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Market Wrap

Stocks slide on China's rate move, weak U.S. housing data

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The major indices were showed mixed results in early morning trade as investor's mulled Friday's announcement out of China's central bank that it was raising the deposit reserve requirements for commercial banks by a half-point to 8%. Global strategists saw the move not only as an attempt to cool down surging loan growth on mainland China, but additional action by the country's government to let the yuan appreciate against the U.S. Dollar.

After some sign of Asian equity market stability late last week, Hong Kong's Hang Seng Index ($HSI.X) shed 73.79 points, or -0.47% on Monday to close at 15,768.

After writing last Monday's Market Wrap, the $HSI plunged as low as 15,250 on its point and figure chart (see Monday's Wrap), and Tuesday's trade out of Asia will should be monitored closely.

China's central bank move pressured commodities on a broader measure with the CRB Index ($cr00y) 333.57 -1.66% still hovering just above its starting to round flat 200-day SMA (332.75).

July Crude Oil futures (cl06n) settled down $0.90, or -1.29% at $68.98, but continues to hold critical support above $68.00. A trade at $68.00 would have this contract breaking below its point and figure chart's bullish support trend, and triggering a spread triple bottom sell signal. The current bearish vertical count for this contract is $65.50, which would currently be negated with a trade at $72.00.

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Japan's Nikkei-225 ($NIKK) trades down 19 points at 14,860 as we await the 01:00 AM EDT Bank of Japan meeting minutes, which could give traders insight into any interest rate decisions and monetary policy shifts.

Adding to this morning's mixed session was the U.S. saying North Korea has finished loading fuel into a long-range ballistic missile, which the U.S. says is sign that the reclusive communist state will soon test a weapon that could reach the U.S.

Stocks were mixed until the 01:00 mark, but buyers pulled their bids when the National Association of Home Builder's (NAHB) said its index for sales of new single-family homes fell to 42 in June from May's 46 reading. The NAHB said it was the lowest reading since April 1995.

When the Housing Market Index is over 50, it means the number of builders who see "good" sales outnumber the number who see "poor" sales. The index, which is adjusted for seasonal variations, was based on a survey of 455 home builders, who answer several questions about sales prospects now an in the near-term.

The June decline in builder confidence again was broad-based and apparent in every region, the association said. Regional indexes were down seven points to 40 in the Northeast, down four points to 25 in the Midwest, down two points to 49 in the South and down one point to 60 in the West.

Further data on the housing market will be released tomorrow morning at 08:30 AM EDT. May housing starts are forecasted at an annual rate of 1.90M, up from April's 1.85M. Building permits are forecasted to have fallen to an annual rate of 1.95M from April's 1.97M.

Market internals were weak throughout the session. I do note that the NASDAQ's 10-day NH/NL ratio, an intermediate-term indicator of bullish/bearish leadership signals further bearish leadership at tonight's close having broken below May's relative low reading of 24%. I also highlight today's 144 new lows at the NASDAQ and I'll be monitoring this closely in coming sessions. On Tuesday, June 13 the NASDAQ recorded 291 new lows and should that number be exceeded to the downside, traders/investors might begin to think that last week's "bounce" was largely short-covering into weakness.

With bullish leadership very anemic (see NH/NL readings) most traders/investors should be cognizant of further softening among market internals.

U.S. Market Watch - 06/20/06 Close

Miners, energy and homebuilders paced Monday's declines, while lower energy prices had the Airline Index (XAL.X) atop today's list of sector winners in my U.S. Market Watch.

Small caps as depicted by the Russell-2000 Index ($RUT.X) 680.76 -1.77% were notably weak as institutional rebalancing takes hold. The iShares Russell 2000 (AMEX:IWM) $67.50 -1.96% traded just over 71.7 million shares, which is heavy considering 3-month average daily volume comes in at 52.3 million shares per day.

What would Monday be without a merger?

Today's top M&A news had shares of Siemens AG (NYSE:SI) $83.90 +5.13% trading up $4.10, but well off their April highs of $99.50 after Nokia (NYSE:NOK) $20.09 +0.60% said it will merge its infrastructure unit with the telecom infrastructure operations of Germany's Siemens. If the deal is consummated, it would create the world's third-largest telecom infrastructure company with assets valued at roughly $30 billion.

Canadian-based telecom equipment maker Nortel (NT) $2.04 -10.13% fell sharply on heavy volume of 57.2 million shares and closed at levels not seen since early 2003. Investors grow increasingly wary of the stock after chief rival Lucent (NYSE:LU) $2.38 -2.45% and French telecom equipment maker Alcatel (NYSE:ALA) $12.24 -0.40% announced their intentions to merge.

The Semiconductor Index (SOX.X) 449.18 -0.95% traded down after last week's test of a still falling 21-day SMA (457.74) despite an upgrade of Intel (NASDAQ:INTC) $18.24 -0.32% by UBS to "buy" from "neutral". The firm upped their price target on the company to $23, from $21, saying the upgrade was due to improved longer-term gross margins and near-term operating margin leverage that should make the company more competitive.

Intel's rival Advanced Micro Devices (NYSE:AMD) $24.95 -2.69% fell 69 cents.

Earnings announcements had home-electronics retailer Circuit City (NYSE:CC) $28.63 -2.88% reversing earlier gains and session high of $30.80 after the company posted Q1 net income of $6.4 million, or $0.04 per share, as revenues increased 17% year-over-year to $2.62 billion. Consensus was for EPS of $0.01 on revenue of $2.47 billion. The company said same store sales jumped 15%.

S&P 500 Index ($SPX) - 10-point box

Supply remains in control of the broader S&P 500 Index ($SPX) where a lower low found buyers to 1,250, with today's close 4-points above last Monday's.

A trade at 1,210 could bring a notably decline to current downside risk assessment of 1,170 as Dorsey/Wright & Associates' S&P 500 Bullish % (BPSPX) hovers at critical support with tonight's closing reading of 47.79%. In essence, if we were to take all 500 point and figure charts of those stocks comprising the S&P 500, 238 of the components would still have a "buy signal" intact, while 262 would now show a "sell signal" associated with the supply/demand chart.

S&P 500 Bullish (BPSPX) - 2% box size

Dorsey/Wright and Associates' S&P 500 Bullish % (BPSPX) holds above 46%, but traders/investors can begin to see how tentative the recent lows for the S&P 500 Index (SPX.X) 1,240.14 -0.91% are.

In August of 2004 (after blue 8) and then again in late October 2005 (after blue A) this indicator of internal strength/weakness reversed course back higher from readings above 46.00 (48 on the above chart). A reading of 46% would be DIVERGENCE to recent history and could see sharp price declines as internals deteriorate further.

Additional internal charts I might suggest trader's review are Stockcharts.com's (wwww.stockcharts.com) NASDAQ Summation Index ($NASI) 10-point box size which shows advance/decline ratio falling below its late May's low reading of -560 to -770 at tonight's close. The NYSE Summation Index ($NYSI) has also broken below its late-May advance/decline ratio of -310 to -440 at tonight's close.
 

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