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Market Wrap

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New York got hit by a record snowfall today as this year's biggest storm grounded flights and delayed trains. Reuters reported that tens of thousands were without power, travelers and commuters were stranded. The airports reopened this morning, but travel was obviously impeded. This morning, Reuters quoted Tom Schrader, managing director of U.S. equity trading at Stifel Nicolaus Capital Markets: "Things are going to be very, very quiet today, because I'm sure half the portfolio managers in New York and in Boston are going to stay home. I think there's certainly going to be somewhat of a shortage of personnel on the New York Stock Exchange."

Volume was predictably weak, and, this being the first day of equity option expiration week, "sideways" was the prevailing direction punctuated by occasional spikes whose bark proved worst than their bite. Volume breadth remained negative throughout the entire session, with declining volume outpacing advancing volume 2.09:1 on the NYSE and 2.65:1 on the Nasdaq.

Daily Dow Chart

The Dow lost 26 points to close at 10892 (despite the bad print on my closing chart at 10895.8), failing at a morning high of 10940 and bouncing from an afternoon low of 10850. The Dow continues to hold just off the January highs in a nearly tractionless daily cycle downphase. The bounces off the January and February lows might constitute tests of a rising triangle support line below an 11000 resistance, and if so, the bulls need to see 10700-750 hold if tested. Bears need a failure below 11040 to avoid a triangle breakout.

Daily S&P 500 Chart

The SPX lost 4.13 to close at 1262.86, failing at a high of 1266.99 before drifting to its 1258.34 several hours later. While there's still the possibility of a bullish rising triangle on the Dow, the SPX has already lost rising support and is tracing what appears to be a choppy head and shoulders top. My own guess is that this is the more accurate pattern, as it lines up with the ongoing daily cycle downphase within the broader weekly cycle rollover. If so, the previous 1280-85 resistance zone should hold as resistance if tested, and 1245-1250 is a likely area for the neckline.

Daily Nasdaq Chart

The Nasdaq closed lower by 22.07 at 2239.81, the high 2254 and the low 2232. The tape felt heavy throughout the day, starting from its opening gap down, despite the light volume and lack of participation. A move lower tomorrow would set up 2250 as new confluence resistance, next support at 2220-25.

Liquidity-wise, the Fed had $7.75 billion in weekend repurchase agreements maturing this morning, and replaced them this morning with a $6 billion overnight repo. Demand for the money crept higher, the stop out rate 4.47% on treasury collateral, just 3 bps below the overnight target rate, demonstrating that the Fed's dealers were willing to pony up slightly more for the repo money today.

The Treasury announced that tomorrow's auction of 4-week bills will total $16 billion to refund $8 billion in maturing bills, raising new cash in the amount of $8 billion. This is the equivalent of a net drain in that amount from the Fed, as it will remove that money from circulation.

Add to that net drain an additional $3.234 billion via today's 13- and 26-week bill auction, with the Treasury issuing $37 billion of new bills to refund $33.766 billion maturing and raising $3.234 billion of new cash. Indirect bidders (foreign central banks) purchased a respectable $9.5 billion of that auction. The high-rate on the 13-week bills was 4.44%, the median rate 4.42%, and the bid-to-cover ratio 2.25. On the 26-week bills, the high-rate was 4.54%, the median rate 4.53%, and the bid-to-cover ratio 2.4. Treasury yields spent the day trading sideways, and the announcement of today's auction results didn't notably alter the flat range across the various maturities.

Daily TNX Chart

Ten year treasury yields (TNX) finished the day 0.2 bps at 4.583%, trading a sideways range for most of the session. The bounce off the 4.3% support line has been tiring since Wednesday, but the daily cycle upphase continues lift the TNX. The TNX gained ground against the five year yield after inverting against it last week, though the thirty year yield remains lower than both the TNX and FVX, and just 5.9 bps above the overnight rate as of today's cash close, TYX up 1.2 bps to 4.559%.

There was news overnight from the Chinese government's Xinhua news agency that China's National Development and Reform Commission estimates that China will consume 5.4%-7% more crude oil this year. Only the US currently out-consumes China. This new estimate is based on the growing number of Chinese purchasing cars, and currently, 75% of China's 318 million tons of oil consumption is based on its transportation needs. China currently imports 44% of its oil requirements.

For many years, oil and commodity bulls have been citing Asian industrialization as a major factor reshaping world resource flows. Jimmy Rogers has been asking what would happen to demand for oil if Chinese citizens traded their bicycles for mopeds and began consuming one gallon of gasoline each per week. Similar bullish arguments can be easily seen in other commodities, as well- obvious examples would include steel and rubber.

In other news, Iran resumed small-scale uranium enrichment operations, more defiance toward the International Atomic Energy Agency's decision to refer Iran to the UN Security Council. While experts see today's move as a small step toward the large-scale enrichment activities that would be necessary to begin building nuclear weapons, it nevertheless represents a step away from recent efforts to restrain Iran's nuclear ambitions. Crude oil held in negative territory following Reuters' release of the news, and closed lower by .575 at 61.275, off the 60.85 intraday low.

The European Union issued a warning to the US today, trade commissioner Peter Mandelson allowing the US three months to comply with a WTO appeals ruling that held export subsidies under the tax code to be illegal. This ruling upheld a lower WTO judgment to the effect that the United States was in violation of international law despite having enacted legislation to repeal the offending tax code provisions in 2003.

In corporate news, Agilent (A) reported Q1 earnings that rose from $103 million or 21 cents per share in the year-ago quarter to $2.82 billion or $5.83 per share, based on a $2.7 billion gain from the divestiture of its Semiconductor Products division and its stake in Lumileds. Net of these and other one-time items, adjusted earnings were 32 cents per share, beating estimates by 2 cents. Orders rose 15% to $1.35 billion, and sales rose 10% to $1.34 billion. A closed lower by 3.88% at 34.48.

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Although each day brings countless analyst up- and down-grades, one which appeared noteworthy today was a downgrade of Tootsie Roll Industries (TR). Sifel Nicolaus cited higher energy and commodity costs as squeezing margins for the candy maker, and lowered Q4 EPS estimates from 31 cents to 24 cents, and his 2006 full-year forecast from $1.43 to $1.26. He was quoted as saying, "We note that the price of sugar, a key ingredient for Tootsie Roll, has increased 30% in the past six months coincident with increases in energy, freight and packaging. While Tootsie Roll has implemented selective price increases during 2005 to mitigate higher costs, we expect gross and operating margins to be down year-over-year in the fourth quarter and 2006." It is this same inflationary wave that has been lifting prices across a wide range of consumer items. TR lost 3.27% to close at 27.81.

Another notable piece of "soft" news was an article by Barrons this weekend, asserting that Google (GOOG) shares could fall as much as 50% this year due to competition from MSFT and YHOO, pricing pressure in online ad sales. GOOG has been in a sharp decline this year, and the article didn't help as the stock gapped down at the open. GOOG was lower by 4.78% at 345.27 as of this writing, a lead weight around the NDX and QQQQ throughout the session.

After the bell, PALM declared a 2-for-1 split of its common shares via dividend. The record date is February 28th, the new shares to be distributed March 14th. Marketwatch reported that the split will increase the number of shares outstanding to in excess of 100 million. PALM was lower by 3.31% at 36.25 as of this writing.

There were no major economic reports released today, but it will be a heavier week than we had last week. Most notably, the new Fed chairman Ben Bernanke will deliver the semiannual monetary policy testimony to the House Financial Services Committee, in Washington on Wednesday and Thursday. Tomorrow, we will get Retail Sales and Business Inventories. On Wednesday, it's the Empire State Index, Net Foreign Purchases, Industrial Production and Capacity Utilization, as well as the weekly mortgage and petroleum data. On Thursday, we'll get Housing Starts and Building Permits, Export and Import Prices, as well as the Philly Fed and the weekly Initial Claims and Natural Gas storage data. On Friday, it's the PPI and Michigan Sentiment reports.

We can expect volume to return tomorrow as the weekend snowstorm is cleaned up. However, with op-ex week shenanigans in play and Bernanke's much-anticipated testimony slated to commence on Wednesday, it's anyone's guess as to which direction (if any) will prevail. Long-time readers are well-acquainted with "scam" week, when breakouts frequently prove to be fakeouts and "sideways" becomes the only clear direction. Plan your trade and trade your plan, and join us in the Market and Futures Monitors where we'll be following the action tick-by-tick.
 

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