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Index Wrap

Dollar, Treasuries and stocks decline

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Investors appeared to be in a cheery post-Christmas holiday mood, but investors returned some recent bullish Santa Claus rally presents as the session progressed, where a sharp decline in the dollar, as well as Treasuries, had equity bulls moving to the sidelines in a very light volume trade.

Buyers pressed the major average higher at the open, but concerns that combined dollar and Treasury weakness could be signaling that foreign investors were dumping U.S. assets had the major averages relinquishing early session gains to close near their lows of the session.

In what many had predicted as a rather calm week of trade, Monday's session alone saw the broad S&P 500 Index (SPX.X) 1,204.92 -0.43% fluctuate just more than 13 points intra-day.

While the major averages gyrated higher, to only finish near their lows of the session, continued weakness in the energy futures markets had February Crude Oil futures (cl05f) $41.32 -3.84% falling more than 2% for a third-straight session, with the Oil Service Index (OSX.X) 122.25 -2.34% among today's top sector losers.

While the AMEX Gold Bugs Index ($HUI.X) 219.06 +1.37% had been falling faster than the U.S. Dollar Index ($dx00y) in the fourth- quarter, today's dollar weakness had the HUI.X at the top of the sector percentage gainer's list, climbing 2.97 points. Spot Gold in New York rose $3.50, or 0.79% to $445.00.

U.S. Market Watch - 12/27/04 Close

Treasuries found a strong round of selling from their opening ticks, where some signs of a stronger than previously thought holiday sales may have assisted in bringing yields higher to reflect a stronger level of economic activity at the consumer level.

A report from the National Retail Federation, which said shoppers came out in record numbers on Christmas Eve, projected holiday sales growth of 4.5% over last year, and spurred early buying interest in retail that had the sector in positive territory most of the day before a renewed wave of selling pressure pushed it and virtually every other sector lower. The S&P Retail Index (RLX.X) 453.43 -0.23% fell 1.05 points by the close.

Pivot Matrix -

A rather sharp rise in the 10-year YIELD ($TNX.X) finds a close above its WEEKLY R2, while a sharp decline in the U.S. Dollar Index (dx00y) to WEEKLY S2 leaves many of the equity-based indices pulling into their WEEKLY Pivots after early morning trade looked to have stocks challenging their WEEKLY R1s.

While I would agree that traders and investors can't read a lot into today's light volume activity, where a large constituency of institutional traders will be taking the week off, this could provide for some light volume chop the remainder of the week.

I (Jeff Bailey) would be surprised if institutional computers weren't defending WEEKLY S1s, where after a modest year of gains, and end of week pegging to recent 52-week highs wouldn't take a great deal of effort under the scope of a light volume trade.

Please note I was not able to verify today's DAILY highs and lows in the Pivot Matrix due to some subscription problems encountered with my QCharts software.

In Friday evenings Market Monitor, I did post updated INDU, SPX and NDX.X daily interval bar charts with updated WEEKLY Pivot retracement. In today's Market Monitor (12:13:50) I posted the following chart of the NASDAQ-100 Tracker (NASDAQ:QQQQ) $39.59 -0.40% just minutes before my QCharts feed expired.

NASDAQ-100 Tracker (QQQQ) - Daily Intervals

For equities, Wednesday, December 29 would be the last day for traders to implement any remaining tax-loss, or tax-gain strategies, which could also add some further chop into Wednesday's close. The QQQQ looks to be trapped within a range of $39.07-$40.27.

On Wednesday of last week, the QQQQ, which closed at $39.73 that day, was holding a 10.82% gain in the Beetle's Balanced Benchmark fund, if benchmarked back to December 26, 2003, and would have just edged out the S&P Depository Receipts (AMEX:SPY) 10.01% gain for top spot in our equity class of percentage gainers so far this year.

On a quarterly basis, the QQQQ was up 13.06%, nearly double the S&P Depository Receipts (AMEX:SPY) 7.98% gain.

As I get ready to rebalance the Beetle's Balanced Benchmark at Friday's close for our scheduled quarterly rebalancing, we may be seeing some end of year rebalancing, combined with tax-gain selling impacting trade.

Beetles Balanced - 12/22/04 Close (from 12/26/03 & 09/30/04)

The above table was a screen capture I had taken after the close of trade on 12/22/04, where I thought the "lag" in the QQQQ of late might be partially explained by some rebalancing. In PINK I had noted how the $HUI.X had DIVERGED, or traded notably weak relative to the U.S. Dollar Index (dx00y), which had declined 6.51% since 12/26/03, and 7.23% since the most recent rebalancing performed on 09/30/04.

Since 09/30/04, Spot Gold prices had gained $21.60 per ounce to the 12/22/04 close, a more "hedge-like" gain of 5.16%.

Jeff Bailey

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