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Market Wrap

Vantage Points

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      12-15-2004           High     Low     Volume   Adv/Dcl
DJIA    10691.45 + 15.00 10706.16 10636.47 2.14 bln 1942/ 912
NASDAQ   2162.55 +  2.71  2171.27  2151.31 2.36 bln 1776/1285
S&P 100   573.45 +  1.03   574.00   570.19   Totals 3718/2197
S&P 500  1205.72 +  2.34  1206.61  1199.44
SOX       434.04 +  1.02   436.46   429.78
RUS 2000  648.61 +  5.07   648.61   642.68
DJ TRANS 3759.61 +  2.58  3770.55  3739.34
VIX        12.35 -  0.38    12.88    12.23
VXO (VIX-O)13.16 -  0.29    14.14    13.00
VXN        18.77 +  0.19    19.14    18.28
Total Volume 4,508M
Total UpVol  2,591M
Total DnVol  1,818M
Total Adv  3718
Total Dcl  2197
52wk Highs  454 
52wk Lows    22
TRIN       1.02
PUT/CALL   0.63

Wednesday offered a view of the U.S. economy from several vantage points, including the White House's. One of the first of those vantage points occurred when Treasury Secretary John Snow appeared on CNBC Wednesday morning ahead of the open of the White House's economic forum. A CNBC commentator expressed skepticism that the predicted reduction in the budget deficit would occur. Snow's "wait and see" answer epitomized the tone of the entire interview. Several times, he repeated his confidence that "the numbers are going to play out," adding that rising government receipts coupled with fiscal discipline would produce those better numbers.

On a morning that had seen the dollar drop precipitously against some currencies, a guest commentator quizzed him about his expressed strong dollar policy, saying that she hadn't seen any actions to back up that policy. Snow answered that he never talked about dollar levels. Saying that the administration's policy was well known, he stated that a strong American economy was key. Whether he meant that economic growth was key to buoying the dollar or that he would sacrifice dollar strength to help American multinational companies proved unclear, at least to this listener, and the guest commentator did not ask further questions that might have clarified the matter.

Later, President Bush spoke, saying that his administration's policy was a strong dollar one, and Greenspan took the dollar's value into account when deciding on rate hikes. Harvard's Feldstein was to echo Snow's optimism later in the day, saying that the economy was in good shape. Disputing some assertions that no evidence of inflation exists, Feldstein noted evidence of upward pressure on prices. After dropping precipitously against the yen and euro overnight, the dollar steadied throughout the day, with dollar investors perhaps awaiting other developments out of the forum.

Snow also addressed the issue of Social Security reform, affirming that he had approached the bond market for help financing the transition into personal accounts. He expressed confidence that if a "real fix" could be found, financing could be found for that transition. When questioned about whether 30- year bonds would be issued, as had been rumored, or whether a figure up to $1.5 trillion in bonds was accurate, Snow was cagey with answers, essentially giving the same "wait and see" reply.

For much of the day, indices displayed that same caginess. An end-of-day move higher pushed some above important resistance.

Annotated Daily Chart of the SPX:

Annotated Daily Chart of the Nasdaq:

Helped by Merck (MRK) after Raymond James upped the stock to a strong buy rating, the Dow broke out of a broadening formation.

Annotated Chart for the Dow:

Annotated Daily Chart for the Russell 2000:

Beginning with the 7:30 release of the Mortgage Bankers Association's (MBA) information on mortgage activity and ending with the Dec NAHB Housing Market Index at 1:00, another vantage point into the health of the economy was the performance of the housing industry. According to the MBA, mortgage activity declined 1.00 percent on a seasonally adjusted basis in the week ending December 10. Refinancing applications also fell on a seasonally adjusted basis, by 2.00. The purchase index declined 0.4 percent. Both the mortgage activity and purchase index numbers had produced strong gains the week before, but the decline in refinancing activity built on weakness from the previous week.

The U.S. December Homebuilder' Index was unchanged at 71. The DJUSHB still rose 5.44 percent, one of the strongest gaining indices, perhaps cheered by Lennar Corp (LEN)'s earnings report. That report included 34 percent growth in earnings. The company beat forecasts and raised guidance for the year above expectations. A rally in the bond market also helped encourage the homebuilders, with yields remaining low.

The 8:30 release of the December's Empire Manufacturing offered another vantage point into the health of the U.S. economy, at least as it's developing in New York. Manufacturing activity in that area unexpectedly increased to 29.9 in December from a revised 18.9 for November. Economists had expected a decline. New orders, shipments and unfilled orders all rose while the number of manufacturers reporting deteriorating conditions declined. Despite those assertions about no sign of inflation, those New York area manufacturers apparently experienced some, with December's prices-paid component rising. Manufacturers were not able to pass prices on to consumers, apparently, since the prices-received component dropped. Maybe New York area residents will soon be able to absorb some of those rising costs to manufacturers, however, as the employment index also rose, to 21.9 from November's 10.6.

October's Net Capital Inflows, announced at 9:00, offered another vantage point, showing capital inflows at $48.1 billion, down from September's $67.5 billion. Foreign purchases of net domestic securities fell while foreign purchases of U.S. Treasury notes climbed. Private purchases of U.S. financial assets declined. The news hit the weak dollar, weakening it further, before it began a long period of consolidation for the day.

At 10:30, the usual release of crude, gasoline, and distillate inventories offered yet-another vantage point, one with a less cheerful view. Some concern had already arisen with Yukos' Wednesday morning bankruptcy filing in a Houston court. Yukos felt forced into the move by the Russian government's intention to sell off the valuable Yuganskneftegaz unit. The government intends the sale as one step in collecting the $28 billion in taxes the government has billed the company. Yukos asked the U.S. judge for an injunction against that sale, along with other protections.

Iran had also announced that it would adhere to OPEC's decision to trim production, on the same morning that ChevronTexaco made public its intention to raise its planning price for oil from the previous $15-25 a barrel to $20-30 a barrel. The Chairman and CEO's conclusion that higher oil prices constituted an enduring structural change probably caused more harm than the raising of planning prices. Most analysts had concluded that major companies had already raised planning prices, especially after Royal Dutch/Shell noted in September that while $20 a barrel would remain its official planning price, the company would factor in a price of $25.00 a barrel or above when making investment decisions.

In that climate, crude had been rising pre-market, a climb it continued into the release of crude inventories. The Department of Energy's figures proved disappointing to those who had hoped to see a further build in inventories. Instead, the DOE reported steady inventories in distillates, the focus of interest during winter months. The American Petroleum Institute (API) reported a drop of 2.2 million barrels. The DOE said crude inventories dropped 100,000 barrels and gasoline rose 1.5 million barrels. API disputed those numbers, citing a gain of 2.5 million barrels in crude inventories and a drop of 1.3 million barrels in gasoline. The government reported that imports dropped 498,000 barrels a day, arguing against OPEC's assertion that full tankers have been churning their way through the seas to the U.S. with inventories increasing. The government's data on imports offers a different view from a different vantage point.

After stabilizing for a few moments as the news was digested, crude futures rose again.

Annotated Daily Chart for Crude Futures for January Delivery:

While equities bucked the usual crude-up/equities-down reaction, many may be discounting the rise in crude, feeling as if it were an overreaction to the Yukos news. Some might be focusing on the technical potential for another rollover soon, perhaps after that neckline is retested.

Perhaps the various vantage points offered up a more encouraging view of the economy than many expected to see. Many had worried about the influx of new shares into the market with the heavy IPO schedule this week, but today's big IPO, Las Vegas Sands (LVS) performed strongly, closing at $46.52, well above the $29.00/share pricing.

Increased merger and acquisition activity provides an optimistic vantage point for the markets, and markets are seeing more M&A activity. Today's featured the Sprint Corporation purchase of Nextel (NXTL) with the cash-plus-share price at a premium to Tuesday's closing price. Both boards have apparently already approved the deal that will make the combined company, to be known as Sprint Nextel, the country's third-largest cell phone company. The deal is expected to be completed by the second half of 2005, if the regulatory approvals and usual closing conditions can be met by then. Sprint will spin off local telephone operations.

Gary Forsee will head up the new company, with titles of resident and CEO. He's currently Sprint Chairman and Chief Executive. Current Nextel president and CEO Timothy Donahue will serve as chairman of the combined company. Forsee enthused about the efficiencies that will be generated and UBS analysts agreed. UBS noted that Sprint should realize at least $19 million for the spin-off of local telephone operations and speculated that 2005's pre-tax cash flow should see double-digit increases.

Keep your eyes on the view, however, as tomorrow offers numerous new vantage points, including FedEx (FDX) and Goldman Sachs (GS) earnings before the bell and Adobe Systems (ADBE), Darden Restaurants (DRI), KB Home (KBH) and Nike (NKE) after the bell.

Thursday's economic releases begin with the 8:30 release of jobless claims and include the 10:30 release of natural gas inventories, but will feature many more economic releases. November Housing Starts, Building Permits, and Q3 Current Account Balance will all be released concurrently with the jobless numbers. At noon, markets watchers will see December's Philadelphia Fed. The minutes of the November 10 FOMC meeting will be released at 2:00, and at 4:30, the Money Supply figure follows up. Also after the close, the Semi Book-to-Bill number will be released.

With many indices offering tentative new upside breakouts, there better not be any thick, ground-hugging roots to trip bulls wandering among those gorgeous views.


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