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Market Wrap

Stocks Slip Slowly

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     12-10-2003            High     Low     Volume Advance/Decline
DJIA     9921.86 -  1.56  9958.38  9882.38 1.73 bln   1048/1813
NASDAQ   1904.65 -  3.67  1916.00  1887.46 1.92 bln   1034/2036
S&P 100   525.33 +  1.18   526.62   522.34   Totals   2082/3849
S&P 500  1059.59 -  1.13  1063.02  1053.41
RUS 2000  528.49 -  6.05   535.58   526.42
DJ TRANS 2912.67 -  8.25  2933.09  2893.87
VIX        17.87 +  0.24    18.27    17.58
VXO        17.33 +  0.25    19.71    17.13
VXN        27.84 -  0.48    28.66    27.79
Total Volume 4,114M
Total UpVol  1,663M
Total DnVol  2,413M
52wk Highs     307
52wk Lows       38
TRIN          1.09
PUT/CALL      0.81

Stocks Slip Slowly
By James Brown

Given the pace of Tuesday afternoon's decline plenty of traders thought today was going to be a tough one for the market. Yet by the close of business the major U.S. indices were relatively unchanged. There were plenty of stories to follow like AutoZone cratering and SBC slashing jobs but overall the session was characterized by widespread but mild profit taking. If you're feeling truly optimistic one could even call it a small victory for the bulls by the lack of heavy selling. Granted there were pockets of weakness. Gold stocks and homebuilders were hit hard but then these sectors had made some of the biggest gains this year and investors were taking some money off the table.

Global markets were generally weaker lead by strong declines in the Japanese NIKKEI index. The constant weakness in the dollar continues to put pressure on Japanese exporters and despite intervention by the Bank of Japan to sell yen to weaken their own currency the NIKKEI dropped 213 points or 2.11% to close at 9910. It has been a tough few days for the Japan's markets. The NIKKEI has lost more than 500 points since last Thursday and investors are nervous about this Friday's Tankan survey for the Japanese economy. European markets are also suffering from some profit taking and the FTSE lost 44 points to close at 4335 while the DAX lost 25 points to close at 3820. Meanwhile the greenback actually strengthened somewhat against the yen and the euro.

The U.S. dollar wasn't the only thing on traders' minds. There was a sharp surge in energy prices early in the session. Crude oil shot to $32.63 a barrel, a three-week high, before slipping back to $31.88. Natural gas spiked to $7.55 intraday before closing down 1.1 cents at $6.711/BTU. Investors also noticed some volatility in gold. February gold futures hit an intraday high near $413 an ounce but ended the day with a $1.90 loss at $407. This sent the XAU gold & silver index to a 4.44% decline. It was just a few weeks ago when gold was trading near $380 that there was renewed talk of seeing $420 an ounce before December 31st. That target doesn't seem so far away now but gold may retest the $400 level again before bouncing.

Market internals were a lot more bearish than the final tally in the indices may suggest. Declining stocks overwhelmed advancing stocks 18 to 10 on the NYSE and 2 to 1 on the NASDAQ. Down volume flooded past up volume 2179 million to 1443 million between the two exchanges. The volatility indices (VXO, VIX, VXN) did inch higher showing some small amount of investor fear but they remain stuck in their downtrends. Technology stocks may have been spared a worse fate by strength in the SOX, today's best performing sector. Of course the SOX was down 10% in the last six sessions so today's move could just be an oversold bounce.

Chart of the DJIA:

Chart of the NASDAQ:

There were plenty of company or stock-specific stories today but probably the biggest one was the selling in the homebuilders. The DJUSHB home construction index dropped more than 5% as investors took profits from one of the best performing sectors all year. This sector has more than doubled from its March 2003 lows and the threat of higher interest rates (per the Fed's new neutral stance) and a drop in the U.S. mortgage application index had traders running to sell these winners and lock in gains. This morning's report from the Mortgage Bankers Association showed that mortgage applications had dropped 12.2% to a new 52- week low. Part of this drop is due to a decline in refinancings, which do not affect the homebuilders but it was a perfect excuse to sell.

While we're on the subject of declines shares of AutoZone (AZO) were hammered for a 12 percent loss ($11) for the biggest drop in the S&P 500. The company had reported earnings yesterday evening that beat estimates by 7 cents with net income of $1.35 per share. Unfortunately, revenues only rose 5.2% to $1.28 billion, which missed the average estimate of $1.3 billion. As would be expected the news produced a number of broker downgrades.

On the positive side shares of SBC Communications added 2.67% to lead the Dow's gainers after announcing 3,000 to 4,000 job cuts in the fourth quarter. The 2.5 percent reduction in its workforce is an effort by SBC to offset the company's declining revenues. Rival Verizon (VZ) also rallied strongly after announcing a $3.7 billion buyout for nearly 10 percent of its workforce. Short-term the charge will affect earnings but analysts believe it will strengthen the company's balance sheet longer-term.

Traders also bid up shares of Cisco Systems after its CEO John Chambers mentioned that they are seeing rising corporate budgets for the first time in years. While Chambers was optimistic for 2004 he didn't offer any specific numbers that might indicate tech spending would outpace the recent Gartner-Soundview survey, which forecasted a dismal 1.6% growth for 2004.

Tomorrow is another busy session. Investors will be eager to hear the November retail sales report. Estimates are for a 0.7 percent increase leapfrogging the 0.3 percent decline in October. Wall Street will also absorb the November import and export numbers, the October business inventories and the weekly jobless claims. Expectations are for a drop in jobless claims to 359,000 down from 365,000.

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