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Trading curbs in as Dow declines 170-points

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Trading curbs are in as the Dow Industrials (INDU) 7,944 -2.04% decline of more than 170 points from yesterday's close of 8,109. For trading curbs to be lifted, the Dow needs to rally back to within 80-point of yesterday's close or 8,029 for institutional computer trading platforms to be reinitiated.

Economic data released during market hours hasn't been enough to stem an early morning decline, which saw the major indexes slice below our daily S1 and S2 levels of support. This has the weekly pivot analysis levels all in play, with many of the weekly S1 levels currently being tested. This morning action and "failure" to test the opening highs has the look of a market that will most likely close at its lows of the session.

Economic data released at 10:00 AM EST showed a 0.4% rise in December Factory orders, as demand for civilian airplanes (+22% to $6.9 billion) and defense products (+16.6% to $6.9 billion) had total factory orders rising to $320.6 billion. December's 0.4% rise reversed a 0.8% decline in November. December's tally had factor orders falling 0.8% for all of 2002.

Orders for core capital goods, which exclude defense and aircraft, fell 0.3% in December after dropping 3% in November.

Orders for core capital goods fell 5% for all of 2002.

Shipments of factory goods, fell 0.6% in December after a 1.1 percent% in November. Shipments declined 1.1% in 2002.

Shipments of core capital goods declined 1.3% after falling 1.4% in November.

Unfilled orders fell 0.1%, the fourth straight decline, to the lowest level since September 1996. Low levels of unfilled orders reduce the pressure on firms to ramp up production as ample capacity at factories awaits demand before having to come back on line.

Inventories at manufacturers rose 0.5%, the largest increase in nearly two years.

Orders for durable goods fell 0.2%, instead of the 0.2% gain estimated a week ago. Shipments of durables fell 2% to the lowest level since September 2001.

The Commerce Department said motor vehicles accounted for most of the drop in durable orders and shipments.

Other economic data release had outplacement firm Challenger, Gray and Christmas saying Corporate job cuts rose by 42% in January to 132,222. The figures are not adjusted for seasonal factors. January's total was 46% below the 248,475 layoffs announced in January 2001. "The threat of war is perhaps the greatest obstacle to economic recovery, as companies simply lie in wait for a definitive indication on whether we will go to war," said John Challenger, CEO of the firm. In January, retail companies led the way, announcing 44,087 layoffs. Telecom, which had been the leader for months, cut just 7,265 jobs, the lowest since October 2001. The tally tracks announcements, not actual job cuts, which may not come for months.

While the major indexes challenge their weekly S1 level and have their weekly pivots now looking as resistance, sector action is broadly negative.

In this morning's 09:00 update, we noted that the February gold futures (gc03g) 377 +1.67% had jumped to a contract high, and that has the Gold/Silver Index (XAU.X) 79.25 +4.2% back above its shorter-term 21-day SMA and looking to challenge its January 24th relative high of 82.89, but still well off its May 29, 2002 52- week high of 89.03. A quick check of the sector bullish % from Dorsey/Wright and Associates has their precious metals bullish % (BPPREC) "bull confirmed" at 76%. As a benchmark, in May of last year, this sector's bullish % reached a level of 82% bullish before reversing to 14% bullish by late August. As such, the sector is considered "overbought" longer-term and sector bulls should either be looking to lock in some partial gains to help reduce some risk from trades, or implement a systematic approach to raising stops under bullish positions.

Broader market weakness looks to be exacerbated to the downside as the U.S. Dollar Index (dx00y) 99.11 -0.79% trades a session low. Traders may want to monitor the 52-week low of 99.01 from January 27th, as a break there has the dollar looking vulnerable to a fitted retracement level of 96.94.

Jeff Bailey

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