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Index Wrap

So that's why Santa chose Reindeer!

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A case of mad cow disease set the tone for today's trade, and with few traders or investors around to trade, the main revelation traders took away from today's trade, was how smart Santa Claus was when he chose reindeer over cows to pull his sleigh.

While there was heartbreak in for form of lower stock prices for company's that had anything to do with serving, distributing, or growing beef; can you imagine having to break the news to little Suzy or Johnny that Santa might be delayed because his team of cows were not allowed to cross international borders because a cow in Mabton, Washington was tested positive for mad-cow disease?

February Live Cattle futures (lc04g) $0.89175 -1.65% were traded limit down, where some cattle futures traders expect limit down trade to continue in coming sessions. Limit down for the cattle futures markets is $0.015 per pound, which a stock trader might associate with not being able to trade should trading be halted for the day if the Dow Industrials (INDU) 10,305.19 -0.31% fell 30% in a single session. While cattle futures were open for trade at limit down, there were few buyers to be found.

Some quick notes I ran across; is that the cattle industry is a $175 billion industry in the U.S. In the past year, consumer bought $50 billion worth of beef products, while exports of beef contributed $3 billion worth of benefit to U.S. exports.

The case of mad-cow sparked an immediate response from some of the country's main trading partners. Japan, Korea and Russia all announced bans on imports of U.S. beef, mirroring a similar decision taken by U.S. authorities earlier in the year when Canada confirmed reports of a case of BSE in its livestock. Later in the morning, Mexico also announced it was putting a ban in place.

The National Cattleman's Beef Association chief economist Gregg Doud said he thought cattle prices could fall 10% to 15% if current import bans were not lifted in coming days. David Palmer, of UBS said the bans on imports of U.S. beef could send prices down 20% or more.

Restaurant stock analysts, that cover beef-related food retailers like McDonald's (NYSE:MCD) $23.96 -5.22%, Wendy's (NYSE:WEN) $37.79 -4.7% and Jack in the Box (NYSE:JBX) $20.76 -5.63% had mixed comments on the sector. While the decline in beef prices would be expected to have a positive impact on margins, the wild card was what impact the news of mad-cow disease in the U.S. might have on consumer's consumption habits.

While the single case of mad-cow disease grabbed the bulk of today's headlines, economic data released found little reaction.

November new home sales were released at 10:00 AM EST, where new home sales fell to an annual rate of 1.082 million units, which was below economists' forecast of 1.125 million units. The Dow Jones Home Construction Index (DJUSHB) 603.71 -0.34% slipped 2 points lower on the session, but up from its morning lows of 598.66.

The 3.1% decline in November durable goods orders was a negative surprise to economists' forecast for +1.0%. Economists seemed to shrug off the data as being volatile and not overly concerning when considering the upward revision to October's previously reported 3.3% to 4.0%. While many economists look for December durable goods data to snap back, if it doesn't, the ongoing strength in business investment will be called into question.

Market Snapshot / Internals - 12/24/2003 Close

The NYSE Composite ($NYA.X) 6,350 +0.2% gained 12 points to close at a 19-month high and nears a relative high of 6,460 set in March of 2000. Meanwhile the small cap Russell-2000 Index (RUT.X) 552.35 -0.48% was the greater percentage loser of the major indices, falling losses in today's trade.

I would caution reading too much into today's trade, especially at the more institutionally traded NYSE, where the bulk of institutional money managers were likely not in the office.

Pivot Analysis Matrix -

I'd consider today's trade a non-event. The Dow Industrials (INDU) traded a very tight 36-point range, and Friday might considered a volatile trade if the Industrials were to be able to round-trip trade within its DAILY S2 and DAILY R2.

If I were to try and find any correlations at Friday's DAILY S2 within the WEEKLY or MONTHLY levels I couldn't, but upside resistance levels abound at the DAILY R2 and WEEKLY R1 levels.

Russell-2000 Index (RUT.X) Chart - WEEKLY Intervals

The small caps that comprise the Russell-2000 Index ($RUT.X) have just about retraced 80.9% of their bear market decline. Where has the time gone!

With November durable goods orders falling, tonight's a good night to quickly review the small caps, which by and large will benefit from business spending. The only cautionary item I see in the above chart is that a longer-term WEEKLY interval view shows MACD just edging below its signal. While not all small caps that comprise the Russell-2000 Index are 4-lettered stocks listed on the NASDAQ, the recent reversal back lower in the NASDAQ Composite Bullish % ($BPCOMPQ) may be an internal indicator to have some small cap bulls raising some stops to protect gains.

While the 80.9% retracement at 558, say 560 would be deemed a technical level of resistance, I'm not sure there's much stock owned by bulls above the 560 level to be providing overhead supply.

NASDAQ-Composite Index (COMPX.X) - WEEKLY Intervals

I thought I'd take an identical retracement bracket on the NASDAQ-Composite as shown for the Russell-2000 Index ($RUT.X). This chart still shocks me. What a pounding the COMPX took, while at the same time... the sky is the limit!

There's a lot of what some traders and investors might consider "garbage" listed on the NASDAQ, but there's also some stocks that are rising to all-time highs. eBay (NASDAQ:EBAY) $64.02 +0.43% traded second-consecutive all-time high today, which would equivalent to the COMPX trading 5,134. Research in Motion (NASDAQ:RIMM) $68.05 -2.24% edged back today, after surging more than 50% on Tuesday.

With the NASDAQ Composite looking range bound between 1,877 and 2,000 one has to wonder if stocks like EBAY and RIMM are overvalued, or is the broader NASDAQ Composite overvalued? It's all relative isn't it? Alert set at 1,875 for weakness, and 2,005 for strength.

S&P 100 Index Chart - Daily Intervals

The bar chart of the OEX with DAILY S2 and DAILY R2 ties in nicely with the WEEKLY Pivot retracement. While the Stock Trader's Almanac notes that the day before Christmas saw the INDU up 8 of last 12 years, that didn't pan out today as it was a mad- cow, not a crazed bull that ran on Wall Street today. However, when we consider the OEX is currently showing a 4% gain for the month of December, that well above the 52-year average gain of 1.8% for the month of December, the most bullish month of the year.

NASDAQ-100 Index Tracking Stock (AMEX:QQQ) - Daily Intervals

The only reason the Q's finished with a gain is that is did see some selling late yesterday's just before its close on the mad- cow news. NASDAQ-100 component breadth was negative at 28-72 with IVGN +6.75%, SNDK +3.26% and AAPL +3.03%. Decliners found MCHP -4.55%, IACI -2.29% and RIMM -2.24%.

'Twas the night before Christmas, and all through the Q's, fractional gains were still found, despite mad-cow news;

The sectors finished mixed, some red and some green, as today's trade was thin, if not simply lean;

Most traders were gone, they hadn't a care, some last minute shopping, for those that might dare;

And me and my pivots, my X's and O's looked for one last trade, in what I don't know?

When out in the kitchen there arose such a clatter I sprang from my desk to see what was the matter

Away through the dining room I flew like a flash, and there was dog Drake, with his nose in the trash.

Get out of there darned you, before you get hurt! When wouldn't you know it, a QCharts alert!

Its eBay I tell you, its trading a high! A bullish reminder of past years gone by.

The trade ended early, it ended too soon, if you live in the Midwest, it ended at noon.

I laugh at myself as I try to make rhyme, I should end this wrap now, yes you know its about time.

Happy Christmas to all, and to all a good night!

Jeff Bailey

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