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Flat trade after Hussein given ultimatum

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The major indexes have been either side of unchanged in this morning's trade after President Bush gave Iraq's President Saddam Hussein a 48-hour ultimatum. Iraq news agencies have reported that Saddam Hussein said he will not leave and the countdown to a U.S.-lead attack on Iraq to unseat the dictator continues.

The Dow Industrials (INDU) 8,142 (unch) have been up or down 50- points from yesterday's close, with breadth of the 30 components even at 15 to 15. Yesterday we made note of a new 52-week low in shares of Altria (NYSE:MO) $31.97 -7.8% and that stock is getting hammered lower today after the New York Times reported that the U.S. Justice Department alleged that after a half-century of "fraudulent" and dangerous market practices, it is demanding that the nation's biggest cigarette makers be ordered to forfeit $289 billion in profits.

Weakness in Altria (ALTR) is being partially offset by chemical giant DuPont (NYSE:DD) $39.68 +2.53% and McDonalds (NYSE:MCD) $14.07 +2.62%.

Technology stocks have been rather quiet today, with the NASDAQ- 100 Index (NDX.X) 1,070 -0.64% hovering around our WEEKLY S1 level from the pivot matrix. Sector action has the Biotechnology Index (BTK.X) 343.50 +1.63% showing the only gain of 1% or better, while the Semiconductor Index (SOX.X) 321.59 -0.21% and CBOE Internet Index (INX.X) 99.68 -0.11% traded with fractional losses. Sector bellwether's in the semiconductor space have Intel (NASDAQ:INTC) $17.93 -0.71% and Applied Materials (NASDAQ:AMAT) $13.29 +1.2% showing mixed results after yesterday's announcement out of AMAT that it would lay off 14% of its workforce and take a $425 million pre-tax charge in order to reduce the company's cost by approximately $60 million in Q3, with a $100 million target by Q1 of FY04. Some industry watchers say this is further sign of a bottom in the sector, but continues to show the lack of visibility for a turnaround near-term.

As the morning session progresses, we're starting to see some renewed selling come back into Treasuries. This morning's action has the YIELD curve flattening with selling in the shorter-dated 5-year and some fractional buying in the longer-dated 30-year, but YIELDS have now turned green across the maturities. The 10- year YIELD ($TNX.X), which had been relatively unchanged is on the rise at 3.849% at now looks to test our 61.8% YIELD retracement that was shown in last night's Index Trader Wrap. A move much above the 3.862% builds a higher YIELD target for selling at the crisscrossing trends at 3.956% and should help stocks hold a bid on a rise to that level. It is notable that the shorter-dated 5-year YIELD ($FVX.X) is back above its upward sloping trend from the October lows, and gives some observation that the 10-year YIELD may be headed higher.

Jeff Bailey

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