% and yesterday's trade at $22.00 did trigger a triple-bottom sell signal on its point and figure chart and has the SMH now looking vulnerable near-term to its bullish support trend at $20.00, as the bearish vertical count is currently $17.00 and also defensive.

Attributing to some of this morning's reversing weakness in the semiconductor space was foundry Taiwan Semiconductor (NYSE:TSM) $7.15 -4.53% following recent capex cuts by Intel (NASDAQ:INTC) $15.94 +0.37%. Thomas WTSM announced 2003 capex guidance of $1.0-$1.5 billion, which was below consensus estimats. Thomas Weisel Partners that that TSM's guidance for capex spending was well below its estimates of $1.35-$1.60 billion and is clearly a negative data point for the semiconductor equipment sector. The news out of TSM has Applied Materials (NASDAQ:AMAT) $13.11 -1.35%, KLA-Tencor (NASDAQ:KLAC) $34.26 -0.79% and Novellus (NASDAQ:NVLS) $29.22 -2.56% leading the semiconductor sector's declines.

On the upside, sector gainers have the Oil Service Index (OSX.X) 79.86 +1.78% trying to stabilize at two-month lows near 80.00, while technology sector and the telecom-related Fiber Optic Index (FOP.X) 51.65 +1.7% holds a test of its rising 50-day SMA of 51.00 on the heels of an upgrade of Ciena Corp. (NASDAQ:CIEN) $6.10 +4.11% by UBS to "neutral" from "reduce." There are also some rumors circulating the trading desks that Ciena will win a $50 million AT&T contract this spring and this rumor may have been the "catalyst" for this morning's upgrade from UBS.

Jeff Bailey

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