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Raging Bull rocks Wall Street

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On Wednesday of last week, it was mad-cow disease that may have had the Dow Industrials (INDU) 10,450 +1.21% suffering its first losing session in 7 days, but a strong case of raging bull and few sellers with just 2 days remaining in 2004 found the major indices closing at new 52-week high, with the Dow Industrials closing at its highest level since in 21 months.

The very NASDAQ Composite (COMPX) 2,006.48 +1.68%, and larger-cap NASDAQ-100 Index (NDX.X) 1,470.37 +1.83% broke to new 52-week highs as though a recent quarantine of resistance from late November was lifted.

U.S. Market Watch - 12/29/03 Close

The AMEX Gold Bugs Index ($HUI.X) 246.19 +3.88% was today's sector winner, as the dollar continued its torrid decline against the euro, with the euro breaking above 1.25 against the dollar for the first time ever. I view today's strong move back above the $HUI.X's 21-day SMA of 240 as bullish, after a successful test of its rising 50-day SMA of 225 early last week. Support should be firm at the 220 level with bullish targets at 257.50 (early December highs) and 274.25 (from fitted retracement).

Treasuries were under pressure in today's session, with some bond traders quipping that prices were "falling like a dollar." Declines in Treasuries came after a $31 billion auction of 3 and 6-month bills brought new supply to the market, which fetched rates of 0.885% and 0.995% with bid-to-cover ratios of 1.95 and 2.31, respectively.

Equity traders thought there might have been some continued 2004 asset allocations being implemented in stocks, specifically in the S&P 500 (SPX.X) 1,109.48 +1.24%. The Wall Street Journal's "Heard on the Street" column suggested dividend stocks could become favorites for 2004. Since President Bush signed the bill in May that slashed dividend-tax rates by more than 50% for many investors, companies have hopped on the dividend payout bandwagon. Companies in the S&P 500-stock index are expected to pay a record $160.6 billion in dividends to shareholders in 2003, which is up from $147.8 billion last year, a previous record. According to the Wall Street Journal article, 21 companies, with Microsoft (NASDAQ:MSFT) $27.46 +0.91% and Best Buy (NYSE:BBY) $52.19 +3.22% as examples, have started paying dividends for the first time.

In the above U.S. Market Watch screen capture from my QCharts charting software, I've shown not only today's percentage gains for the major indices, but also the 5-day and 20-day percentage changes, where perhaps the percentage out performance for the last 20-days for the Dow Industrials (INDU), S&P 500 (SPX.X) and S&P 100 Index (OEX.X) over the NASDAQ-100 Index (NDX.X) and smaller-cap Russell-2000 Index (RUT.X) may be attributed to some institutional favor showing up for a 2004 dividend strategy.

Market Snapshot / Internals - 12/29/2003 Close

Today's economic calendar had only the Conference Board's Help Wanted Index for November being released at 10:00 AM EST, where its 39 reading, which was above economists' forecast of 38 did have the SPX trading a morning high of 1,102.65, which didn't seem to be a market moving economic release as the SPX then pulled back below the 1,100.00 level soon after. However, that brief dip back below 1,100.00, which lasted all of 10-minutes was quickly bid back higher as the major indices built gains to their close. Today's 614 new 52-week highs on the NYSE comes close to its 619 new highs set on December 1. NASDAQ's 300 new highs shows some resumption of bullish leadership present among 4 and 5-lettered stocks listed on the NASDAQ, but still shy of the 453 new highs found on December 1, 2003.

Current 10-day NH/NL ratio averages has the NYSE at 97.7% (bull confirmed) and closing in on a recent high reading of 98.5% found on December 9th. The NASDAQ 10-day NH/NL ratio average is 93.2% (bear confirmed) and nearing a recent relative high reading of 95.2%. It would currently take a reversing upward 10-day average ratio of 96% for the NASDAQ NH/NL ratio to achieve "bear correction" status for this indicator of bullish leadership.

Volumes at both the NYSE and NASDAQ were light, depicting holiday trade.

Pivot Analysis Matrix -

The NDX and QQQ took their time, but with just two days left in the month, the NDX/QQQ saw trade at their MONTHLY R1s, as the other major indices continued their torrid pace higher. With all the major indices at new 52-week highs, and traders looking rather unwilling to sell and padding gains into year's end, I'd have to view the WEEKLY Pivots as solid support after seeing trade at the WEEKLY R2s.

I thought swing trade bulls in the QQQ might have "sold a top" and took some short-term profits off the table when the Q's traded $38.26 in the first 50-minutes of trade as the Q's pulled back to $36.07 at the 11:00 AM EST mark, but when a new session high was traded the WEEKLY R1 quickly became support.

The trade I would look for tomorrow, from the bullish side for another short-term bullish trade would be in a QQQ pullback near its DAILY S1 ($36.13), place a stop under DAILY S2 of $35.82, and target a December 31 close of $37.00. A shorter-term bull might like this trade based on the Stock Trader's Almanac notes that the last day of the year (Wednesday) has seen bullish trade 29 of last 32 years. I will note the Stock Trader's Almanac notes the Dow Industrials (INDU) traded down 5 of last 7 on the last day of the year.

With the other major indices (INDU/SPX/OEX) now further above their MONTHLY R2s, I would have to view their WEEKLY Pivots as firm support levels until we get new MONTHLY levels at the conclusion of Wednesday's trade.

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

The Semiconductor Index (SOX.X) 510.48 +2.36% and positive morning comments within the sector by Smith Barney helped the QQQ gap back above our upward trend from the March lows, where a quick check of an intra-day chart shows this upward trend now residing at $36.03. I'm still rather uncertain what to expect in January as it relates to any "tax-gain selling," but with the QQQ breaking above its November 7th high of $36.18, I think a disciplined bull could look to play another QQQ long on a pullback near tomorrow's DAILY S1. The QQQ was stronger than my bullish swing trade target of $36.25 and if bulls are looking to send the major indices out on a high note by year's end, then the QQQ would be the index closest to break-out support.

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

The SPX is breaking above all resistance that I could possibly come up with. Further gains above today's highs would find some technical resistance appearing near 1,130. I would have thought 1,105 from WEEKLY R2 and perhaps a relative high of 1,106.59 from May 17, 2002 might find some sellers, but that wasn't the case in today's trade.

Dow Industrials (INDU) Chart - Daily Intervals

A bear's worst nightmare is represented in the INDU, if not the SPX at this point. First sign of any real weakness would be a decline back below 10,300 in my opinion. I refuse to try and pick a top in the INDU and I think some bears have given up too.

Jeff Bailey

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