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Market Wrap

Market Wrap

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Google's spectacular after-hours decline yesterday captured more attention among some market participants than the week's earlier GDP disappointment, the removal of the "measured" language in the FOMC's statement, their assertion that further rate hikes may be necessary or President Bush's speech. Numbered among the google-eyed must have been those gasping at the prospect of what could happen to unrealized gains on their own investments as well as those gasping at the buying opportunity they thought was being dropped into their laps. Investors of all stripes wondered how the disappointment might impact investor sentiment.

Overnight, an example had been provided. Hit by a negative reaction to NTT DoCoMo's and Mizuho Financial Group's earnings reports, the Nikkei had tumbled almost 200 points off its high of the day to close at its low. While that sounds staggering, 200-point intraday moves on the Nikkei qualify as a typical ho-hum day for that index over the last few weeks, when gains or losses of much bigger magnitude have become almost commonplace. As U.S. traders awoke, European bourses were reporting solid gains in the 0.24-0.67 percent ranges, so global reactions proved mixed, as would U.S. reactions during the first part of the trading day.

If GOOG disappointed, Boeing (BA) provided the counterbalance, with support also lent by old-guard companies such as CAT and HON. The two forces created the mixed trading pattern that predominated early in the day. Reactions to a slightly disappointing ISM number and mixed crude inventories report also proved muted at first, although the latter was to change by the end of the day. By midday, indices had settled into the tight-range sideways movements that drive traders crazy or put them to sleep, but the DOW, SPX, Nasdaq and SOX were all to see gains by the end of the day.

Annotated Weekly Chart of the SPX:

Annotated Daily Chart of the Dow:

Annotated Daily Chart of the Nasdaq:

Annotated Daily Chart of the SOX:

As google-eyed as some might have been, the implication of the ISM release might have escaped notice, at least temporarily. A similar measure in Europe had eased in January, while the U.K.'s measure rose. Expectations for the U.S.'s Institute for Supply Management's manufacturing sentiment index were for an easing to 55.4 percent from December's 55.6 reading. Instead, the ISM fell to 54.8, with 50 marking the boom/bust line for this indicator. This proved to be the third drop in the ISM, although one economist with the ISM cautioned that the index had peaked after the hurricanes and was only now coming back to a typical level. He cautioned that it would be a mistake to pay too much attention to that three-month downtrend, but some might wonder. New orders, production and employment components fell, but one bright spot proved to be the backlog of orders. That component rose above the 50 benchmark, to 53.5 percent from the previous 49.5 percent. Exports also rose.

Even more problematic than the drop in the headline number was the performance of a component of the ISM number, the prices index. This inflation measure jumped to 65 percent from the previous 63 percent. Given the FOMC's hint that future rate hikes might occur, this inflation measure should have grabbed attention, as modest as the gain might have been.

If any were watching economic releases, December's construction spending might have cheered them, as spending rose 1.0 percent above November's revised-higher number. Economists had expected Katrina-related rebuilding to produce a gain, but this number beat expectations for a 0.2 percent gain. For the full year, spending increased 8.9 percent, with private-sector spending rising 9.3 percent and spending on housing climbing 11.1 percent.

The National Association of Realtors didn't have good things to say about housing, however, with the association's index of pending home sales falling 3 percent in December. Year over year, the index has fallen 5.5 percent. The Mortgage Bankers Association's figures for the week ending January 27 also revealed that those applications fell for the first time in a month. Over the last few days, CNBC reports have been focusing on the incentives new home builders have been offering in order to entice buyers, much as car manufacturers have done over the last years. The new home sales figure had been surprisingly robust after a drop in sales of existing homes. However, the MBAA survey showed that total mortgage loan application volume fell 5.1 percent on a seasonally adjusted basis from the previous week. If not adjusted for seasonal patterns, it rose 9.1 percent, but was down 12.1 percent from the year-ago level.

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Other components fell, too. The purchase, refinance and conventional indices fell 8.0, 1.5 and 5.9 percent, respectively. The government index rose 5.3 percent. Four-week moving averages for the market, purchase and refinance indices all rose, still building after the last month of gains. Thirty-year fixed-rate mortgage rates increased to 5.79 percent from the previous week's 5.66 percent and points increased, too. The DJUSHB, the Dow Jones Home Construction Index, was to fall 2.39 percent today, plunging beneath its 200-sma and closing just above its 200-ema.

Despite the troubling implications of the ISM and NAR reports and the GOOG disappointment, a short-lived rebound in many indices followed these releases. GOOG wasn't alone in disappointing investors. It was joined by such diverse companies as Allstate (ALL), MicroStrategy (MSTR), JetBlue (JBLU), Symantec (SYMC) and Legg Mason (LM). GOOG was to close the regular session at $401.78, well off its $387.52 regular-session low, but further off its $432.66 close yesterday. Most other disappointing companies saw their stocks lower, too, although some must have disagreed with the interpretation of LM's earnings, because it bounced.

JBLU did not bounce. It barely managed a close off its low of the day, closing at $11.18, down from Tuesday's 13.04 close. JBLU is a component of the TRAN, the Dow Jones Transportation Index. In early trading, JBLU headed lower, along with 15 other of the 19 TRAN components, leaving only ALEX, CHRW and GMT in the green. After President Bush's "America is addicted to oil" statement and his reminder that we import oil from often-unstable parts of the world, some worry might have preceded the release of the crude inventories number, but even after that number and the drop in crude prices that was ultimately to result, the TRAN stair-stepped lower.

Annotated Weekly Chart of the TRAN:

Some characterized that crude inventory number as mixed, but the eventual reaction was to send crude futures into a loss after they rose to a high of $69.00, testing the 1/20 high of $69.15. A build had been expected and was delivered in most components. Distillate inventories did not build as expected, however. The EIA announced that crude inventories rose by 1.9 million barrels, and gasoline rose by 4.2 million barrels, but distillates fell by 200,000 barrels. Crude remains above the upper end of the average range for this time of year; gasoline, in the upper end; and distillates, above the upper end of the average range.

Later in the day auto sales data began appearing, with some companies beating expectations. Ford Motor (F) was one, with the company's January U.S. sales increasing 2 percent. Underneath the headline number, Ford Excursion sales dove, driving down truck sales, but mid-size sedans performed well, bringing the headline number into positive territory. Other companies reporting better-than-anticipated results included Daimler Chrysler (DCX) and General Motors (GM). GM's January sales rose 6 percent, but this manufacturer also saw truck sales below that of other classifications. Truck sales were flat.

Some had credited the auto sales numbers with a stronger performance on the markets in the afternoon, but crude's drop from its test of January's high also occurred at about the same time equity indices began trying to break out of their consolidation patterns. The drop in crude cratered the OIX, too, though, perhaps capping any gains. Refiners were hit. Sunoco (SUN) was one of those, dropping ahead of this afternoon's earnings report.

Some auto manufacturers were beating sales expectations and Boeing (BA) also beat expectations, reporting a doubling of its fourth-quarter profit. The company also raised both EPS and delivery guidance. Some have worried whether BA can keep up the pace after last year's record number of aircraft orders, but investors weren't worrying today, sending the stock into a 4.84 percent gain. Boeing (BA) also beat expectations, reporting a doubling of its fourth-quarter profit. The company also raised both EPS and delivery guidance.

Other positive developments saw Amgen (AMGN) benefiting from speculation that the FDA might hold up peer Roche's competing anemia drug. AMGN gained 4.52 percent. Healthcare and biotechs provided bright spots early in trading while other recent leaders to the upside took a breather. The HMO, the Morgan Stanley Healthcare Index, was to close higher by 2.06 percent, and the BTK, the Biotechnology Index, posted a 0.76 percent gain.

AT&T (T) also benefited from a report in the FINANCIAL TIMES. T gained 2.31 percent, and the XTC, the North American Telecoms Index, climbed 0.73 percent. In other news, United Airlines (UAL) emerged from bankruptcy today, with the revamping of the company having taken three years.

Earnings for tomorrow include ALA, AMZN, APA, AZN, CERN, CLX, CMCSA, CVS, DB, ERTS, EFX, GTW, ITWO, IMGN, IP, KSU, MEDI, NTIQ, NSANY, ONNN, OSK, RTN, RCL, SFNT, SLE, SOFO, STA, SPF, HOT, ROW, TXU, WSTC, WHR and a number of financials. This includes just some of the reporting companies.

This afternoon and evening, retailers will begin reporting January same-store sales data. Some were beginning to trickle in as this report was completed, with Hot Topic (HOTT) reporting a slowing of sales and Aeropostale raising its forecast for the quarter after strong January sales. American Eagle (AEOS) reported that January sales rose 17.5 percent, while Limited Brands (LTD) saw its sales rise 3 percent. The RLX, retail index, trended down into the mid-afternoon, when it hit its daily 100-ema and bounced from that, although some individual retailer showed small gains. Some, such as TGT, WMT, FDO and DLTR have been chopping around for a month or more, looking for next direction. The day produced a loss for the RLX.

Other after-hours developments include a mixed report from JDSU. Revenue increased 73 percent, but the company reported a net loss of $0.03 a share. As this report was prepared, the stock traded at $3.07, down from the $3.16 close. RIMM had climbed to $73.77 in after hours, up from its $73.61 close after a favorable patent ruling by the U.S. Patent and Trademark Office.

Tomorrow's economic reports, in order of their releases, include the Monster Employment Index at 6:00, the Challenger Employment Report at 7:30, initial claims and preliminary Q4 productivity at 8:30,and natural-gas inventories at 10:30.

It should not go without notice that the Russell 2000 rose to a high of 736.45 today, testing its January 27 high of 736.25, but like many other indices, it did not remain above the top of this week's consolidation, with the Dow being one of the few indices that did, but the DOW remains within a difficult trading pattern, a broadening formation. The Wilshire 5000, like many other indices, bounced today, but did not move above the top of its recent consolidation pattern, either.

Next action proves difficult to gauge as indices have moved up to proven resistance and stopped there. The TRAN tests long-term resistance, as it seems to have been doing interminably, the RUT stopped at its recent high and the SOX just below the top of the last huge gap. These leading indices showed a mixed performance today. Frequent mention of Friday's employment numbers show that some market participants may be on hold again ahead of those numbers. Trade carefully in this choppy environment. If long, continue to move stops higher as indices move higher, but keep a watch on those three indices that tend to lead different sectors of the market.

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