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Index Wrap

Measured approach and 25 basis points

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For the first time since May 16, 2000, the Federal Open Market Committee raised its target for the Fed Funds Rate by 25 basis points to 1.25%, and reiterated recent Fed language that a measured approach to raising rates will be the plan, as long as inflation remains tame.

The major indices mimicked today's Fed action, and wording, with measured gains of their own after today's 02:15 PM announcement.

U.S. Market Watch - 06/30/04

While Treasuries finished at their price highs of the session, bond bulls did the bulk of their buying just after 10:00 AM EDT when the regional Chicago PMI was released came in with a reading of 56.4. While expansionary above 50.0, June's reading was well below economist's forecast of 64.0 and May's robust 68.0 reading.

Homebuilders as depicted by the Dow Jones Home Construction Index ($DJUSHB) 584.97 +2.04% benefited from today's lower Treasury yield trade, where for sector bulls, today's declines in yield couldn't have come at a better time. Earlier this morning the Mortgage Bankers Association reported its weekly Mortgage Applications Survey for the week ended June 25, where the Market Composite Index of mortgage loan applications, a measure of mortgage loan applications for purchases and refinancing, fell by 4.4% to 575 on a seasonally adjusted basis from 601.2 one week earlier. The MBA added that the average contract interest rate for a 30-year fixed-rate mortgage remained unchanged from the prior week at 6.21%.

The weaker Chicago PMI report also triggered dollar weakness, helping the AMEX Gold Bugs Index ($HUI.X) 188.94 +1.94% recoup the bulk of Tuesday's losses, and reclaim a close above its rounding lower 21-day SMA (188.80) and trending lower 50-day SMA (188.94).

The Morgan Stanley Health Providers Index (RXH.X) 379.69 +2.10% lead today's list of sector winners, closing above 3.5 months resistance (379) after Smith Barney initiated coverage of index components HCA $41.59 +1.51%, THC $13.41 +4.6% and CYH $26.77 +4.81% with "buy" ratings. Respective price targets given by Smith Barney were $48, $17.50 and $33.

While not fully encompassing the month of June, I've shown the 20-day percentage gain/loss column in my U.S. Market Watch.

Market Snapshot / Internals - 06/30/04 Close

The major indices were treading water for the bulk of the session, but found a bullish response take hold after the FOMC's decision. The 209 new highs at the big board are the highest since April 5th (252), with its A/D line finishing decidedly positive. NASDAQ-related indices finished with the bigger percentage gains with A/D breadth finishing at its best levels of the session. The 137 new highs fell shy of Friday's 168, but new lows were half those of Friday (84).

Pivot Analysis Matrix -

I quickly punched in the High/Low/Close to calculate new MONTHLY Pivot levels. A quick recap for June had the Dow Industrials (INDU) finishing up 247 points (+2.4%), the S&P 500 Index (SPX.X) gaining 20 points (+1.8%), the S&P 100 Index (OEX.X) gaining 8.7 points (+1.6%), the S&P Banks Index (BIX.X) gaining fractions (unchanged), the NASDAQ-100 Index (NDX.X) jumping 50 points (+3.4%), its Tracking Stock (QQQ) gaining $1.19 (+3.3%), while the Semiconductor Index (SOX.X) slipped just 3.8 points (-0.8%).

The Semiconductor Index (SOX.X) saw its June high in the first hour of trade on June 1, and did its best to get back to unchanged in today's final hour of trade, coming just shy of its WEEKLY R1, which is correlative near-term resistance with tomorrow DAILY R1 (derived from today's H/L/C).

Dow Industrials Average (INDU) - Daily Intervals

If there were an index that showed a "measured approach" to finding gains in today's session, it was the Dow. Breadth finished in favor of bulls with 15 gainers, 12 losers, and 3 unchanged. For the most part, today's highs and lows were marked by the WEEKLY Pivot and WEEKLY R1.

When looking at the Dow Industrials (INDU) and revisiting my beginning of the year and reiteration that a resumption of the 2003 "first leg up" would turn into a second leg, I would have to think the INDU needs to at least see a trade near-term at the now overlapping 10,570 level, to at least get an "equal high" on a technical basis. My thinking is... "since were at 10,440, why not 10,570.

If so, then buyers would most certainly be looking to "load up" on any type of pullback to the 10,135-10,200 level, where suspiciously enough, the new MONTHLY S2 is calculated at 10,000, where after we though a "hedge was trimmed" in late May, becomes a longer-term looking point of major support.

Do begin to note, if not visualize what a trade at INDU 10,570, followed by a potential pullback to 10,000 presents. I see a potential, and MASSIVE conventional reverse head/shoulder pattern possibly developing. Heck... the INDU could be developing a reverse head/shoulder pattern as we type, where our downward trend is an ascending neckline.

One note I begin to make tonight is the 21-day SMA, and how recent trade, as well as trade found from early April to later that same months is somewhat similar and can provide a test for traders. In April, the INDU moved UP through the 21-day SMA, then briefly saw a violation of the rising 21-day SMA, to then only rally back to 10,537, before being push back lower to the eventual, and recent relative low of 9,900.

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

As I review today's trade, the one point of "weakness" that I would have seen is that the BIX.X tended to "lag" today's move higher relative to the SPX/OEX, it was if the banks, despite the sharp early declines in Treasury yields, wanted to see if the OEX/SPX would make the first move, which in my opinion they (SPX/OEX) did make the first move. If anything in our matrix that showed some strength, which sets up further test for follow through tomorrow, is that the SOX.X bid early, held a bid, and lead higher, coming just shy of its (SOX.X) WEEKLY R1.

And here the SPX sits. Maybe its just me, and MY feeling exhausted at this point, but the OEX/SPX as well as the INDU feel a bit exhausted, where as we've seen strength/weakness rotate from one index to the other, its "got to be" some further strength in the SOX.X, even just a little bit more above its WEEKLY R1 and a run to WEEKLY R2, that gets that last "wave" up for the SPX, to complete the near-term "trap" I discussed last week, and that final "wave" Keene Little seemed to see.

In today's Market Monitor, I did read some commentary from Keene that seemed to waiver from the SPX making a slightly higher relative high, before the reversal.

I can't say that I would disagree with this slight adjustment at this point, where not unlike the Fed's comments, even the SOX.X took a more measured approach to gains.

I've run way past deadline and I have not yet placed the new MONTHLY Pivot retracement on the other indices. I will work into the night to get the QQQ done for tomorrow morning's update.

Jeff Bailey

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