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Have we made a Market Top?

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     12-03-2003            High     Low     Volume Advance/Decline
DJIA     9873.42 + 19.78  9942.01  9851.42 1.65 bln   2168/ 694
NASDAQ   1960.25 - 19.82  2000.92  1960.13 1.80 bln   2041/1086
S&P 100   524.42 -  0.29   529.03   524.36   Totals   4209/1780
S&P 500  1064.73 -  1.89  1074.30  1064.63
RUS 2000  545.19 -  8.41   556.74   545.06
DJ TRANS 2939.51 +  3.15  2969.78  2936.48
VIX        16.63 +  0.36    16.68    15.77
VXO        16.41 -  0.12    16.41    15.84
VXN        27.34 +  0.62    27.34    26.25
Total Volume 4,364M
Total UpVol  2,492M
Total DnVol  2,492M
52wk Highs     898
52wk Lows       20
TRIN          1.10
PUT/CALL      0.71

Have we made a Market Top?
By Jane Fox

The day started off with a bang that pushed all major indices to new 520week highs and the Nasdaq and DOW past psychologically important hurdles of 2000 and 9900 respectively. Unfortunately the selling overtook the buying late in the session and the only major index to end in the green was the DOW due to the General Motors (GM) and Merck (MRK).

The sharp turn around we witnessed today this makes me wonder if we have reached a market top. With all the talk about overbought, overvalued and "the market needs a rest" one would be crazy to not at least think it could be a short-term top.

Only time will tell if we have reached this pinnacle but for me a market top would reveal itself very simply. I would need to see MACD make a lower low, below the 0 line as well as price make a lower low.

Over at the DOW, you could almost here the champagne corks popping and the clear sparkling liquid flowing as the DOW made a daily high of 9942 breaching the all important psychological 9900 level. Unfortunately the party did not last for it was not able to hold on to those gains and closed at 9873. So was this a market top in the DOW also? We could repeat the same story here but with the caveat the DOW's MACD divergence is not as pronounced as it is in SPX.

The champagne was not only flowing at the DOW by at the NASDAQ exchange also. For the first time in nearly two years the NASDAQ Composite broke above the 2,000 level, technically not an important number but psychologically very important. A lot of analysts are saying this level was breached because of continued strong economic data and positive comments made about technology bellwethers Oracle (ORCL) and Intel (INTC) but I think it is just a reflection of the underlying bid we have seen in the market lately. The NASDAQ actually reached 2001 at its intraday high, the highest level since mid-January 2002. Unfortunately the party did not last here either for the NAZ ended the day with a close of 1960, a 1.00% loss. Once again, have we witnessed a market top in the NASDAQ?

The story on the NASDAQ is identical to the SPX with a market top revealing itself when the MACD and price both make lower lows. And once again only time will tell for we have been fooled before and one cannot discount the normally bullish time frame we are in.

It was a good news day for those of you who hold General Motors shares. GM gapped up this morning when an analyst went on record that the company's pension plan is looking much better and it could raise its 2004 earnings guidance. Critical of the automaker's pension problems in the past, analyst Gary Lapidus said the company is likely to announce some "really good news" about the plan on a conference call Dec. 12. GM closed up 5.22%.

The other stock that helped the DOW to close in the green was Merck's (MRK) whose share price closed up 2.66% after the company said it expects net income to be between $3.11 and $3.17 a share in 2004, up from between $2.90 and $2.95 this year. This forecast was based on higher sales of the osteoporosis pill Fosamax offsetting the loss of overseas sales of its No. 1 seller, the anticholesterol drug Zocor, due to expiration of foreign patents. Zocor loses U.S. patent protection in 2006 and is also up against stiff competition from two drugs, Lipitor and Crestor, often viewed as more powerful.

Sector winners today were Morgan Stanley Cyclical Index ($CYC.X) + 0.43% and the Software index ($GSO.X) +0.29%, although there is an ominous head and shoulders forming on the GSO.

Sector losers were the Disk Drive Index (DDX.X) -3.68%, Airline Index (XAL.X) -2.78% and the Home Builders -1.92%.

Moving onto market internals we saw a mixed bag today with declining issues outnumbering advancers by a 17 to 15 margin on the NYSE and by a 20 to 11 score on the Nasdaq exchange. The volume of stocks moving lower was 782 million shares on the Big Board and 1,237 million shares on the Nasdaq, vs. higher volume of 608 million shares and 943 million shares, respectively. New highs to new lows painted a much healthier picture with NYSE new highs clocking in at 472 to new lows of 8 and on the NAZ new highs were 299 to 10 new lows.

The SEC has tentatively approved new rules for mutual-fund trades that would require all buy or sell mutual funds orders to be received at the company by 4:00ET PM in hopes this firm 4:00 closing will eliminate the potential for illegal late-trading. SEC chairman, William Donaldson says these new rules "will go a long way toward restoring investor confidence in these important investment vehicles."

On the global front, China has surpassed Japan as the No. 2 petroleum user after the U.S. China oil imports for the first 10 months of 2003 are up 30% from the year-earlier period and are expected to double to some four million barrels a day by 2010. Some say China, which doesn't have large oil fields, might start competing with the U.S. for influence in the Middle East and trade weapons technology to terrorist states. On the other hand others think China will realize it has a vital interest in keeping the region stable.

On the economic front, the ISM index of nonmanufacturing business fell to 60.1 in November from 64.7 in October, indicating that the service sector is still growing, but at a slower pace than it has been. This was the eighth consecutive month of growth in the sector; any number above 50 indicates growth.

Meanwhile, U.S. workers were much more productive in the third quarter than previously thought, for nonfarm business productivity, a measure of the amount an employee produces per hour, grew at a seasonally adjusted annual rate of 9.4%, the strongest showing since the second quarter of 1983. On a year- over-year basis, the increase of 5% was the fastest rate in 53 years.

The dollar failed to get a lift from upwardly revised US productivity number and remained soft after the release of weaker-than-expected service sector data. It weakened against most of other currencies hitting fresh lows against the euro for the fourth consecutive session.

The 10-year Treasury note stood at 98 24/32, down 6/32 to yield 4.41%. The 30-year bond fell 12/32 to 102 27/32, yielding 5.18%. The five-year note was down 3/32 to 99 23/32, yielding 3.43%, while the three-year note was off 2/32 to 100 2/32, yielding 2.60%. The two-year note was down 1/32 to 99 19/32 to yield 2.08%.

The only economic report out tomorrow is the weekly 8:30 release of initial claims where the market is looking for a slight increase to 354K from a prior of 351K.

Jane Fox


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