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Market Wrap

Investor focus: FOMC or Dow 10K?

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     12-08-2003            High     Low     Volume Advance/Decline
DJIA     9965.27 +102.59  9970.16  9859.57 1.44 bln   1890/ 910
NASDAQ   1948.85 + 11.03  1948.94  1926.94 1.56 bln   1623/1430
S&P 100   527.67 +  4.16   527.95   523.51   Totals   3513/2340
S&P 500  1069.30 +  7.80  1069.59  1060.93
RUS 2000  543.04 +  4.03   543.15   536.52
DJ TRANS 2929.47 + 18.89  2930.95  2906.70
VIX        16.54 -  0.55    17.59    16.52
VXO        16.31 -  1.03    17.73    16.13
VXN        27.55 +  0.50    28.35    27.55
Total Volume 3,389M
Total UpVol  1,932M
Total DnVol  1,351M
52wk Highs     567
52wk Lows       30
TRIN          1.19
PUT/CALL      0.93

Investor focus: FOMC or Dow 10K?
By James Brown

Stocks ended the day higher as bulls piled on the gains while a large section of the east coast was still digging out from this weekend's blizzard. The weather may have been to blame for the low volume but the rally was widespread. Only the Internets and gold stocks closed in the red and only with minor declines. The strongest buying was concentrated in homebuilders, banks, natural gas, defense and airlines. The airlines enjoyed a nice rebound when JetBlue Airways (JBLU) did its best impression of a dead-cat bounce (+7.5%) after two analysts upgraded the stock this morning. The FOMC meeting tomorrow and the strong drop in the U.S. dollar dominated the headlines.

The new lows in the U.S. dollar wreaked havoc in the Asian markets. A low dollar means Asian goods become less competitive here in the U.S., the world's biggest importer. The Japanese NIKKEI average lost 328 points or 3.16% to 10,045. The Hong Kong Hang Seng followed with a 137-point loss to 12,177. The same weak-dollar export pressure hit Europe to a lesser degree. The English FTSE lost 7 points to 4359 and the German DAX dropped 35 points to 3806. Meanwhile, futures for platinum reached 23-year highs breaking above the $800/an ounce level. Gold futures remain strong near their highs at $407 an ounce. Bonds pulled back as money appeared to rotate into equities. The yield on the 10-year note rose to 4.278%.

The Dow Jones Industrial Average (DJIA) added 102.5 points to close at an 18-month high. The venerable index is just 35 points away from the 10,000 mark - an easy reach for excitable bulls tomorrow. The NASDAQ followed with an 11-point gain to 1948 and the S&P 500 added 7 points to close at 1069. Market internals eventually closed bullish. Advancing stocks outpaced decliners 2 to 1 on the NYSE and 16 to 14 on the NASDAQ. Up volume lead down volume but the difference wasn't that spectacular.

Chart of the DJIA:

Chart of the NASDAQ:

The rebound in technology stocks was impressive today. The NASDAQ index was under water a good portion of the session after a survey unveiled less than exciting news for I.T. spending. Considering the strong pace for economic growth this past year and the expectations for growth next year investors are looking for business spending to pick up steam. Unfortunately, technology spending is likely to end up lukewarm according to a Gartner-SoundView technology survey. Overall they estimate capital spending to be up 1.6 percent in 2004 with the largest companies estimating budgets to be flat or down.

The U.S. dollar is moving at a strong pace too, a strong pace downward. It was a rough day for the dollar. It hit new three- year lows against the yen (107.26), a new seven-year low against the Swiss franc (1.266), a new 11-year low against the British pound (1.73) and a new all-time low against the euro (1.2239). As a matter of fact this was the seventh straight record low against the euro. A low dollar makes U.S. investments much less appealing to foreign investors and a report out today from the Bank of International Settlements showed a very significant chunk of OPEC funds being repatriated out of dollars. In a note out this morning Citigroup agreed that the U.S. dollar was likely to see even more declines. However, they offered an upbeat picture for the future claiming the recovery was well on its way and we should see a strong surge in job growth in the next few quarters.

This week's big event takes place tomorrow. No, I'm not talking about Dow 10,000 although that could certainly take place and there are plenty of traders just waiting to short this psychological level. I'm referring to the FOMC meeting, which is set to conclude at 2:15 PM ET. No one expects the Federal Reserve to lift rates from their 40-year lows at 1% so the market's entire focus will be on their post-meeting comments. Will Greenspan & Co keep the "considerable period of time" language in their message to the markets? Will they replace it with something else? What will they say about the incredibly strong economic growth in the last quarter? Will they hint that a rate hike may be nearer than expected? Do they know the whereabouts of Saddam and if he's been captured? Just kidding. There was a Saddam rumor going around today that some traders were blaming for the sharp rise this afternoon.

Normally I would expect the markets to be subdued and trade in a narrow sideways fashion ahead of the Fed meeting tomorrow as we wait for their outlook. However, the Texas Instruments (TXN) news after the bell tonight could change things. Chips stocks were at a pivotal level with the SOX hovering near the 500 mark just above its simple 50-dma. We could see a strong bounce tomorrow now that TXN has raised their earnings guidance. Earnings estimates had been for 18 to 20 cents a share on revenues of $2.49 to 2.70 billion. Strong consumer demand is likely to drive TXN's fourth quarter net income to 25-27 cents a share on revenues of $2.64 to 2.765 billion. It's possible this can spark a run in Dow component Intel. Intel had closed under its 50-dma today so maybe tonight's TXN news can scare some shorts into covering early tomorrow.

Whatever happens be prepared for a "sell the news" affect if the Fed doesn't say anything material. This caution is even more important if the Dow does reach the 10,000 mark.

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