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Market Wrap

Dow 11K Party Dashed

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The mainstream financial press ran headlines welcoming the imminent "arrival" of Dow 11K for today, but the market didn't cooperate. Overnight strength succeeded only in running short stops, and the opening bell marked the high of the day. The Dow never touched 11K and the S&P never touched 1270. A steep morning decline consolidated and bounced weakly on the way down, but the bias was to the downside throughout the session.

Breadth was negative, with the number of declining issues nearly doubling advancing issues on the NYSE and more than doubling on the Nasdaq. New highs outnumbered new lows, but volume breadth was strongly negative throughout the day, with declining volume leading 2.75:1 on the NYSE and 2.4:1 on the Nasdaq. Option volatility rose, and volume was heavier than in recent sessions.

Today's lone economic report was Existing Home Sales for October. The National Association of Realtors reported that sales of existing US homes fell a seasonally-adjusted 2.7% from 7.29 million in September to 7.09 million in October, with a 3.5% rise in the number of unsold homes to 2.87. This latter was the highest reading in 20 years according to Marketwatch, and represents a 4.9 month supply at current rates, the highest in more than 2 years. The median sale price rose to $218,000, 16% higher than in October 2004 and the quickest price rise since July 1979. Condominium and co-op sales declined a seasonally-adjusted 4.4%. On a non-seasonally adjusted basis, Existing Home Sales fell 10.2%, and condo/co-op sales fell 14.8% from last month. Chief economist for the NAR, David Lereah, was quoted as saying that this data signals that the housing sector has likely peaked.

Daily Dow Chart

**Due to a timing discrepancy with my data provider, the attached chart displays a closing print of 10885.67. This print is INCORRECT: the official close was 10890.72.

The Dow got clipped for a 41 point loss to finish at 10890, failing from its opening high at 10952. On the daily chart, the drop from 35-day Keltner resistance took out the previous session's low, but did not seriously threaten what remains a very steep rise off the October lows. The oscillators remain pinned to the ceiling in overbought territory, overdue for a downphase and still trending. However the violation of the recent lows is the first step in a daily cycle reversal, and a break back below rising linear support at 10860 would bring the previous highs at the 10700-10710 Fibonacci line into view.

Daily S&P 500 Chart

The SPX lost 10.78 to close at 1257.46. Unlike the Dow, the SPX's decline took out the previous 2 sessions' lows, and generated the first sign of trouble for the day cycle, with the 10 day stochastic printing a preliminary sell signal. However, because this cycle has been trending for several weeks, there's a higher than usual chance of its being a false print. More weakness tomorrow, or at least a failure to bounce, would result in a more reliable sell signal. Today's 1257.17 low is light support above the stronger 1245 level at the August highs.

Daily Nasdaq Chart

The Nasdaq buried Friday's and Wednesday's lows, losing 23.to close at 2239.37, 3 basis points off the session low. As with the SPX, this drop generated the first suggestion of sell signals in the trending oscillators, but its too early and still too deep within the ongoing steep rising price trend to rule today as The reversal. The toppy QQQQ:QQV ratio (QQQQ price divided by NDX volatility) suggests further that today could have been it, but it too can carry further along a trend than traders expect. A break of 2225 support would likely be sufficient to seal the deal. However, today's low came at former resistance turned support connecting the January and August highs, and if it holds, a continuation of the rally could take the COMPQ to rising parallel trendline resistance at the 127% retracement off last year's low- up at 2308.

Daily TNX Chart

The Treasury auctioned $34 billion of 13- and 26-week bills to refund $31.87 billion maturing, raising $2.13 billion of new cash. Also announced was the size of this week's 4-week bill auction- $20 billion in 4-week bills will be auctioned to refund $15 billion in maturing bills, for net new borrowing of $5 billion. Foreign central banks purchased $9.95 billion of the 13- and 26-week bills, a respectable showing but weaker than we've seen recently (last week's participation was for $12.7 billion). The 13-week bills sold for 3.9% yielding 3.994% and received 2.34 bids for each awarded. The 26-week bills set a high-rate of 4.155% yielding 4.303% and generated 2.31 bids for each awarded.

The Fed's open market desk had no repos maturing today, but added a $5 billion overnight repo. Demand for the money was unchanged from Friday, with the high rate for treasury collateral at 3.99% and the stop out rate 3.97%, just below the overnight target rate. The Fed remains accommodative via its open market desk, perhaps to assist with the stepped up pace of Treasury borrowing this week.

Ten year notes were firm throughout the day, and yields (TNX) fell below 4.4% for the first time since the brief trendline test in October. With the daily cycle downphase oversold and looking bottomy, bond bulls/yield bears will seek to begin protecting profits. However, the weekly cycle is only starting to roll over from overbought territory, suggesting possible sideways chop as the opposing cycles resolve. For the day, the TNX finished lower by 2.5 bps at 4.406%, while the 13-week rate (IRX) fell 2 bps to close at 3.83%.

Daily Chart of Crude oil

Warm weather was credited for a steep drop in the price of crude oil this morning, as well as last week's inventory data. A drop to 56.725 at the morning low remained easily above last week's lows, however, and there was no indication that the weakness was anything more than a shallow pullback within the new daily cycle upphase. A break below the 56 level would cause a bearish whipsaw and target 54 next, but so far the decline has been shallow. Crude oil closed -1.3 at 57.40

Black Friday's retail sales results were released Sunday. ShopperTrak, which tabulates sales at 45,000 mall-based retailers, reported that the day after Thanksgiving saw a 0.9% decline in sales from last year's figure, to $8.01 billion. Below the surface, big-box discount chains outpaced smaller mid- to higher-end merchants. Wal-Mart estimated that its November sales will rise 4.3%, at the high end of its 3%-5% growth estimate, and reported that 10 million shoppers had entered its stores before noon on Friday. Also, credit card sales rose, with Visa reporting a 14% jump from Black Friday 2004 to $3.9 billion. Some attributed the disparity between the discount store surge and the smaller merchant's weaker results to advertising patterns, with the big-box sellers conducting an ad circular blitz, opening their stores earlier and emphasizing high-demand items such as LCDs and digital cameras. Others saw the pattern as indicating tougher times for consumers seeking bargains and labouring under higher energy prices, higher debt levels and a tighter job market.

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That report was quickly followed up with stories of melees and mobs of insatiable shoppers, and a report from the National Retail Federation that consumers were spent 22% more over the weekend ($27.9 billion) than they did one year ago. The NRF predicts that consumers will spend 6% more this holiday season than they did during last year's. ComScore Networks estimates that today, "CyberMonday," being the Monday following Black Friday, will see a 24% rise in online consumer spending over last year's Monday figure. The thinking is that online shopping takes place predominately at work rather than at home. Akamai (AKAM), provider of online content delivery, reported that online retail shopping traffic has been rising 3.6% per week since October 31, with peaks occurring on Monday afternoons. In any event, the story will be told as the sales figures trickle out this week. WMT closed lower by .97% at 50.00.

In corporate news, Merck (MRK) made headlines with an announcement confirming its intent to implement a global restructuring plan that will see the closure or sale of 5 out of 31 manufacturing plants. To be completed by the end of 2008, the plan will result in the termination of 7,000 jobs and the accrual of $1.8 billion to $2.2 billion in charges. The company expects to realize savings of $3.5 billion to $4 billion in 2006-2010. MRK also announced a 2005 EPS target of $2.47-$2.51, compared with prior analyst expectations of $2.50. MRK closed lower by 4.58% at 29.56.

New York A-G Eliot Spitzer announced that Federated Investors (FII) has agreed to pay $100 million in settlement of state and federal investigations into improper mutual fund trading practices at clients' expense. The settlement is comprised of $35 million in restitution, $45 million in civil penalties and a $20 million in management fee reductions over five years. FII had been accused of "market timing" with three groups given an unfair advantage over FII's individual clients, as well as illegally processing certain orders after the market's close. FII collected fees on these groups' assets. FII lost 2.3% to close at 35.62.

After the bell, the Treasury issued its report on Chinese currency activity, and found that China could not be labelled as a "currency manipulator" because of the "initial step" it has taken to allow its currency to float within a narrow price band. Secretary Snow warned, however, that China must continue to "reform" its forex regime to avoid being labelled as a manipulator. Secretary Snow stated, "The adjustment of global imbalances is a shared responsibility that must be undertaken in a way that maximizes sustained global growth. America's open trade and capital markets and the corresponding flexibility and adaptability of our economy -- allow the United States to sustain sizable current account imbalances. However, it would be imprudent to test the limits of our ability to absorb these imbalances." The complete report is available at http://www.treas.gov/press/releases/js3024.htmm.

Although this was a light day for economic data, it's going to be a busy week. Tomorrow we get Durable Orders, Consumer Confidence and New Home Sales. On Wednesday, it's the GDP, Chicago PMI, weekly Crude Inventories, weekly Mortgage Bankers Association data, and the Fed's Beige Book. On Thursday, we get the Auto and Truck Sales, Initial Claims, Personal Income and Personal Spending, Construction Spending and the ISM Index. On Friday, it's the Employment Report, with Nonfarm Payrolls, the Unemployment Rate, Hourly Earnings and Average Workweek.

TTomorrow's session will hopefully confirm or deny the weakness seen today. Any further weakness would likely kick off the overdue daily cycle downphases, and with the weekly cycles also toppy, traders following these longer timeframes will be interested in the closing print. With the intraday cycles oversold and trying to turn up as of today's close, a weak open would be a clear break from this November's trend of rewarding buyers on every dip. However, with the steep price trend still not violated, it's early for bears to turn their backs on the bulls. We'll be following it tick-by-tick in the Market and Futures Monitors. See you there!
 

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