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Market Wrap

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      12-02-2004           High     Low     Volume   Adv/Dcl
DJIA    10585.12 -  5.10 10629.16 10544.77 2.23 bln 1219/2021
NASDAQ   2143.57 +  5.30  2156.14  2131.65 2.43 bln 1648/1482
S&P 100   566.45 +  0.24   568.93   564.57   Totals 2867/3503
S&P 500  1190.33 -  1.04  1194.81  1186.66 
SOX       438.71 -  1.40   446.96   437.26
RUS 2000  642.51 -  1.17   644.57   639.72
DJ TRANS 3729.94 -  6.90  3748.05  3717.31
VIX        12.98 +  0.01    13.04    12.72
VXO (VIX-O)13.91 +  0.45    14.21    13.58
VXN        18.64 +  0.40    18.65    17.85 
Total Volume 4,960M
Total UpVol  2,474M
Total DnVol  2,420M
Total Adv  3272
Total Dcl  4003
52wk Highs  663
52wk Lows    41
TRIN       0.78
NAZTRIN    0.42
PUT/CALL   0.84

After a blowout on Wednesday the markets traded sideways on Thursday as dividend cash began to hit traders accounts. On a day that most analysts expected to see a rising market it did make some new highs but closed almost exactly flat. The reason according to chatter on the floor was unwinding futures trades. It appears some funds hedged against the dividend bounce by going long futures on Wednesday. With the leverage futures provides they were able to capture the initial bounce with cash on hand and not have to wait for today's dividend deposit. Once the Microsoft cash begin to hit accounts those trades were unwound and stocks bought to replace them. This produced a huge volume spike with nearly the Dow, Nasdaq, SPX, RUT and SOX all closing within five points of the flat line.

Dow Chart

Nasdaq Chart

The flat day came on another session of imploding oil and ahead of the Intel update and the Jobs report. I had not expected any major moves until Friday or even Monday and the Wednesday bounce had me scratching my head. The futures swap explains it completely and puts us back to the Fri/Mon bullish scenario assuming Intel and Jobs were positive.

After the bell Intel surprised the street and upgraded guidance to $9.3B to $9.5B compared to prior estimates of $8.6B to $9.2B. Intel soared to $24.72 and a +2 point gain from the close and trading was heavy in after hours. The initial bounce has not faded appreciably with the price still holding $24.35 as I type this. S&P futures jumped +5 to 1196 and a new high for the year. Nasdaq futures jumped +17 points to 1631 on strength in the entire chip sector in late trading. This appears to be good news for tomorrow but we still do not know how many more futures trades need to be flattened by funds. We also have the Jobs report still hovering over our head tonight. We are not out of the woods yet.

Economically it was another day of mixed blessings with Jobless Claims spiking again to 349,000 and a gain of +25,000 over last week. Most analysts quickly discounted the jump in claims as a seasonal adjustment problem for Thanksgiving week. However, even though this weeks Jobless Claims have no bearing on the Jobs Report tomorrow there was some initial caution when it was announced. We will see tomorrow if the Jobs paints the same picture or will continue in creation mode.

According to the Monster Employment Index released this morning the Jobs report will be strong. The index hit an all time high at 117 compared to 88 one year ago today. 50% of the sectors tracked posted gains for the month with the majority of the gains going to high paying jobs in the Professional, Scientific, Technical Services and Utilities sectors. Jobs increased in all nine regions.

The Chain Store Sales for November came in at +1.7% compared to the estimates for +4.0%. We already knew they were going to be weak but the depth of the weakness was astounding. 60% of retail stores posted sales below prior estimates. This is a major blow to the retail sector and suggests the discounts are going to be heavy over the next four weeks. Online sales soared and according to some analysts it took nearly 3% out of store sales. This seems extreme to me but there are a lot of people not heading to the mall this year. Analysts claim retail trends have changed after the last three years and shoppers are going to wait until the last minute to take advantage of the deep cuts in prices. With Wal-Mart barely over the flat line for November it suggests just how competitive those discounts will be for the rest of the season. Wal-Mart announced today that they were going to blast consumers with a very strong advertising campaign beginning this weekend. High gasoline prices and record heating oil prices have also combined to keep consumers out of stores.

Factory Orders increased significantly over last month with a headline number at +0.5% and well over estimates of +0.2%. Last months number was also revised higher. The strongest component was nondurable goods which rose +2.4% for the month. New orders for Computers and electronics fell -6.5% after blowouts the prior two months at +13.2% and +6.0%. Orders for computers alone fell -16.1% for the month.

The horrible drop in computer orders and shipments in the Factory Order report was probably one of the biggest weights on the market today. With the Intel update coming after the close this order flow report was seen as a strong potential for an Intel warning instead of higher guidance. This could have helped produce a lot of the after hours bounce as shorts expecting the worst were clobbered.

For Friday we have the Jobs Report at 8:30 and the ISM Services Index at 10:00. The key is the Jobs report and estimates were climbing all day. The official consensus is still +200,000 but the whisper numbers are hovering around +300K. Last month showed a gain of +337,000 jobs. I am leaning toward last month being an anomaly that was skewed by the hurricanes. I would love to see another big jobs gain but I would be just as happy with hitting the consensus at 200K. Anything over 100K will probably be met with market relief in light of the Intel guidance.

The big story today was not really the Microsoft dividend but the falling oil prices. For three consecutive days we have seen major selling in crude and the low for the day at $42.50 was -8.00 below Tuesday's high at $50.45. This is nearly -16% off the Tuesday high and a -23% drop from the October highs. For a stock this would be a huge move. For a commodity like oil it is the 100-year flood. Better yet it is the collapse of a bubble not seen in a decade. Everyone knew it would end and could end badly and it could hardly have ended worse. The drop today took us back to September levels and very near support at $42.00.

With the flush of speculators in the oil futures it should have pushed even more money back into equities but it may not appear until tomorrow or Monday. Like any equity long play that suddenly fell out of the sky we are at levels where bulls have appeared before. While some cash may have been pushed into equities there is likely another contingent that see the oil drop as a buying opportunity.

Another problem caused by the oil drop could be an aggressive Fed. Yes, high oil was a depressant for the economy and could have kept the Fed on relative hold. With the bottom falling out of the dollar and oil at the same time the stimulus to the economy could be huge if it holds. The Fed could actually be forced to raise rates at a faster pace to constrain the inflation monster. Interest rates on the Ten-year Treasury have soared to the highest level in four months at 4.4% on fears the Fed will charge ahead. This also kept traders on the sideline trying to decide what the future holds. Should oil bounce on Friday it could actually be positive for the equity market. It is a crazy world of conflicting factors for the market this week. Add to that the potential for Japan/Europe joint currency interventions to hold up our dollar and it gets even more crazy.

Crude Oil

SPX Chart - daily

SPX Chart - 60 min

Before the impact of unwinding futures trades hit the market the Dow managed to hit a new eight month high at 10629. The retracement selling only managed to push the index back to close at 10585 and left the Dow in prime launch pad territory. The high for the year is 10753 and that could easily be hit again over the next two trading days if the current sentiment holds. Rising support is currently 10560 and +20 points higher than Wednesday. There is an underlying bid despite how the indexes finished the day.

The Nasdaq is even stronger and while it closed only a little higher it did make a strong intraday break to higher ground. The Compx hit 2156 and +3 points over the high for the year at 2153 set back in January. Unfortunately this is also very strong resistance and for the first test we simply did not have the power to push through today. The overnight futures suggest we will get another chance at tomorrows open.

The SPX broke out to nearly 1195 but over 1190 it ran into major selling pressure and returned to that level at the close. Overnight the S&P futures are trading back at 1196 and it appears we could test 1200 on the SPX at the open. There is strong round number resistance at 1200 as well as two different uptrend resistance lines converging. Earlier in the week I was expecting a break of that 1200 level with a positive Intel/Jobs combination but tonight I am not so sure. I still believe we will break it but maybe not until next week.

For Friday it is all about Jobs and then it depends on how funds decide to spend their dividend money. Despite the nearly five billion shares traded today there is still a lot of cash that has not made it back into the market. Friday could be a disappointment or a major explosion but I would doubt we will see a big drop. Watch SPX 1200 for a directional clue and try not to buy the top.

Sell too soon!

Jim Brown


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