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Index Wrap

Too much good news is cause for concern\?

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Stronger than expected retail sales for March and some economic data from February showing industry still trying to build some inventories in order to keep up with robust sales had investors expressing some renewed jitters in regards to future Fed rate hikes.

It's weird, but as the Bank of Canada was lowering its interest rates by 25 basis points to 2%, traders of U.S. equities and Treasuries were busy worrying about the Fed raising rates from 40-year lows and a Fed funds rate of 1% as the economic news was just too good to swallow.

With lack of any reasonable explanation, it was one of those days when it was better to worry about the possibility that "easy money" isn't going to be around forever, and maybe, just maybe the economy is growing at a sustainable pace, where the Fed will eventually take back, or charge a slightly higher rate of interest for, the money it lends in the future.

U.S. Market Watch - 04/13/04 Close

All equity-based sectors in my QCharts U.S. Market Watch table found a lower trade, where interest-rate-sensitive banks, brokers, and insurance sectors found selling, as did the Dow Jones Home Construction Index (DJUSHB) 601.95 -1.62% and the PHLX Housing Index (HGX.X) 379.80 -1.30%, where high yields among the major maturities have market participants predicting the onset of eventual Fed tightening.

Gold stocks as depicted by both the weighted Gold and Silver Index (XAU.X) 95.56 -6.05% and non-weighted AMEX Gold Bugs Index ($HUI.X) 213.65 -6.10% received a double-dose of selling pressure as not only the thought of interest rate hikes bring thought of putting a lid on inflation, but the strengthening dollar had Spot Gold prices falling sharply back toward the $400.00 level.

Economic data due out tomorrow in the form of consumer prices for March is expected to show inflation relatively tame with the CPI forecasted to have risen 0.3% compared to February's 0.3% rise, with the core rate (excluding food and energy) edging up 0.2%, and matching February's 0.2% rise.

Market Snapshot / Internals - 04/13/04 Close

The number of new lows at the New York Stock Exchange (NYSE) and while my QCharts "hot list" doesn't generate 113 new lows, the bulk of the 36 in the list have a "fixed income" flavor, where some muni-bond closed end funds have started showing up.

Traders were in the mood to sell just about anything in today's session. Gold and silver prices closed sharply lower Tuesday after upbeat U.S. economic data lifted the dollar and spurred overseas hoarders of the precious and industrial metals to sell off some of their holdings.

In other commodity markets, gasoline backed off from Monday's record high and led petroleum markets lower ahead of Wednesday's weekly U.S. government update on oil usage and stockpiles.

Despite some relief of base commodity prices falling, equities were not immune and only the U.S. Dollar Index (dx00y) 89.93 +1.10% sported a gain by the close.

AMEX Gold Bugs ($HUI.X) - 4-point box

Gold stocks looked to be shaping up in recent week's, but were hit sharply lower today, where the base commodity traded sharply lower after setting new multi-year highs in late March. Ahead of tomorrow's Consumer Price Index (CPI) reading for March, the AMEX Gold Bugs Index ($HUI.X) rests on longer-term support.

Continuous CRB Index ($CRB) - Daily Intervals

A quick look at the CRB Continuous Index ($CRB) from www.stockcharts.com shows that many base commodities have been sideways since late March, where some of the recent rise in Treasury yields may have the bond market putting a lid on rising commodity prices of late. I wouldn't say commodities are tanking, but while traders may be jittery about eventual Fed tightening as economic data remains robust, declining prices in the commodity markets show some sign that inflation isn't running out of control.

Pivot Analysis Matrix -

The S&P Banks Index (BIX.X) 337.40 -1.85% was a notable wink link in the equity portion of the pivot matrix, where today's trade and close comes below its WEEKLY S2. The Securities Broker/Dealer Index (XBD.X) 685.09 -2.75% was the weakest of the financial sectors, where bond powerhouse Lehman Brothers (NYSE:LEH) $77.22 -4.45% dropped sharply as Treasuries found selling.

S&P Banks Index (BIX.X) - Daily Intervals

The rise in Treasury YIELDs will most likely have a negative impact on mortgage rates. Tomorrow we'll get a look at the weekly statistics from the Mortgage Banker's Association, where mortgage rates will undoubtedly have risen in the latest week. If new applications and refinancing show a sharp decline, traders will be well advised to keep closed eye on the BIX.X, as further breakdown below 335 could have sellers sending the banks further lower, which could impact both the SPX and OEX.

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

Banks have obviously been diverging from the SPX, but weakness in the financials certainly give a more formidable look of resistance to downward trend. Today's declines in the SPX were rather steady and methodical and didn't depict panic selling. That could all change if selling picks up in the banks.

NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals

The QQQ did see a pickup in volume, but considering its full of more volatile technology stocks, I thought it traded relatively strong considering broader selling. While there's not a bank in the bunch, weakness among the financials may have some momentum bulls sitting on the sidelines.

Jeff Bailey

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