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Raising of terror threat not enough

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This weekend's raising of the U.S. terrorism threat level to "orange" from "yellow" wasn't enough to dampen holiday spirits among bulls, which was boosted in part by world's number 2 automaker, Ford Motor (NYSE:F) $16.79 +10.17%, raising its fiscal 2003 earnings guidance higher.

Shares of Ford (F) surged $1.55 per share to finish just off their session highs of $16.95, and lead today's most actively traded on the big board, with 32.6 million shares traded, and nearly 3-times average daily volume of 10.4 million shares.

While the major indices showed a mixed trade early, sellers were hard to find as a low volume session found the major indices chugging higher, with the Dow Industrials (INDU) 10,338.00 +0.58% once again leading the percentage gains for the major indices.

While the major equity indices finished with gains, Treasuries reversed early session defensive buying to finish lower as the benchmark 10-year Treasury note finished down 8/32 at 100 21/32, with its YIELD ($TNX.X) rising 3.1 basis points to 4.164%. Some of today's weakness in Treasuries comes ahead of tomorrow's $26 billion auction in new 2-year notes. Impending auctions tend to depress prices on similar notes already in circulation, with some near-term negative impact seen on other maturities as new supply comes to market.

The last two-year note auction, held November 26, had a bid-to- cover ratio of 1.75, down from 2.12 at the October 29 auction. The ratio compares bids received to the amount of securities sold, with higher readings denoting stronger demand.

But the latest terror scares remind participants that short-term interest rates may be on hold for some time, increasing the attractiveness of buying short-term debt now, some analysts argued.

Meanwhile, the 5-year note fell 4/32 to 100 28/32, with its YIELD ($FVX.X) rising 2.6 basis points to 3.77%. The longest-dated 30- year bond fell 12/32 at 105 20/32, with its YIELD ($TYX.X) rising 2.6 basis points to 4.987%.

Market Snapshot / Internals - 12/22/03 Close

It is rare to see volume levels almost identical at the NYSE and NASDAQ, but in what is expected to be light volume trade as 2003 comes to an end, NASDAQ bulls look ready to defend this years gains, while NYSE bulls look to build gains as advancers outnumbered decliners by a 19 to 13 margin, while NASDAQ never could quite get back to even, with decliners slightly outnumbering advancers by an 8 to 7 margin.

The Airline Index (XAL.X) 60.41 (unch) was able to shrug off early session weakness brought on by the raising of the terrorism threat level and their late-session comeback helped the Dow Jones Transportation Average (TRAN) 3,005.25 +0.59% close above the 3,000, which now has the 3,050 highs from March 2002 set to be challenged. TRAN gains were lead by Norfolk Southern (NYSE:NSC) $24.33 +3.13% and USF Corporation (NASDAQ:USFC) $34.31 +2.78%.

Pivot Analysis Matrix

In Friday evening's Market Monitor, I thought we might see some declines early this week, perhaps back to the WEEKLY S1's by tomorrow, where bulls could get one more pullback entry for a round number rally into this years end at some round number closes by December 31.

Despite the raising of the terrorist alert and an earthquake in California, the broader SPX couldn't even get a test at its WEEKLY Pivot, but the weak-of-late NASDAQ-100 Tracking Stock (AMEX:QQQ) $35.57 +0.31% did kiss its WEEKLY Pivot of $35.29.

There just doesn't seem to be any willing sellers, as if investors are determined to hold onto what they've got, and the only "tax loss" strategies being seen are from bears, as they buy in their losses for 2003 when "bad news" is found.

As I looked at the various charts of the major indices, round numbers like Dow 10,500, SPX 1,100, OEX 550 and NDX 1,450 would be fitting closes for the major indices to cap off the year, where closes above the WEEKLY Pivots this week, would well have these round numbers showing up in NEXT WEEK'S pivot matrix.

A I turned the page in my Stock Trader's Almanac for this week, Wednesday, December 24 has been historically bullish with the INDU trading up 8 of the last 12 years, while Friday, December 26th, the day after Christmas, has had the INDU up 9 of last 11. Then on Monday and Tuesday of next week, bull's heads show historically positive trade, where the last day of the trading year shows the NASDAQ up 29 of 31. However, the last day of the year, the INDU has been down 5 of the last 6.

Dow Industrials (INDU) Chart - Daily Intervals

Only if looking at a monthly chart could I come up with a downward trend (all-time high attached to a May 2001 relative high of 11,350) on the Dow Industrials (INDU) extending down to the 10,500 level. The Santa Claus rally is looking like a Santa Claus surge. While I was hoping for one last new bullish entry point on the INDU, and another surge back higher, sellers seem few in GM +4%, HON +3 and MCD +3.53% UTX +1% which continue to trade consecutive session 52-week highs.

S&P 100 Index (OEX.X) Chart - Daily Intervals

While the raising of the nation's terror alert to "orange" got quite a bit of headlines, we should also note that Libya said this weekend that it was giving up plans to build an atomic bomb and other weapons of mass destruction, and has agreed to allow snap nuclear arms inspections. How much these welcome decisions owe to months of quiet behind-the-scenes diplomacy and how much to the toppling of Saddam Hussein's dictatorship in Iraq will long be a matter for discussion. Still, these developments in the Middle East have some believing that corporations that have been tight-belted and taking a wait-and-see approach to capital spending, may now be seeing corporations take some risks and further increase capital expenditures in 2004.

S&P 500 Index (SPX.X) Chart - Daily Intervals

While Thursday's jolt higher looked to be index expiration related, today's gains look to have investors still scrambling to buy stocks. At this point, bears will believe any level is a risk level and extension of the upper end of our hand drawn upper channel would cross THIS WEEK's WEEKLY R2 of 1,105. I thought Friday afternoon we might see a pullback to the 1,075 level for another ramp higher to 1,100 by year's end, but buyers seemed eager above the WEEKLY Pivot and MONTHLY R2, and light volume combined with price action certainly hints there may be few sellers to be found.

NASDAQ-100 Tracking Stock (QQQ) Chart - Daily Intervals

The QQQ still lags the other major indices and seems to draw any strength from the INDU/OEX/SPX. A break above $35.70 may see further upside to the $36.00 level. The NASDAQ-100 Index (NDX.X) 1,431.71 +0.38% did make some changes in its components on Friday, but the major weighted stocks remain MSFT, INTC, CSCO, ORCL, QCOM and AMGN.

Jeff Bailey

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