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Market Wrap

Buyers show durability

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Buyers show durability

Stocks finished broadly higher with record home sales, upbeat durable goods data and the Fed's Beige Book showing economic growth in all 12 districts helping the very broad NYSE Composite (NYA.X) 7,465.44 +0.50% close at an all-time high.

The tech-heavy NASDAQ-100 Tracker (NASDAQ:QQQQ) $39.72 +0.76% edged above of its recent four-day range to close at its highest level of the year! Bears look very complacent, or think they know something as recent short interest data (07/15/05) released shows short interest rising to just over 213 million shares with days to cover building to 2.37. Current short interest readings come close to matching that found on February 15, 2005.

Volatility measures plunged with the widely followed CBOE Market Volatility Index ($VIX.X) 10.36 -5.73% looking to revisit last week's decade low reading of 9.88.

While some firmly believe the lower volatility measures are being created by bullish optimism, recent short interest readings may also hint that some overly complacent bears are looking to hedge some bets in the options markets.

U.S. Market Watch - 07/27/05 Close

The Dow Jones Home Construction Index (DJUSHB) 1,080.05 +0.71% would get my "turnaround of the day award" after testing its rising 21-day SMA at 1,055 in early session trade. The Commerce Department reported that single-family home sales jumped to a record annual pace of 1.37 million units in June, up 4% from May.

The report on new home sales did show new home prices declining for a second consecutive month in June with the median price dropping by 5.5% to $214,800 in June, down 0.4% from a year ago. New home prices had set a record at $232,600 in April.

Michael Carliner, senior economist at the National Association of Home Builders, said the decline in new home prices could be an indication that demand is strengthening in the lower-end of the market.

Early buying among the major Treasury maturities turned to selling as orders for big-ticket items posted a strong 1.4% increase last month, while this afternoon's release of the Fed's Beige Book (anecdotal) showed a number of the districts describing the current economic expansion as "solid."

The North American Telecom Index (XTC.X) 716.41 +1.43% was atop today's list of index gainers with Sprint (NYSE:FON) $26.37 +5.6% surging to a new multi-year high. Second-quarter earnings more than doubled and the wireless service provider raised its guidance for 2005. Nextel Communications (NXTL), with which Sprint is in the process of merging, rose $1.64, or 5%, to close at $34.15.

The Airline Index (XAL.X) 51.05 -1.19% reversed early morning gains, but finished just about in the middle of its day's range. Shares of Delta Air Lines (DAL) $2.99 -11.79%, which are also a component of the Dow Transportation Average (TRAN), plunged amid unconfirmed reports that recent cost cutting efforts would keep the company from filing for bankruptcy.

Toot! Toot! In last Wednesday's Market Wrap I thought Canadian National Railway (CNI) $65.22 +0.94% had sparked some renewed interest in the "rails." Wouldn't you know it! The very next day, shares of Dow Transport component Union Pacific (UNP) $69.10 +0.84% gapped higher from its closing price of $65.93.

Today, FreightCar America (RAIL) $28.88 +23.36% blew its horn to a post-IPO high after the designer and manufacturer of railcars reported Q2 earnings that easily outpaced expectations.

Energy equity sectors finished in the green, while the commodities traded mixed-to-higher. In today's Market Monitor, fellow analyst Tab Gilles noted that the Energy Department's latest weekly report showed crude oil stocks fell by 2.3 million barrels to 317.8 million barrels, or 7% above year ago levels. The supply of distillates grew by 3.1 million barrels to 125.8 million barrels, or 5% higher than last year. These figures could calm trader's fears who believe we are in a shortage. According to the DOE back in July of 2002 we had 304 MB in storage of crude oil, in July 2003 we had 283 MB in storage and the U.S. has 6% more supplies than '02 and almost 14% more inventories than '03 yet prices are doubled from the same time period.

NASDAQ-100 Tracker (NASDAQ:QQQQ) - Daily Intervals

The QQQQ dialed up a new 2005 closing high as buyers look to gain further ground against sellers. I was snooping around and noticed that short interest figures are starting to be posted on various securities. With QQQQ short interest at very similar levels found in February, but market internals as depicted by the narrower NASDAQ-100 Bullish % ($BPNDX) headed in a different direction (rising now, falling then) it shouldn't be assumed that IT IS JUST COMPLACENT BULLS BUYING. The short interest comparisons, at VERY SIMILAR PRICE levels would suggest some complacent bears may be picking up their short covering, or buying call options/selling put options, which can drive volatility measures lower to try and get squared up.

Upbeat earnings and the raising of guidance had online retailer Amazon.com (AMZN) $43.65 +15.65% a percentage gainer, which follows a big upside move from eBay (EBAY) $41.99 +3.88% last week.

Biochemical maker Sigma-Aldrich (SIAL) $64.96 +12.6% surged to an all-time high after reporting earnings late Tuesday.

Electronic manufacturer Sanmina (SANM) $4.64 -11.78% was a percentage loser among NDX/QQQQ components after Tuesday evening's earnings release suggested the company's turnaround was delayed as demand for its semiconductor manufacturing equipment remained anemic.

S&P Depository Receipts (SPY) - Daily Intervals

Same retracement shown in last Wednesday's Market Wrap, where I placed a "reverse head and shoulder" retracement, with a HORIZONTAL neckline at $121.76. Now... today's close above $123.70 would be deemed bullish at the close, as demand has finally been strong enough to outstrip supply (sellers) at that level.

But Jim Brown's trend drawings in (note the direction of these trend lines) had me wondering if my earlier analysis and use of retracement might be too BEARISH? Perhaps the neckline of the pattern isn't horizontal as I had depicted, but was ascending.

S&P Depository Receipts (SPY) - Daily Intervals

A little different look, but do you see how the "neckline" could be moved higher to Jim's ascending bullish resistance trend? Hey, if you were using my "bullish fitted 38.2% retracement technique" (anchor at a low/high point, then fit 38.2% at a relative high close), we can perhaps see where that comes in. "I like" that as it makes some sense with what the MARKET is doing.

What I don't like is how retracement doesn't "explain" whey the SPY stopped on that pullback to about $119.

What do you think? Using Jim's bullish resistance trend as a near-term projection to the future, and the above retracement, maybe $126.00 by the end of August?

Banks and healthcare haven't been participating of late, and that's actually WEIGHED on the SPY/SPX.X. If they get turned


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