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"Sideways" was the direction today as the pre-FOMC lull commenced a day early. Exchange volume was respectable and breadth held positive for most of the session in what was a very quiet session.

Daily Dow Chart

Volume breadth favored the Nasdaq, with the NYSE finishing with 1.08 advancing shares for each declining. Pricewise, the Dow finished lower by 7 at 10899.92, near the lower end of its very narrow range for the day- less than 45 points from stem to stern. The doji rejection at the highs and lows showed indecision at the top of Friday's range, and while the daily cycle indicators are starting to turn up, Friday's high was never touched or tested. Below today's 10887 low, next confluence support is at 10800.

Daily S&P 500 Chart

The SPX gained 1.48 to close at 1285.20, trading less than a four point range in what was effectively a footnote to Friday's session. As with the Dow, the daily cycle indicators are turning up but direction remains up for grabs, with the January high still 10 points north of current levels. Bulls need to see price holds above the 1282 confluence/trendline support level, with the year high at 1295 key resistance. Should 1282 fail, next support is at the rising trendline off the October low.

Daily Nasdaq Chart

The Nasdaq added 2.55 to close at 2306.78, trading within the upper doji shadow atop Friday's range. The high came at 2314, and previous confluence at 2300 was not tested. There remains an unfilled gap to 2280, below which is rising support off the October lows to 2250. But price is doing its best to pull the daily cycle up from a higher low. I'm suspicious of bullish action here because of the weekly cycle, due for a downphase that should cap any daily cycle strength. But the price trend has been steadily up since last May, and for the time being, price continues to coil within its rising apex.

Daily TNX Chart

Liquiditywise, the Fed's open market desk had a $5.75 billion weekend repo expiring this morning, and replaced it with a $5 billion overnight repo. That drained net $750 million, a small amount, but demand for the money on the part of the dealers rose, with the highest rate submitted with treasury collateral up to 4.45% and a stopout rate of 4.4%. This shows the Fed allowing rates to climb toward an anticipated overnight rate of 4.5%, presumably to be announced tomorrow.


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The Treasury announced the size of the upcoming 4-week bill auction today, and auctioned 13-week and 26-week bills. There were $8 billion of the 4-week paper maturing, and $18 billion of new 4-week bills will replace them, raising new cash in the amount of $10 billion.

The 13- and 26-week bill auction was for $37 billion to refund $34.7 billion maturing, again raising new cash in the amount of $2.28 billion. The indirect bid, representative of demand for foreign central banks, was lighter than the usual 25% participation rate, $8.33 billion of the $37 billion total or 22.5% of the total. The high rate on the 13-week bills was 4.375%, the yield 4.485% and the bid-to-cover ratio light at 1.87. The high-rate on the 26-week bills was 4.435%, the yield 4.6%, with 1.94 bids tendered for each accepted.

Later in the session, Assistant Treasury Secretary Mark Warshawsky announced that the Treasury expects to borrow $188 billion in Q2 of this year, a new record $17 billion above the anticipated Q1 level of borrowing. Warshawsky stated that the Treasury expects to pay down $30 billion of federal debt in Q3, and went on to say that the economy is "right on track," "on firm footing," and that the negative savings rate is no reason to be pessimistic. Presumably, he meant to exclude from the latter statement those consumers being drawn deeper into debt as they try to make ends meet.

Ten year treasuries were weak from the get-go and held their losses throughout the session. Ten year note yields (TNX) (see chart above) finished higher by 3.2 bps at 4.535%. On the daily chart, we see the first signs of the anticipated upturn in the oscillators following last week's sharp break above descending linear resistance. 4.6% is next confluence and Fibonacci resistance, 4.45% now support.

The sole economic report for the day was the Commerce Department's Personal Income and Personal Spending, reported at 8:30AM. The report showed a 0.9% rise in consumer spending in December, while personal income rose 0.4% and real disposable income rose 0.4%. Expectations were for a rise of 0.4% in personal income and 0.8% in personal spending. The previous month saw both figures rise 0.3%. The Personal Consumption Expenditure price index was unchanged from December, while the Core PCE rose 0.1%, following 4 consecutive months of 0.2% gains. The Core PCE is up 1.9% during the past year. Associated Press reported that the savings rate was negative for all of 2005 at -0.5%, the lowest rate since 1933, when the annual savings rate fell to -1.5%.

There's a heavy week ahead for economic data, with the Employment Cost Index, Chicago PMI, Consumer Confidence and FOMC announcement tomorrow, then Auto & Truck Sales, Construction Spending, the ISM Manufacturing Index and the weekly Mortgage and Petroleum data on Wednesday. On Thursday, we get the weekly Initial Claims and Natural Gas data, and preliminary Productivity for Q4. On Friday, it's the monthly employment report, with Nonfarm Payrolls, Average Workweek, Hourly Earnings, and the Unemployment Rate as well as Michigan Sentiment, Factory Orders and ISM Services.

Also tomorrow will be OPEC's meeting in Vienna. Iran's oil minister Kazem Vaziri Hamaneh said that any supply decisions will be taken collectively by the cartel. Both Iran and Venezuela have both expressed support for supply cuts to defend current price levels, but other members, such as Saudi Arabia and Algeria, have indicated that they see no reason to tighten supplies. OPEC is currently pumping at capacity, with a 28 million bpd daily quota. Crude oil futures closed the day +.625 at 68.375, off a low of 67.275.

Last but not least, Fed Chairman Greenspan will step down tomorrow and past the torch to Ben Bernanke. The International Herald Tribune reported that Greenspan has plans to start a consulting firm, Greenspan Associates, and to write a book. His wife, Andrea Mitchell, added that he has recently begun to learn "how to do his own research on the Internet; he is still in the process of getting a personal e-mail address."

Marketwatch cited the Investment Company Institute to the effect that US stock funds saw net outflows of $2.18 billion in December compared with inflows of $9.23 billion in November. Foreign-content equity funds saw inflows of $12.28 billion, slightly up from November's $11.79 billion figure. Bond funds saw net outflows of $2.71 billion compared with outflows of $324 million in November. Overall, mutual fund assets grew $138.9 billion or 1.6% to $8.906 trillion.

In corporate news, Eastman Kodak (EK) reported a Q4 loss that shrunk from $59 million or 20 cents per share in the year-ago quarter to $52 million or 18 cents per share. Based on its continuing operations, EK lost 50 cents per share. Sales rose 12% to $4.2 billion, however, based on strong demand for its digital products. The company announced that CFO Robert Brust will retire at the end of the month, and the company is currently searching for a successor. Although the stock has been pummeled over the past year, it has risen roughly 25% during the past quarter. EK lost 2.35% to close at 25.75 for the day.

Drugmaker Schering-Plough (SGP) reported Q4 earnings that rose from a loss of 58 cents or $856 million in the year-ago quarter to a profit of 7 cents or $104 million, citing growth of its flagship drugs. Revenues rose 6% to $2.3 billion (or +13% to $2.7 billion including sales from its joint venture with MRK). Estimates were for EPS of 8 cents on revenue of $2.3 billion. Later in the morning, SGP reported that its oral hepatitis C protease inhibitor SCH 503034 has been granted Fast track status by the FDA. SGP lost 2.54% to close at 19.57.

Mattel (MAT) reported Q4 earnings that fell to 69 cents per share or $279.2 million fro $284.3 million or 68 cents in the year-ago quarter. This quarter's result was boosted by an 11 cent tax benefit. Net sales fell from $1.85 billion to $1.84 billion. The company cited an 11% in Hot Wheels and Barbie brands, while Fisher-Price rose 1% and its American Girl brand rose 12%. MAT gained 6.9% to close at 15.80.

Exxon-Mobil (XOM) reported a record profit, not for itself but all US companies, at $10.71 billion for Q4 and $36.13 billion for the full year. The company earned $1.71 per share for quarter, compared with $1.3 per share or $8.42 billion in the year-ago quarter. Revenues rose from $83.37 billion to $99.66 billion in the current quarter, less than Q3 2005's $100.72 billion however. XOM's previous record was posted in Q3 2005 at $9.92 billion, and the previous US record had been XOM's in 2004, at $25.3 billion. XOM rose 2.97% to close at 63.11.

After the bell, Kraft (KFT) reported earnings that rose from 37 cents or $677 million to 46 cents or $773 million in the current quarter on sales that rose 10% to $9.7 billion. Estimates were for sales of $9.4 billion. The EPS figure included a restructuring charge of 10 cents, net of which EPS would have been 56 cents, beating consensus estimates by 3 cents. KFT rose 2.42% to close at 30.

For tomorrow, there's a good chance that we'll have to continue watching the grass grow as the markets await the FOMC announcement and, in particular, the policy statement. Prices are poised just below recent multiyear highs, the bears clamoring for a correction or worse, the bulls eyeing the rising trend and nearby highs. With lots of economic data, the OPEC meeting, the transfer of the Fed chairmanship from Greenspan to Bernanke and the FOMC meeting, the pre-FOMC drift could be livelier than usual. We'll be following it all for you in the Market and Futures Monitors- see you there!

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