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Market Wrap

Turkey Run

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      11-24-2004           High     Low     Volume   Adv/Dcl
DJIA    10520.31 + 27.71 10527.40 10482.26 1.43 bln 2033/ 775
NASDAQ   2102.54 + 18.26  2103.80  2090.20 1.62 bln 1869/1139
S&P 100   562.70 +  1.41   563.55   561.22   Totals 3902/1914
S&P 500  1181.76 +  4.82  1182.46  1176.94
SOX       433.65 +  3.94   435.59   430.75
RUS 2000  629.50 +  4.97   630.29   624.41
DJ TRANS 3647.59 + 26.51  3651.41  3621.04
VIX        12.70 +  0.05    12.89    12.56
VXO (VIX-O)12.97 -  0.11    13.48    12.82
VXN        17.88 -  0.55    18.28    17.73
Total Volume 3,055M
Total UpVol  2,060M
Total DnVol    940M
Total Adv  3902
Total Dcl  1914
52wk Highs  575 
52wk Lows    26
TRIN       1.03
PUT/CALL   0.61

The markets opened and traded as scheduled, but hearts and minds appeared more acutely focused on the promise of turkey and trimmings. Light volume and slight ranges dominated the indices ahead of the (almost) long weekend.

Other than the absence of volume, it was a solidly positive day, as advancing volume more than doubled declining volume on the NYSE and almost did so on the Nasdaq. There were 396 new NYSE highs for 3 new lows, 210:18 on the Nasdaq. In light of these internals, it's surprising that the indices didn't advance further.

Daily Dow Chart

The Dow added 27.71 points to close at 10520.31, above this week's high but below resistance on the way to last week's high. This week has seen the first steps of an overdue daily cycle downphase, but without confirming followthrough. Support is where indicated at 10425-30, 10360 and 10240-50. A close below the 10425 level should be enough to get the daily cycles pointed more unambiguously south, but given the close near the highs today and the certain light, retail-dominated volume expected on Friday, bears will most likely have to wait for next week to see it.

Daily S&P 500 Chart

The SPX gained 4.82 to close at 1181.76. The cycle picture matches that on the Dow, and bearish traders need a closing break of 1168 to be confirmed with a break of 1160 support.

Daily Nasdaq Chart

The Nasdaq was relatively stronger than its peers, gaining .87% or 18.2 points to close at 2102.5. The rally highs are spitting distance away, and Friday could see a light volume, high anxiety retest. The daily cycle oscillators are trying to put together an upside whipsaw on today's gains. The trouble with light volume moves is that they're more susceptible to reversal when volume returns. While price is the only arbiter for traders, light volume price breakouts are the most likely to reverse, and for that reason we need to be careful in the event that the bulls pick up on Friday where they left off today.

Weekly TNX Chart

The Mortgage Bankers Association reported that its Mortgage Index, which measures weekly application for home mortgages in the US, declined 5.7% during the week ending November 19, engulfing the previous week's 4.3% gain. This index can be very volatile from week to week, and the 5.7% drop would be uninteresting except that it occurred alongside a decline in interest rates, with the rate for a 30-year fixed mortgage down from 5.7% to 5.64% during the same period. The Refi Index, which measures refinancing activity, declined 8.3%, while the Purchase Index lost 3.5%, posting its third consecutive week of declines.

Ten year note yields ($TNX) declined last week as well, with what appears to be a neutral pennant printing during the past 3 weeks in the early stages of the recently-commenced upphase. If this oscillator upphase is for real, the pennant should break to the upside, targeting next weekly resistance in the 4.4%-4.5% area. The pennant of the past few weeks has reflected itself as a downphase in the shorter (ie daily) timeframes, which I've been following nightly in the Futures Wraps. That downphase has so far been corrective, and so long as the current consolidation does not violate 4.0% support, TNX bulls/bond bears should have a shot at the year highs above 4.8% on a break above 4.5%. For the day, TNX finished higher by 1.1 bps at 4.195%.

Weekly chart of Crude oil

The Energy Department reported that crude oil inventories rose in the week ending November 19th by 100,000 barrels to 292.4M, their 9th consecutive weekly rise. Distillate supplies rose 1M barrels to 115.6M, while gasoline stocks rose 1.8M barrels to 202.7M barrels. Later this morning, the American Petroleum Institute reported its own inventory figures, announcing that distillate inventories rose 1.8M barrels to 117.6M, crude oil inventories declined by 1.2M barrels to 293.2M, and gasoline rose 2.9M to 204.1M barrels. The Energy Department's and the API's figures are often at odds, as occurred with this week's crude oil data, and the disagreement as to whether crude stocks rose or fell is not particularly noteworthy.

Crude oil traded both sides of unchanged, bouncing from a low of 47.775 per barrel to print an afternoon high at 49.65 and closing higher by 1.02% at 49.45. The higher range so far this week sets up last week's doji hammer as a potential reversal candle. However, in light of the ongoing weekly cycle downphase (launching as it did from a bearish stochastic divergence), oil bulls will need to be vigilant for a lower bounce high, particularly in the 51-52 resistance zone.

At 8:30AM, the Labor Department released the initial claims data for the week ending November 20th, with 323,000 new claims for state unemployment benefits reported. This figure was down from the previous week's 335K reading, and was lower than consensus estimates for 335K as well. Continuing jobless claims declined 29,000 to 2.76M, the lowest level since May 2001. The 4-week moving average of initial claims also posted an encouraging drop of 6,750 to 332K, which is the lowest level since November 2000. The report indicated that 337K new jobs were added in October.

Also released at 8:30 was the Durable Orders report. The Commerce Department reported that orders for durable goods fell 0.4% in October, missing analyst expectations for a 0.5% rise. The data would have been even worse if not for strong military demand, as non-defense durable goods fell 1.5%, posting the sixth consecutive decline in 7 months. By comparison, orders for military aircraft launched by 35.2% in October. Ex-transport, durable orders were down 0.7%. This bleak picture was somewhat mitigated by upward revisions to September's durable orders number from .2% to .9%.

At 9:45AM, the University of Michigan announced that consumer sentiment as measured by the Umich sentiment index fell to 92.8 in late November from its previous 95.5 reading released earlier this month. The number fell short of analyst expectations for 96, but remained above the October level of 91.7.

At 10AM, the Conference Board's Help Wanted Index, which tracks newspaper help-wanted ads in the US, rose to 37 in October from its September level of 36.

Also at 10AM, the Commerce Department reported a rise in New Home Sales of .2% to 1.226M units in October, the third highest level on record. The data exceed analyst expectations by 26,000 units. The report further revealed an increase of 1% in the number of homes offered, which equates to 4.1 months' supply. The median price of a new home rose from $203,300 in September to $221,800 in October.

In corporate news, GE announced its agreement to purchase ION, manufacturer of water purification devices, for a price of $44 per share comprised of 1.1B in cash and the assumption of ION's debt. The $44/share purchase price represents a 48% premium on ION's previous closing price. ION closed higher by 45.51% at 43.29 while GE lost .42% to close at 35.66.

Insurer and financial manager AIG announced its agreement to pay 126M in fines to settle ongoing federal investigations relating to its dealings with Brightpoint and PNC Financial Services Grp. The 126M figure is comprised of 46M to be paid to the SEC, and 80M to the US Department of Justice. AIG is not out of the woods, however, as a Wall Street Journal article reported that federal prosecutors are investigating allegations as to whether chairman Maurice Greenberg attempted to manipulate AIG's share price in 2001. The alleged scheme would have sought to achieve a higher price for the stock in order to save money on its 23B deal to acquire American General. AIG closed lower by 3 cents at 64.17.

Overall it was a quiet day, with the treasury market closing early for the holiday. The US Dollar got crushed to new lows for its multiyear decline, as commodities and foreign currencies rallied to new multiyear highs. In the case of the CRB, it was nearly a 25 year high above 291.5. In this environment, it's surprising that the degree of dollar selling hasn't corresponded with more weakness in treasury bonds, as the ten year yield has continued to mark time in the low 4% area. As I've discussed at length in the Futures Wraps this year, the decline in the dollar has often coincided with rallies in everything else denominated in those dollars.

Aggressive investors have sought protection from the depreciating dollar in commodities, real estate, metals, and equities. Until we see pronounced selling anywhere but in the dollar, there's little reason to expect these intermarket trends to reverse. While the past month's rally in the indices looks toppy and ready for a correction, traders will want to see at least a few days' worth of weakness before assuming that the trend is changing. Recall that over the past month, we've seen 3 days' worth of weakness, and only one occasion during which there were 2 consecutive days' worth of lower lows and lower highs. If the markets feel toppy to you (as they do to me), ask yourself whether you believe that the USD Index is a buy at these levels- equities look almost as overbought on a daily chart as the USD Index looks oversold. So far, the trend has maintained the dollar in opposition to dollar-denominated equities and while no trend is bulletproof, it's best to follow it as long as it lasts.

With the promise of a light volume session when trading resumes on Friday, traders are best to be mindful of the propensity of low volume markets to frustrate, obfuscate and whipsaw. Have a safe and happy Thanksgiving.

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