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Market Wrap

Catching the Wind

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A funny thing happened on the way to sailing through another positive day. With all bullish sailboats lined up for the race, futures turned lower after the Labor Department released jobless claims that were higher than expected and Research in Motion (RIMM) forecast lower numbers of subscribers. As the markets opened and the race began, investors appeared uncertain which way to send indices during earliest trading. Some indices rose modestly, sailing into the recent bullish winds. Then even their sails luffed, flapping in those bullish winds while they waited for economic releases that would show them the next direction. After the inventories numbers, the wind stiffened, sails caught the wind, and the race to see which index or sector could sail the fastest was engaged.

The TRAN, a recent market leader, headed down into the inventories numbers released at 10:30, but was to spend the day tacking back and forth, trying to catch the wind but ending up where it started. The EIA reported a rise in crude stocks by 354 thousand barrels against expectations of rise of 250 thousand. Gasoline inventories rose 238 thousand barrels against expectations of a rise of 1.1 million barrels, and distillates rose 1.17 million barrels against expectations of a rise of 750,000 barrels. U.S. refinery utilizations rose to 88.1 percent from 86.2 percent.

API figures differed, as they usually do, showing bigger increases in some inventories than the EIA figures. January crude futures had been trading between $58.45-58.50 before the release and dipped immediately toward the 200-sma for that contract. The TRAN luffed a while longer while market participants waited to see if crude would hold above the 200-sma. Then the TRAN caught the wind and shot up toward what I believe to be a possible finish line before it turned back again to close near its open. The crude contract did steady above its 200-sma, but the TRAN's sails may have just been tattered from a prolonged race.

Annotated Weekly Chart of the TRAN:

The attraction of Dow 11,000 was apparent today, as the Dow sailed through strong resistance, only to pull back to that resistance by the close. Another shot at 11,000 can't yet be ruled out, but Wednesday's close was not strong, reinforcing the importance of the resistance rather than suggesting that the Dow had cleared it. A further gust of wind to push the Dow up toward 11,000 or even 11,035-11,070 next resistance can't be ruled out, perhaps as early as Friday. However, the Dow, like other indices, has left support far behind and looks desperately in need of sideways consolidation or a pullback.

Annotated Daily Chart of the Dow:

The SPX punched up into levels not seen since the summer of 2001. In October of 2004, the SPX confirmed an inverse H&S on its weekly chart, although there are some reasons to question its validity, and the SPX has consolidated since breaking above that neckline. Some might be revisiting the idea of the big inverse H&S with this breakout, but that's a debate for another time. For now, be careful with long positions as long-term resistance is tested.

Annotated Daily Chart of the SPX:

The Nasdaq broke out above its rising wedge on its weekly chart. Friday's close will prove important.

Annotated Weekly Chart of the Nasdaq:

The SOX's daily chart shows what might happen with the Nasdaq: a breakout followed by consolidation. If trading Nasdaq stocks, watch the SOX to see if it heads down toward a gap fill. It's not particularly bullish that the SOX keeps piercing that resistance but can't close above it.

Annotated Daily Chart of the SOX:

The natural gas inventories number did not prove as market positive as the crude inventories, with the EIA reporting that working gas in storage declined 8 Bcf from the previous week and 32 Bcf than the same time last year. In all regions, inventories remained above the five-year average, however. Even the lull in the winds produced by this number was to be brief, however. Except for a brief decline near the open, the three-minute 21-ema had been bouncing the indices.

The pre-market lull had been precipitated by initial jobless claims, rising 335,000 in the week ending November 19, with those gains higher than expected. The four-week moving average rose 1,250 from the previous week's revised four-week average.

RIMM plunged in pre-market trading after the BlackBerry maker trimmed its forecast for both the third and fourth-quarter's subscriber additions. The company said its third- and fourth-quarter revenue outlooks remained the same, and blamed the subscriber difficulty on the delay in the sale of two new handsets. The stock opened at $62.60 but closed down only 1.19 percent at $66.28, well off the low of the day. RIMM's decline didn't hurt other techs, with techs being among the earliest and strongest-performing sectors in gains that were broad-based.

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Other events contributed to the pre-market jitters. Yesterday, markets had probably sailed too close to the wind after the FOMC minutes were released and they bet on an end-of-tightening rally. Overnight developments were to take some wind from those sails. Many ex and current central bank monetary policy committee members from around the globe sounded off during the night. The Bank of Japan's Fukui asserted that although the central bank shared the government's goal of bringing about sustainable economic growth and stable price movements, the central bank's policy board will make the appropriate decision and take full responsibility. Tension has existed between the central bank and the government, with the government anxious that the central bank not end easy monetary policy too soon. The Bank of England's member Walton noted that CPI was above target and that consumer spending and growth data appeared encouraging, concluding that the central bank needed to keep rates steady rather than ease, as some have hoped.

Jim Brown reported in last night's Wrap that here in the U.S., Ben Bernanke had filed his written responses to Senator Jim Bunning's questions, with Bernanke commenting that continued increases in energy prices could create upside risks in the inflationary outlook, with those comments likely to dampen the post-FOMC-minutes party spirit. Last night, two ex-Fed governors, Meyer and Hoskins, spoke of increasing inflation risks and vowed that the Fed was likely to err on the side of being too tight rather than too easy. Hoskins thought the Fed might become less transparent about its intentions soon. Current FOMC member, the Richmond Fed's Lacker, reportedly countered the more dovish tenor of the FOMC minutes released yesterday with more hawkish statements. The WSJ appeared to agree with Hoskins' belief that the Fed might be less transparent about its intentions soon.

If those pre-market events set a somewhat wary tone in earliest trading, the revised University of Michigan November sentiment figure blew toward the bullish side. That number showed a strengthening to 81.6, increased from its preliminary 79.9 number earlier in the month and from October's 74.2 reading. The help-wanted index was below consensus, but few noted the number.

Another early morning release related to the much-watched housing sector. The Mortgage Bankers Association publication on mortgage applications for the week ending November 18 showed weakness. All components fell, with refinance activity down 17.4 percent from the month-ago level. When seasonally adjusted four-week moving averages are considered, all components except for the purchase index fell. The average contract interest rate for 30-year fixed-rate mortgages fell to 6.26 percent from the previous week's 6.33 percent, and points decreased.

The Dow Jones Home Construction Index's sales luffed all day, ending lower by 0.30 percent, perhaps under the weight of that mortgage information or ahead of next week's home sales figures. Not helping was a decline in bonds after lackluster demand in an auction for two-year bonds, sending yields higher. The ten-year bond closed down 10 ticks at a 4.47 percent yield.

The rise in yield did not deter rate-sensitive sectors such as the financials and utilities, as investors look ahead to a day when the Fed stops raising rates.

Even steel-related stocks climbed during the early part of the session, perhaps somewhat surprising given China's Baosteel's statement Tuesday that it was dropping product prices in the first quarter of 2006 by an average of more than 10 percent. By the end of the day, stocks such as X and PD were to drop sharply off their highs of the day, however, leaving bearish candles and potential reversal signals behind. In X's case, the day produced strong volume, showing that sellers were active.

Last week, I suggested that new bullish plays be opened on retests of and bounces from the 10-sma's on the daily charts. That would have been a good idea except that indices sailed ahead without rounding those buoys again. They've left them far in the distance, and will have to either wait until they float up to their current positions or they'll have to backtrack quite a distance. Now, with the traditionally bullish Thanksgiving week nearly completed and with indices overstretched as they face the next resistance bands, I'm recommending something different. I'm recommending that those in anything other than aggressive bullish daytrades consider locking in profits on some of those positions and tightening stops on the rest so that positions would be closed with some profit intact if a sudden downdraft should occur. A cautious stance with your bullish profits is now warranted. If your opinion is still strongly bullish, taking partial profits and tightening stops on the rest of your positions remains a good account-management tactic.

The Nasdaq has clearly broken out above the wedge's resistance but it's the weekly close that remains important. A drop below 1235-1248 seems unlikely on a holiday-shortened Friday on a week with a traditionally bullish tenor, but stranger things have happened. The SOX's example lends some caution to the belief that such a breakout would lead to an immediate thrust higher, however. The SOX expended much effort leaping above its descending trendline, and now consolidates, piercing next resistance, but not yet able to stay above it on an intraday basis. The SOX may be one of the first indices to show us whether others are likely to consolidate sideways while their 10-sma's catch up or plunge straight to--or through--those moving averages. Keep it on your radar screen Friday. The TRAN produced a doji, almost an inside-day candle, at the top of its steep climb, so that index should be watched, too, remembering that an upside break again could send it into that 4,200-4,275 next resistance zone.

By the weekend, we may have part of the answer, and Jim Brown will be letting you know what he sees. He has great perceptions on seasonal patterns.

Tomorrow is Thanksgiving for our U.S. readers. Happy Thanksgiving to you all with our good wishes extended to those readers who live outside the U.S., too. We're thankful for the readers who contact us, challenge us and sometimes teach us.

Friday will be a holiday-shortened day with no major economic releases. Volume may be light, with market movements perhaps not particularly predictable according to standard technical analysis tools. If you're watching the markets, as those of us who write for the Market and Futures Monitors will be doing, consider scaling down to one and two-minute charts, paper trading the setups you see there, testing your theories but not putting your money at risk in new positions.
 

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