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Market Wrap

Fits and Starts

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Dictionary.com defines "fits and starts" as "repeated bursts of activity." That's what the markets saw Wednesday. Those bursts had produced both declines and bounces. Although the surprise drawdown in inventories predictably produced one move, others seemed less predictable. Jim Brown mentioned in Tuesday's Wrap that this might be a throwaway week, and today was certainly a throwaway day.

With little economic news scheduled Wednesday, Bernanke's Monday night speech already picked apart and the FOMC meeting still ahead next week, market participants had little to guide them. Company-related news dominated pre-market commentary, although many also kept a wary eye on bond yields and metals after yields inverted again Tuesday and silver reached a 22-year high. Futures were mixed, but indicated a flattish opening. Some worried about Microsoft's impact on the markets, with Jim Brown having reported Microsoft's delay of the introduction of its Vista Window's operating system program in Tuesday's Wrap. Some were cheered by earnings reports from various companies. Dow futures were higher, and Nasdaq futures lower.

In fits and starts, indices dropped but then retraced varying percentages of the collapse from yesterday's afternoon highs into today's lows. Relative out-performance in this regard by the big-cap OEX index would look suspiciously like flight to safety, but the RUT almost matched its performance. The mighty TRAN's performance beat the OEX's, with the TRAN driving past yesterday's new high. Two out of the three indicator indices--the RUT, TRAN and SOX--matched or even exceeded the OEX's performance, so bears can't claim a suspicious flight into big caps or blue chips.

By the end of the day, bears were left feeling as if a normal oversold bounce had gotten away from them once again. No resistance level, bearish divergence or technical development has proven trustworthy. Bears were exhausted by running today's sprints in fits and starts, only to be told to go back and start all over again. The day left participants questioning what had happened and which influence was the most important. Many indices ended right back where they'd started Tuesday morning.

Annotated Weekly Chart of the SPX:

Annotated Daily Chart of the Dow:

Annotated Daily Chart of the Nasdaq:

Annotated Daily Chart of the SOX:

The day's economic releases began when the Mortgage Bankers Association released mortgage applications for the week ending March 17 at 7:00 EST. With the existing home sales due tomorrow and new home sales on Friday, the focus tightens on the residential housing sector. The MBAA's figures showed that mortgage application volume fell 1.6 percent on a seasonally adjusted basis from the previous week. Four-week moving averages for Market, Purchase, and Refinance Indices all eased, while the average interest rate for a 15-year fixed-rate mortgage dropped to 5.99 percent from the previous week's 6.06 percent. Some credited the drop in applications with early weakness in the markets, but then some indices bounced from early lows into the release of crude inventories.

The second release of the day was that crude inventories number. That number showed that supply declined for the first time in six weeks. The Department of Energy reported a surprising decline of 1.3 million barrels in crude inventories for the week ending March 17. Motor gasoline inventories declined 2.3 million barrels, and distillates fell 800,000 barrels, with the decline in gasoline inventories particularly worrisome heading into the driving season. The release noted, however, that gasoline inventories are more than one percent higher than their year-ago level, despite last week's drop.

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Today, the Saudi oil minister assured the world that the current prices weren't hurting the global economy. The minister announced an IPO for the Petrorabigh petrochemical complex, to begin trading by the end of the year, and affirmed the desire for a stable oil market.

Other figures released today showed that OPEC's March production of crude dropped 300,000 barrels below March's due to the known problems in Nigeria. In other developments obliquely related, France and the U.K. stopped consultations with Russia and China in the bid to break a deadlock over what to do about Iran's nuclear program as the U.N. Security Council tries to break that deadlock.

Crude for May delivery bounced after the inventories release, but found resistance at $62.85 and dropped back again to end the day at $61.77, down $0.57. This was a close below the 200-sma at $62.16. As this report was prepared, crude traded at $62.03 in after-hours trading.

Also released today were a couple of economic numbers that may not have attracted much attention. One was the Chicago Fed National Activity Index for February. This index rose to 0.32 from January's 0.28. The component measuring production rose, those measuring consumption and housing fell and that measuring employment was unchanged. The U.S. mass layoffs was also released, showing that February's total of firms reporting mass layoffs dropped when compared to January's as well as to the year-ago level. However, the total number of workers impacted was up from January's number and the number of firms announcing (rather than reporting) layoffs also climbed. The number of factory workers impacted by mass layoffs rose significantly, from January's 29,541 to February's 45,073.

MSFT dropped 2.12 percent today, impacting many indices. In addition to the Microsoft news covered last night, stock-related news that caught attention today included the announcement that GM, auto-part supplier Delphi and the UAW had reached agreements that would hopefully result in the buyouts of 30,000 employees. If approved in bankruptcy court, the deal would be offered to 13,000 hourly Delphi employees and as many as 100,000 GM hourly workers. Up to 5,000 of Delphi's employees would be allowed to return to GM, and GM would also take over some post-retirement benefits for the Delphi employees who return to work for GM. An analyst on CNBC this morning mentioned that up to 36,000 of these workers were nearing retirement, and many believed that it would be likely the company would find 30,000 to accept the buyouts. GM bounced, but couldn't maintain all gains, and closed higher by only 0.04 percent.

Bristol-Myers Squibb Co. (BMY) and Sanofi-Aventis (SNY) benefited from their agreement with Apotex Inc., a Canadian drugmaker. Apotex had been suing to invalidate Plavix's patents so that it could introduce a generic competition, one that has already gained approval by the FDA. Under the terms of the agreement, BMY and SNY will grant Apotex a license and royalty, and Apotex agrees not to market their generic version of Plavix in the U.S. until September 2011 unless another drug-maker invalidates Plavix's patents first. Another company, India-based Dr. Reddy's Laboratories (RDY), already seeks to do just that. RDY has been approached about a possible settlement, too. The agreement reached with Apotex prompted UBS, Citigroup and Merrill Lynch to upgrade Bristol-Myers. BMY gained 10.55 percent, SNY jumped 9.61 percent, and RDY climbed 7.02 percent.

While BMY and SNY were benefiting from their news, Biogen Idec (BIIB) was suffering from news related to its Tysabri drug. The FDA will extend its review of the drug. The company's stock dropped 0.43 percent.

Morgan Stanley's (MS) net income rose 17 percent in its first fiscal quarter, the company reported today. Like some of its peers, the firm reported that investment banking and fixed-income trading helped it achieve record revenues. The stock climbed 2.53 percent. FedEx Corp. also reporting rising profits, by 35 percent in the third quarter, but the company disappointed on its full-year profit forecast. Still, the stock gained 1.07 percent.

ADBE was due to report after the bell this evening, but the report was not yet out as this report was prepared. It's capable of moving the markets, however. Tomorrow's economic releases may have more impact on the markets. They include Initial Claims for the week ending March 18 at 8:30 EST and February's Existing Home Sales, due at 10:00. Many will be watching tomorrow's home sales numbers, as well as Friday's new home sales numbers. Forecasts for existing homes are for 6.40-6.5 million existing home sales, down slightly from the previous month's 6.56 million. Near 10:30, natural gas inventories will be released.

Companies reporting earnings include COMS, BGO, CAG, FDO, GIS, PALM, SCHL, and SLR.

I began this report much more cautiously bullish, but as I conclude it, I find that evidence has remained more on the caution than the bullishness. The TRAN inched just above yesterday's high, but not significantly so, verifying the resistance at that level. The OEX and SPX could not even match yesterday's high, nor could the RUT. The SOX's performance indicates weakness more than strength, and the Nasdaq just coils within a narrowing triangle. Although the TRAN's continuing strength argues that buying dips remains the wisest choice, that dip occurred today and it's too late for new bullish positions with the TRAN currently challenging resistance again. The SOX's behavior argues against buying dips for now, with that opportunity also having been presented already today. I would not be surprised to see some indices push a little higher but could not yet bet that they break out and hold a breakout.

The charts I study tell me that it's almost, but perhaps not quite, as likely that the SPX could drop to 1291-1293 as it is that it might climb to 1312, and that's the problem for all of us trying to interpret charts ahead of the FOMC meeting. Those charts indicate the possibility, if not yet the probability, of a choppy and perhaps doji-type day tomorrow. If you're long, keep moving your stops higher. If you're not long, it's probably too late since the dip you needed for a new entry occurred today. If you're short or decide to enter shorts based on evidence if resistance is tested tomorrow, keep your stops tight and don't let a bounce get away from you. Don't even consider a new short position if the SOX and TRAN drive higher, particularly if the SOX maintains values above its 72-3ma. For now, the strange underpinning of the markets continued, and bears can't do much more than sprint before the bulls take over again.
 

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