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Market Wrap

Mad Bulls Take Day Off

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12-24-2003               High      Low    
DJIA    10305.12 -32.81 10341.48 10305.12 
NASDAQ   1969.23 - 5.55  1974.31  1964.88 
S&P 100   542.01 - 1.41   543.42   541.71 
S&P 500  1094.04 - 1.98  1096.02  1092.73
RUS 2000  552.35 - 2.68   555.03   552.23
DJ TRANS 2990.15 -16.46  3007.27  2985.08
VIX        16.65 + 0.16    16.77    16.66
VXO        16.12 + 0.55    16.25    15.69
VXN        23.33 - 0.16    23.77    23.09
TRIN          1.34
PUT/CALL      0.70

Mad Bulls Take Day Off
By Jonathan Levinson

With volume barely exceeding 600M Nasdaq shares and 500M on the NYSE, there was little to see and little to do. The Dow had a weak session, with the Transports breaking below 3000 on a closing basis. The absence of a significant selloff was impressive in light of news of a mad-cow disease outbreak (no, that's cows, not bulls), as well as disappointing durable goods orders and new home sales. Traders didn't do much of anything today, and if that trend continues, Friday could see more or the same.

Volatility set more lows today, with the VXO spending a good part of the session below 16. Despite this, we saw no new highs out of the indices, and if it were a higher volume, full session, it would have looked like preliminary confirmation of a top on the Dow and SPX.

Daily chart of the Dow

The daily chart of the Dow looks like a correction waiting to happen, bullish or bearish. Support at 10300 held today, and below that, 10280 and 10200 are the next trendline resistance areas to watch. First price confluence is way below at 10000, followed by 9880. Upside resistance begins at 10350 until 10400. Suffice it to say that without volume, those upper limits are very unlikely to be tested this year.

Daily chart of the Nasdaq

The Nasdaq was stronger than the Dow today, but it has a lot of ground to make up after lagging so badly this month. The daily cycles are in an upphase, nowhere near as toppy as on the Dow. Support at 1935, 1900 and 1880 are the key levels to watch, below which any decline should accelerate.

It was announced overnight that a single case of Mad Cow Disease had been identified in Washington State. With further tests pending, the major importers of US beef issued import bans, including Japan, South Korea, Russia, Taiwan, Malaysia, Singapore, Australia and others, while the US ordered a recall of at least 10,000 pounds of meat. Almost as rapid was UBS analyst David Palmer's defense of MCD and other industry-sensitive stocks, as he went on record to say that "If the stocks open as weak as we expect, then we believe this could provide an even more compelling entry point for McDonald's," Palmer said. "We would also view this positively for Wendy's (which already has tremendous near-term momentum. In addition, we believe the likely beef cost decrease could prove particularly propitious for Brinker, which has significant exposure to rising beef costs in 2004." MCD closed lower by 5.22%, and cattle futures closed limit down. Little mention was made of a Senate Agriculture subcommittee discussion of America's vulnerability to terrorism targeting the food chain. For more on this connection, see http://www.newsmax.com/archives/articles/2003/11/19/165032.shtml.

In economic news, the Mortgage Bankers Association (MBA) released the Weekly Mortgage Applications Survey for the week ending December 19. Its Market Composite Index of mortgage loan applications, which comprises mortgage and refi applications, decreased by 6.8% to 631.2 on a seasonally adjusted basis from 677.2 in the previous week. On an unadjusted basis, the Index decreased by 7.7 percent compared with last week and was down 34.7 percent compared with the same week one year earlier. This decline occurred despite a decrease in the average contract interest rate for a 30 year fixed mortgage from 5.71% to 5.62%.

At 8:30 it was announced that durable goods orders for November dropped 3.1%, the largest drop since September 2002 and well below expectations for a .6% increase. This drop follows four months of consecutive rises, however. October's durable goods orders were revised higher to a 4 percent gain. Orders for computers and other electronics sank 10.8 percent, including a 40 percent drop in communication equipment orders. A quick drop in equity futures on the report's release was stayed by the release of the initial claims data a few moments later.

Initial jobless claims dropped in the latest week to an expected 353,000 new claims, bringing the 4 week moving average of initial claims to 361,750 and continuing claims down 38,000 to 3,269,000, the lowest level since September 2001. These are still high absolute numbers, but represent a marked improvement over the 400K+ readings that dominated a few months ago. I've attached a chart of initial claims from the Office of Workforce Security:

Chart of initial jobless claims

In other news, Italy's largest food group, Parmalat, filed for bankruptcy protection under an emergency government decree, following allegations of fraud and accounting irregularities estimated above $10B.

The Commerce Department reported that new home sales dropped 2.4% to a seasonally adjusted annual rate of 1.08 million, the slowest sales pace since May. There were 363,000 new homes on the market rose to 363,000, the highest in more than seven years. New home sales came in at 1.08M, vs. expectations of 1.12 million. The median sales price was up 15.5% year-over-year to a record $209,200, another indication of the effects of the Fed's reflationary efforts.

News of an explosion at the Baghdad Hotel was met with a yawn, as was the majority of the news today. While the markets did move, there was little conviction in either direction. Until traders and volume return, we can expect more of the same, barring more significant external news. Here's my prayer for an uneventful holiday season. See you on Friday.

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