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Consumers pay down credit. That's good isn't it\?

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One of the better arguments, of which I don't think you'll ever get agreement on, is if it is a positive, or a negative that consumer credit rises or falls in any particular month.

Americans are often criticized for carrying too much debt, especially on those little thin plastic things called credit cards.

I still remember my grandfather telling me (at the ripe age of about 8 years old), "Jeff, other than your house, if you can't afford to pay cash for what you want to buy, you probably can't afford it."

I think that was the lecture he gave me after I asked him if I could borrow 20-cents for a candy bar at the drug store.

It was a bearish day on Wall Street, where stocks extended losses in the last hour of trade after the Fed said consumer, non- mortgage credit fell by $2.4 billion to $2.038 trillion in August, which was a shocker to economists' forecast of a $5.5 billion increase.

The decline was led by a $3.4 billion drop in revolving credit (credit card debt) which fell by a sharp $3.3 billion, the largest monthly decline since April's $5.0 billion. Meanwhile, nonrevolving credit (student loans, auto, etc.) rose a fractional $900 million.

Hmmmm.... for those of us who have been monitoring Treasury yields, we can probably make the tie that consumers refinanced some mortgages in August as the benchmark 10-year yield ($TNX.X) slipped back from its May-June highs of 4.8%. After all, in March (see April's $5.0 billion decline in consumer credit), the benchmark 10-year Treasury yield ($TNX.X) was just starting to rise from roughly 3.8% (refinance that mortgage) where in April, a prudent consumer probably paid down some of those revolving credit card balances that carry upwards of 9% to 18% annual rates.

The negative of paying down those revolving credit balances? You got it! Consumer's could have spent the money and helped fuel economic growth!

The good news? Consumer should now have some "available credit" to run up in the months ahead. Roughly $3.4 billion according to the Fed.

You see, there will never be agreement on this topic.

Aha! So that puts some focus on tomorrow's nonfarm payroll figures (nice transition here) and average hourly earnings, which economists are forecasting to rise 0.2% from August's 0.3% gain.

We'll get all these fun figures before the opening bell. The headline number is the September nonfarm, where economists' look for the economy to have added 150,000 new jobs, after adding 144,000 in August. August's figures, as well as prior months figures can be revised, and there have been some good points made that revisions will be higher.

The average workweek is expected to decline to 33.7 hours from August's 33.8, where since the beginning of the year, the average workweek has been bound between 33.6 hours and 33.8.

CNBC's Kudlow & Cramer had James Cramer looking for an upside surprise with the thought that the energy industry had stepped up hiring in the energy-rich states of Texas and California.

During and after hurricanes pummeled parts of Florida, some economists' thought hiring from the construction and utility sectors could see a hefty increase as demand for labor to clean up hurricane-related damage takes place.

We may have seen some of that today, when weekly jobless claims fell to 335,000, which was below economists' forecast of 355,000.

I'll try and dig through tomorrow morning's nonfarm payroll figures and see if there are any special notes as to "why" the numbers came out as they did.

Market Snapshot / Internals - 10/07/04 Close

From 12:00 to 03:00, we need a magnifying glass to look for any change, but in the final 45-minutes of trade, buyers vanished and the major indices finished at their lows of the session.

Sell side volume doesn't look particularly heavy, as TRIN was little budged. Meanwhile the VIX.X popped above its WEEKLY Pivot for the first time this week to close at a session high. Sniff..... A little option action into next week's expiration?

By the close, it was the Nov. 1,175 calls that turn up as the most active at 10,838 contracts and open interest of 13,820, where the average h/l/c price was $4.50 and last trade of $4.10. Looks like a premium seller to me, where the bet is that the SPX isn't going to trade much above 1,175 by next month's expiration.

The Oct. 1,100 put (9,747 : 49,470) and Oct. 1,125 calls (8,252 : 19,546) were 2nd and 3rd-most active. Both of these contracts were up more than 125% from yesterday's close.

U.S. Market Watch - 10/07/04 Close

Today's "top story" was the question of whether or not its the COX-2 inhibitor of many pain relievers that may cause a higher risk of heart attack in some patients, or is it Merck's Vioxx? I read some articles today that date back several months regarding COX-2 inhibitors, and I cannot come up with any conclusive evidence that COX-2 is at the root of concern. However, the uncertainty is present, as Merck's Vioxx has been studied longer than any of the other COX-2 inhibitor drugs (as far as I could tell), and that is what raises some doubt/speculation on just what scientists know for sure about extended use.

Bottom line right now, as I see it, is that nobody really knows for certain, and if they do, they aren't talking about the ABSOLUTE known negatives of COX-2 inhibitors.

While Genentech (NYSE:DNA) $47.55 -5.37% was weak after yesterday's quarterly earnings report, I have to think the broader weakness in the group may stem from a growing debate on just what the Food and Drug Administration should be doing, or should have been doing when it approved Merck's Vioxx.

The FDA has been chastised for taking too long to approve some drugs that could potentially save lives, where the FDA seems to drag its feet in the approval, or expediting process. However, the recent news about Vioxx now has investors, and the general public, wondering what else is out there that we may not know is potentially more harmful to us than what we're trying to cure, or treat.

For biotechnology, one concern could be that the approval process takes longer, thus more costly to develop a drug that could eventually win approval.

For me, biotech is a difficult "buy" right now, and as one institutional analyst that follows the drug/biotech group said today, even a large drug maker like Merck (MRK) and recent price action shows some of the risks of investing in drug/biotech.

A couple of days ago, some analysts were cautiously bullish on Merck (MRK) as the company had a hefty cash position and a nice 4% dividend yield. Now we're seeing some lawsuits being filed against the company and that 4% dividend yield is now 4.9% as the stock has fallen an additional 6% from its September gap down close of $33.00.

BIG test for BIG tech? The SOX.X and NWX.X showed some relative strength today, but the MSH.X, while fractionally green during parts of today's session, remains below its 200-day SMA.

Keep an eye on these buggers. The NASDAQ's 10-day NH/NL ratio was able to reverse back up into a column of X, and suggests some intermediate-term bullish leadership is still holding tough. Since January, we've been used to seeing the NASDAQ's 10-day NH/NL ratio turn south and keep heading south when it moves lower.

Still, I remember taking a few exams in high school, which I spent about 30-minutes studying for, and when I looked at the first question on the BIG test, I wasn't overly confident of my eventual score as that first question was a tuffy. Of the 35 MSH.X components, Intel (INTC) $21.24 +0.52%, Oracle (ORCL) $12.29 +0.42% and Motorola (MOT) $18.80 +0.26% managed to have the bullish answer. Electronic Arts (ERTS) $45.62 -2.81%, Juniper Networks (JNPR) $25.20 -2.66% and EMC Corp. (EMC) $12.35 -2.6% got it wrong in today's session.

The Morgan Stanley Health Provider Index (RXH.X) was the only sector to finish green, with Manor Care (HCR) $31.41 +5.36% and LifePoint Hospitals (LPNT) $31.50 +3.82% doing most of a bull's work, on negative breadth of 9 to 4. Community Health (CHY) $27.93 was unchanged.

Pivot Matrix -

The Dow Industrials (INDU) sits right on its WEEKLY Pivot and trying to curl higher 50-day SMA, but close back below its MONTHLY Pivot, where a continued slide could have other indices gravitating back toward their MONTHLY Pivots.

In what could be a volatile session tomorrow, the INDU sits smack dab between DAILY S2 and DAILY R2, as well as correlative WEEKLY S1 and WEEKLY R1. Keep in mind the DIA "Max Pain" Theory of $101 ($1 increments) if you're looking to trade, or hold October expirations.

OEX "Max Pain" is 540 (5-point increments), SPX is 1,120 (5-point increments), NDX is 1,400 (25-point increments), QQQ is $35 ($1 increments), and the SOX.X is 380 (5-point increments).

We make note of the "Max Pain" levels, and would want to know where they are, especially if we see unusual VIX.X action.

Jeff Bailey

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