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Index Wrap

Downgrades weigh on blue chips

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Broker downgrades of Pfizer (NYSE:PFE) $27.21 -2.43% and Alcoa (NYSE:AA) $32.42 -1.33% weighed on the Dow Industrials (INDU) 10,547 -0.42% for the bulk of today's session, where gains in Hewlett Packard (NYSE:HPQ) $21.33 +1.61% and Citigroup (NYSE:C) $46.17 +1.13% weren't enough to get a Dow close above 10,600. Something the Dow Industrials have not been able to do since March 1, 2004.

Of the seven-largest price-weighted components in the Dow, only IBM (NYSE:IBM) $97.67 +0.6% (second-largest) was able to post a gain after saying it had won a $969 million, 7-year contract with Lloyds TSB to supply the UK bank with DSL-based Internet telephony and data services.

The win raised eyebrows among global investors as the announcement was seen as a blow to British Telecom, the UK's largest telecom operator, which for years has dominated the corporate voice and data communications market in the country.

Bill Mew, and IBM UK spokesperson told NewFactor that "The big UK banks have been the mainstay of BT's corporate business, BT has set enormous stead on being able to supply voice and data services to large companies. But it will find it difficult to compete with the type of package that we have put together for Lloyds TSB."

"What we have developed for Lloyds TSB will provide them with eight times the bandwidth for branch connections, this is a no- brainer," add Mew.

U.S. Market Watch - 12/06/04 Close

Technology sectors were a standout in today's trade, in part on the belief that fund manager are now in the mode of chasing performance into year's end. An article in this weekend's Barron's, discussing the growth story at Network Appliances (NASDAQ:NTAP) $33.77 +4.84% gave lift to EMC Corp. (NYSE:EMC) $14.18 +2.84% and QLogic (NASDAQ:QLGC) $37.98 +4.88%.

Oil prices looked to steady between $42 and $43 for a second- straight session after OPEN said it may have to consider production cuts if oil prices continue their recent sharp declines. Another underpinning factor was the attack on the U.S. Consulate in Jeddah, Saudi Arabia.

The attack also incited some buying among the major Treasury maturities with buying distributed equally among the 5, 10 and 30-year as the session progressed. Since Friday's weaker than expected nonfarm payroll number, the benchmark 10-year yield ($TNX.X) has fallen a sharp 15.7 basis points, as fears of aggressive Fed tightening have once again calmed.

Market Snapshot / Internals - 12/6/04

Volumes at the NASDAQ remain brisk. While there was some commentary that volumes were light, my daily tabulations show that December average daily volume is up 24% from November's average daily volume of 1.87 billion shares. After a flat 1.5 billion share per day average in November, NYSE volume is up about 8% from November, with just about 1.62 billion shares changing hands on average in December.

We did see a notably fewer number of new highs at both the major exchanges today, while new lows remained small.

Individual stock traders may want to be cognizant that tax-gain and tax-loss selling may be picking up as investors try and offset some losses with gains for tax purposes.

The "Santa Claus Rally" is often looked for around December 22, when trade date + 2-day settlement can find the market void of tax gain and tax-loss sellers. For sign of an "early," then extended rally, traders may want to keep an eye on the new low indications for both the NYSE and NASDAQ. We might expect them to build near-term, but if they don't (say more than 30 at the NYSE, 40 at the NASDAQ), then this could be signal that any "sell bias" is void until the remainder of the year.

With the major indices not showing as much gain as they did at this time last year, I might tend to think that tax gain/loss strategies aren't going have that much of an impact on the major indices this year.

NASDAQ-100 Index (NDX.X) - Daily Intervals

The NASDAQ-100 Index (NDX.X) 1,619.59 +0.32% managed a fractional gain on even breadth of 50:50 with Apple Computer (NASDAQ:AAPL) $65.78 +4.94% rebounding from a 4-session decline as brokers remained upbeat on the company's iPod holiday sales trends and rumors circulating that IBM might be interested in acquiring the company as Big Blue looks to sell its PC business.

Oracle (NASDAQ:ORCL) $13.34 +2.37% jumped after Morgan Stanley issued positive comments that a weaker dollar should boost sales/earnings in coming quarters. EchoStar (NASDAQ:DISH) $32.33 -3.78% and Staples (NASDAQ:SPLS) $32.00 -2.46%

NASDAQ-100 Tracker (QQQQ) - Daily Intervals

My QCharts chart still doesn't show pre-QQQQ trade, but I wanted to show the WEEKLY (blue) and MONTHLY (red) pivot retracement levels for the QQQQ.

Pivot Matrix -

Don't forget that NEXT Thursday/Friday is December option expiration. In this morning's Market Monitor, there was excellent conversation (see 10:51:45) regarding the QQV, even the VXN.

As I look at this week's Pivot Matrix (WEEKLY S1 and WEEKLY R1), as well as MONTHLY Pivot, I have to think back to our 11/23/04 Index Trader Wrap.

Remember that day? Our observation of some VIX.X action?

I interpreted the VIX.X action that day as selling 1,175 for $12.85, thus the thought of selling puts against 1,162.15 (see WEEKLY S2 and MONTHLY Pivot), perhaps 1,175 being a major support level of buying. With current SPX "Max Pain" theory for the SPX of 1,150, there may be the same bullish bias for December that there was in November. With the SPX butting up against 1,200 (see 11/23/04 Index Wrap) and break much above correlative WEEKLY R1/MONTHLY R1, combined with DECLINING VIX.X, could have prior calls sellers scrambling to save positions.

Jeff Bailey

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