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Let's make a deal

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A hostile $66 billion bid by Comcast (NASDAQ:CMCSA) $31.23 -7.95% to buy Walt Disney Company (NYSE:DIS) $27.60 +14.61%, where both companies reported quarterly earnings that beat Wall Street's estimates, ignited further hopes that more mega merger deals might fuel profits for the brokers, where the AMEX Securities Broker Dealer Index ($XBD.X) 730.49 +3.88% lead a broad market gains.

While Comcast executives do not view their bid as hostile, and would be good for Disney in that it gives the entertainment behemoth the pairing with the nation's biggest cable provider and premium distributor of content, the timing of Comcast's offer comes as dissident ex-Disney board member Roy Disney has been saying that Disney has lost direction under current CEO Michael Eisner.

Comcast says that Disney shareholders won't be the only beneficiary of combined synergies, and that a Comcast/Disney merger allows Comcast to fulfill one of its prime objectives, which is to obtain broader expertise in producing and programming of entertainment and other media offerings, which could piggyback some of Comcast's digital cable offerings.

While Comcast was explaining potential synergies of the deal, Fed Chairman Alan Greenspan was preaching patience in front of the House Financial Services Committee, saying the U.S. economy is expanding at a healthy clip, but with inflation still low, the Federal Reserve can be patient before raising interest rates.

The U.S. Dollar fell on Greenspan's comments with the U.S. Dollar Index (dx00y) 85.08 -0.88% falling 0.76 points and nearing its 4- year low set in January of 84.97. The interpretation taken away from the dollar's decline is that with the rising budget deficit, it will most likely take a rate-tightening Fed to see dollar firming.

While Greenspan warned that the growing federal budget deficit doesn't come without some downside risks for the economy, Greenspan commented that that to date, the dollars decline has been orderly and is in line with historical dollar trends.

The reaction from the bond market was equally bullish for Treasuries as for stocks, with the benchmark 10-year YIELD ($TNX.X) falling 8.1 basis points to 4.021%.

U.S. Market Watch - 02/11/04

In PINK I've marked some of those asset classes or sectors that seemed to find a more major response to some of today's news. The decline in the dollar gave further lift to gold equities as the AMEX Gold Bugs Index ($HUI.X0 238.68 +2.89% has now recouped all of its recent month's declines, while homebuilders as represented by the Dow Jones Home Construction Index (DJUSHB) 599.03 +3% continue to trade benefit from the thought of lower mortgage rates, which are tied to Treasury YIELDS.

I do believe, based on observation, that thoughts of renewed merger activity, which often comes in a healthy stock, found strong interest among the larger brokers with investment banking arms. Broker/Dealer Index (XBD.X) components Lehman Brother (NYSE:LEH) $86.89 +7.21%, Morgan Stanley (NYSE:MWD) $59.86 +5.05%, Bear Stearns (NYSE:BSC) $87.05 +5.01%, Goldman Sachs (NYSE:GS) $107.09 +4.8% and Merrill Lynch (NYSE:MER) $60.91 +4.65% all found healthy percentage gains in today's trade.

I thought Citigroup (NYSE:C) $49.74 +1.67%, which owns Smith Barney had been overlooked in today's session, and traders looking for new bullish exposure to the financials should trade long at $49.57, stop $48.25 and target $52.00 for Citigroup (C) near-term.

Market Snapshot / Internals - 02/11/04 Close

After two days of anemic volume, traders seemed more active today where brisk volumes were found at both the NYSE and NASDAQ. A/D breadth at the NYSE had advancer outnumbering decliners by a more healthy 2:1 margin, when compared to NASDAQ's 3:2 breadth.

In last night's Index Trader Wrap we noted that the NASDAQ's 5- day NH/NL ratio had edged above its 10-day NH/NL ratio, and today's trade found the NYSE 5-day ratio (96.8%) moving above its 10-day ratio (96.2%). This suggests shorter-term bullish leadership at both the NYSE and NASDAQ is taking hold.

Pivot Analysis Matrix

The INDU, SPX, OEX saw a resurgence in buying today and all traded above their WEEKLY R1s, MONTHLY R1s and WEEKLY R2s. The QQQ's, which tend to overdo things a little, relative to the NDX, did see trade at their WEEKLY R1s.

There were some casualties among the NASDAQ-100 Components, with Garmin Ltd. (NASDAQ:GRMN) $46.82 -10.13% and Comcast (CMCSA) $31.23 -7.95% hit lower. While these two companies are not heavily weighted components in the NDX/QQQ, larger weighted components Microsoft (NASDAQ:MSFT) $27.15 +0.48% (8.32% weight), Intel (NASDAQ:INTC) $30.99 +1.47% (5.78% weight), Cisco Systems (NASDAQ:CSCO) $24.24 -2.17% (5.03% weight) and Qualcomm (NASDAQ:QCOM) $59.38 +2.22% (4.64% weight) gives the look that "big tech" wasn't a major focus among buyers in today's rather bullish session.

Dow Industrials (INDU) Chart - Daily Intervals

"Good gravy" is a term my grandmother used to use instead of "good Lord," or "holy ....," which was likely what many a bear was saying today. The Dow Industrials simply erupted today and looks to have some formidable momentum building to 10,800.

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

I've "cloned" or simply copied a prior bullish trend we had on the SPX chart to try and visualize a bullish channel, similar perhaps to the regression channel on the INDU chart. While DAILY levels in the pivot matrix do give some additional level to work with as the SPX breaks above WEEKLY R2, 1,165 may be viewed as bullish resistance.

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

While the INDU and SPX traded new 52-week highs today, the OEX couldn't quite make it above its MONTHLY R1. An intra-day look of the OEX shows that at 11:00 AM EST, the OEX made a bold move above the MONTHLY 38.2% retracement level of 566.60 and sprinted directly to 570.25, came back within the 568.86 to 569.18 zone (for about 5-minutes) then worked its way higher to the close. I would have to view support being rather firm at 566.60, as this really seemed to be a decisive point for bullish buying today.

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

One trade to be cognizant of I think is the "beta trade" where any institutional bulls that had moved money to the sidelines now see the INDU and SPX making new highs, and may now feel pressured to try and get back in on the move, with the feeling they aren't "chasing" the markets. With the NDX/QQQ lagging the move higher, I think bulls look for a bullish entry back near $37.25, then a reversal back above $37.43 for a "sling shot" type move above the $37.70 level.

A correlative upside move might be found with the OEX breaking to new highs.

INDU, SPX and OEX traders should also be keeping an eye on the NDX/QQQ to see if the weaker index is following and perhaps confirming the renewed bullishness.

Jeff Bailey

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