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Market Wrap

Holiday Trade

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      12-27-2004           High     Low     Volume   Adv/Dcl
DJIA    10776.13 - 50.99 10868.07 10776.13 1.13 bln 1055/1745
NASDAQ   2154.22 -  6.40  2171.94  2147.59 1.46 bln 1276/1752
S&P 100   573.86 -  2.20   578.13   573.86   Totals 2331/3497
S&P 500  1204.92 -  5.21  1214.17  1204.92
SOX       423.09 -  3.34   428.80   421.41
RUS 2000  644.34 -  5.03   651.72   642.84
DJ TRANS 3754.23 - 33.55  3799.43  3752.32
VIX        12.14 +  0.91    12.16    11.53
VXO (VIX-O)12.16 +  0.93    12.34    11.53
VXN        18.33 +  1.53    18.43    17.62
Total Volume 2,596M
Total UpVol  1,108M
Total DnVol  1,445M
Total Adv  2331
Total Dcl  3497
52wk Highs  249 
52wk Lows    21
TRIN       1.12
PUT/CALL   0.84

The stock indices followed the dollar and treasury bonds lower in a very light volume session. There was little news but plenty of volatility, with the NYSE unable to break 1B shares and the Nasdaq 1.5B.

Daily Dow Chart

The Dow traded a high of 10868 before declining to a low of 10776 to close at 10828, -51 for the day. The year high at 10895 from last Thursday was not touched, and today's heavier volume decline combined with the weak intraday bounce suggest a downside bias within the ongoing daily cycle upphase. 10780 is the apex of a steep bear wedge on the daily chart, projecting to an implied target as low as 10440.

Daily S&P 500 Chart

The SPX managed to tag Thursday's year high of 1214 at the day high without exceeding it, falling to settle at the low of the day at 1210. The day closed on a perfect gravestone doji finish and had a bearish intraday feel resulting from the impulsive nature of the drop and the relatively corrective bounce off the lows. It's worth stressing, however, that with volume as weak as it's been since Thursday, technical signals need to be taken with a grain of salt.

Daily Nasdaq Chart

The Nasdaq broke the December 15 year high of 2171 by 1 point before falling to a low of 2148, settling lower by 6.4 points for the day at 2154. The Nasdaq failed to make new highs on Thursday and may have been catching up to its peers. The bear wedge on the daily chart projects to 2100, below support at 2130.

Weekly TNX Chart

Bonds had a rough day today, declining strongly alongside the US Dollar, with foreign currencies rallying with the ten year treasury yield (TNX). TNX rose to a high above 4.310% before settling back down to 4.291%, where it closed for a 7.3 bp or 1.73% gain. On the weekly chart, with this week's candle based entirely on today's performance, the candle has crossed above the 22 and 50 week EMAs for the first time since April's yield rally. Next resistance is implied by the upper Bollinger band at 4.345%, while next confluence resistance is at 4.40%-4.44%.

Weekly chart of Crude oil

The financial press attributed today's 6.45% shellacking in the price of crude oil to "unseasonably warm weather" as crude futures dropped to a low of 41.25 on the Nymex. The decline printed what continues to appear as the right shoulder of a symmetrical head and shoulders top above either 40.00 horizontal or 41 sloping support. This pattern has an implied downside target as low as 25 which, while not unimaginable on a fundamental basis, appears nevertheless to be an extremely low price to contemplate from here. In any event, that's the potential technical message of the chart pattern, while 40, 38 and 35-36 remain strong confluence levels. For the day, crude oil declined 2.85 to close at 41.325.

It was an otherwise quiet newsday, with little in the way of headlines other than the weekend disaster in Asia. The death toll from the tsunami following the Sumatran earthquake continued its climb, as rescuers searched for bodies in and along the shore of the Indian Ocean. The earthquake, which measured a Richter 8.9, was the largest since the Alaskan quake of 1964. To put this in further perspective, the LA Times reported that the quake moved the entire island of Sumatra 100 feet to the southwest. It touched off a tsunami that lashed the coast of the Indian Ocean with a wall of water 10 meters high. However, some eyewitness accounts put the wave height as many a 3x higher. From TamilNet, December 26, 2004 21:29 GMT:

"'We went from the hospital to retrieve some bodies of people killed by the first wave near the Pandiruppu beach. We saw at a distance another massive wave, more than hundred feet high, speeding towards Kalmunaikudi. It was like a diagonal wall rising out of the sea. The sight was terrible. We ran for our lives. I do not believe that anything could have survived the force of that wave,' said a doctor at the Kalmunai base hospital Monday."

The US military base at Diego Garcia was reported untouched due to its location at the top of the Chagos Trench, which is sufficiently steep and deep to preclude the buildup of tsunamis to threaten the installation. OPEC's only member in the affected region, Indonesia, saw no disruption to its oil production. Four Seasons hotels (FS), whose Asian Pacific hotels represent 12%-13% of its management fee revenue, managed a positive close today, adding .18% to close at 83.20, while earthquake protection firm Taylor Devices (TAYD) closed higher by 4.23 at 6.75 for a whopping 170.56% gain.

Because the coastline is the most densely populated region, the disaster was particularly dire, and the rush continues to recover as many bodies as possible to avert the risk of disease. The UN stressed that the risk of epidemic is at least as serious as that posed by the initial impact and fallout of the tsunami. Assistance is being offered by a variety of governments and organizations. European insurers said that it was too early to provide reliable estimates of the damage, while AIG announced in the afternoon that it doesn't expect to incur significant losses as a result of the destruction. AIG lost .87% to close at 65.71.

In corporate news, Sharper Image (SHRP) announced "disappointing" holiday sales and lowers its Q4 and 2004 earnings outlooks because of it. The company is looking for Q4 earnings of $.94- $.99 and for the full year of $.90-$.95 vs. First Call estimates of $1.31 per share for Q4 and $1.27 for 2004. The company said that sales to December 24 reflect a 4% increase so far, well below its expectations of 15%-18% growth for the quarter. SHRP lost 18.06% to close at 18.96.

This meshed with anecdotal reports I received from friends and traders of a relatively quiet boxing day this year. The National Retail Federation is forecasting a 4.5% gain in total sales for the November-December period (excluding restaurant and auto sales), and estimates that roughly 8% of holiday sales ($17.24B) will be sold in gift cards this season. This week's retail activity will be closely watched for the proportion of sales resulting from redemption of these gift cards vs. fresh money coming into stores. Last year, the International Council of Shopping Centers reported that the seven-day period ended December 27 accounted for 20.6% of holiday sales, up from 19.6% in 2002. The seven-day period ended January 3, 2004 accounted for 14.1%, up from 12.8% the previous year.

Amazon, however, reported a record holiday season, the busiest in its 10 years of operations, and a new record of 2.8M units ordered in a single day (which works out to an amazing 32 units per second worldwide). It wasn't books, however, but rather consumer electronics that led the charge as AMZN's top sales category. WMT announced that it is expecting same-store sales to rise between 1%-3% for December, with strength principally in food, gift cards and general merchandise during Christmas week. AMZN rose 8.53% to close at 42.25 while WMT rose .46% to close at 52.79. The RLX lost .23% to close at 453.41

Strong holiday sales were credited for XMSR's surpassing its year-end goal for 3.1M subscribers and for SIRI's 1M subscriber milestones, both announced this morning. SIRI noted strong sales in its portable plug-and-play products, reinforcing the strong consumer electronics results noted by AMZN as well. XMSR lost 0.48% to close at 39.73 and SIRI gained 1.89% to close at 8.10.

Tomorrow's lone economic report is Consumer Confidence for December, expected to come in at 94 from a November reading of 90.5. Market volume and corporate news were very thin today, and should only become thinner as the holiday week progresses. Just as traders are wary of the thin, less-predictable afterhours sessions, I would urge traders to be skeptical of this week's intraday market moves. In this thin volume, intraday chop has an even greater propensity to trick, whipsaw and stop-hunt.

That said, the negative closes for the indices, particularly for the Dow and SPX despite the strong decline in crude oil, suggest that the tide may be turning in the wake of this autumn's strong rally. However, it's early for daily cycle traders to switch gears, as the daily cycle trend, despite it's bearish divergences and bear wedges, remains bullish for the time being. A couple of days' worth of downside would change that, but it hasn't happened yet.


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