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Major Indexes Finish Mixed on Profit Taking....

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The major U.S. equity indexes finished mixed as market participants seemed eager to protect bullish gains in mining and energy shares after last week's run up on heightened Middle East tensions.

While traders and perhaps investors alike were eager to sell gold, with the StreetTracks Gold (NYSE:GLD) $63.95 -2.89%, another type of gold in the form of arches had Dow component McDonald's (NYSE:MCD) $34.72 +5.08% jumping $1.68/share after the restaurant giant said Q2 same-store sales rose 5.5% and forecasted a quarterly net profit of $0.67 a share, including $0.10/share in income related to the sale of shares of Chipotle Mexican Grill (NYSE:CMG) $55.50 +2.56%. Analysts were expecting McDonald's to earn $0.56 a share.

Meanwhile, fellow Dow component Citigroup (NYSE:C) $46.40 -2.48% fell sharply after the largest bank by assets in the U.S. said it earned $5.27 billion, or $1.05 a share in the recently completed second quarter, which was a penny below the $1.06/share consensus. Citigroup said revenues climbed 10% to $22.18 billion, despite continued struggles with its U.S. consumer business.

Economic data took a backseat to updates out of the Middle East, as violence in Lebanon continued to escalate.

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The government said U.S. June industrial production jumped a healthy 0.8%, following a revised 0.1% gain in May, with auto and machinery output bolstering June's increase. Capacity utilization was also on the rise, increased 0.6% to a post-recession high of 82.4%.

The jump in capacity utilization will grab some attention toward inflationary pressures.

The U.S. Dollar Index (dx00y) 86.96 +1.01% surged, and just like that, the mighty greenback trades at levels not seen since June 23.

The question on every trader's mind is weather the dollar's renewed strength and gains today are "flight to safety" related, or a reaction from currency traders that the further rate hikes are needed?

Regional economic data had the New York Federal Reserve district's manufacturing-activity index dropping to 15.64 from 29.01 in June. The 15.64 reading was well below economists' forecast of 20.00.

U.S. Market Watch - 07/17/06 Close

It has been tough for bulls in nearly any sector to hold onto gains, but when it comes right down to it, as losses mount elsewhere, protecting gains where you've got them becomes paramount.

In PINK I've highlighted the 5-day Net% changes of sectors that up to, or including today's trade would have shown a week-to-week gain.

I would urge traders and investors alike to NOT MAKE BIG DIRECTIONAL BETS when geopolitical events are grabbing headlines and swaying sentiment.

While the Middle East news now moves "in front" of N. Korea's recent missile launches, I would note that Japan's Defense Chief called for a permanent law to allow overseas troop deployments today.

According to Kyodo News, Fukushiro Nukaga, who was in Kuwait to greet soldiers withdrawing from southern Iraq, told reporters the country needed a new, permanent law to enable Japan to more promptly participate in peacekeeping activity.

Traders and investors may want to review this news item as it relates to Japan's Constitutions (Chapter II, Article 9), which I (Jeff Bailey) believe was drafted just after World War II by General Douglas MacArthur.

Japan's Nikkei-225 ($NIKK) finished Friday's trade at 14,845.24 and sits right on what I feel is important support (see last Monday's Market Wrap). The Nikkei-225 was closed Monday for holiday as the dollar closes in on a 3-year high against the yen.

Bulls may not have been the only ones protecting recent gains after the NASDAQ-100 Tracker's (QQQQ) $36.04 +0.27% Monday-to-Monday 3.53% decline.

Apple Computer (NASDAQ:AAPL) $52.37 +3.35% rose $1.70/share after American Technology Research analyst Shaw Wu said the company could report June results at the high end of its target and could end up exceeding its target for revenue of $4.2 billion to $4.4 billion and earnings of $0.39-$0.42 a share.

U.S. Dollar Index (dx00y) - Daily Intervals

Oh my! Currency traders and market mavens will have trouble figuring out just what the dollar is "saying" about the economy and/or geopolitical unreast. Just after the FOMC announced its decision on interest rates on June 29, the dx00y "plunged."

In the June 30 Market Monitor (05:23:06 PM EDT) I noted a comment from Craig Russell, Senior Foreign Exchange Strategist with ODS Securities and his comments regarding being long the dollar going into the 06/29/06 FOMC meeting as he thought it a possibility the FOMC might just raise 50bp. Mr. Russell admitted that the dovish commentary saw his long bet getting "crushed."

I paraphrase now, but further comments given by Mr. Russell seemed "certain" that traders/investors should just sell the dollar and look for new lows.

If we were to IGNORE what is taking place on the geopolitical front, I'd have to say the dollar's strength is that of further hikes, which would only come from a tightening Fed.

NASDAQ Composite ($COMPQ) - 10-point box

Internals as depicted by both the narrow NASDAQ-100 Bullish % ($BPNDX), which would depict the BIG caps of the NASDAQ as well as the much broader (+3000 stocks) depict internals that remain weak. I would monitor the Nikkei-225 ($NIKK) as well as the Hang Seng ($HSI) as weakness in those markets would likely serves as a wet blanket on NASDAQ rallies.

I would note that it wasn't until Thursday, when violence between Israel and Hezbollah escalated that the COMPX traded 2,090.

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

Last Monday I thought we should monitor the "weaker" NASDAQ Composite as many times, weakness begets further weakness and drags other indexes lower. That certainly looks to be the case with the often-quoted S&P 500 Index (SPX.X).

I would say that today's "energy" trade was the drag on the SPX and may confirm my thoughts that market participants are eager to protect gains when they get them, especially when major market averages are under distribution.

Here's a quick look at the top weighted "industries," (think sectors) that comprise the S&P 500 as of Friday's close. The S&P 500 is a MARKET CAP weighted index.

I've "grouped" my U.S. Market Watch by various "industries" so that during the day, or week (5-dayNet%) I can see what sectors, if any are pulling the SPX various directions.

S&P500 Index Industry Weightings - By Market Cap

Financials (BIX.X, BKX.X, XBD.X, IUX.X) were relatively "strong" today considering the drubbing Citigroup (C) $46.40 -1.18% took.

Information Technology (GSO.X, SMH, INX.X, DDX.X, NWX.X) have really been getting hammered and have provided the bulk of SPX weakness, on many timeframes.

Healthcare (DRG.X, RXH.X, HMO.X)

One area I've been noting in the Market Monitor that has been notably weak of late has been the consumer discretionary sector, perhaps depicted by the Consumer Discretionary SPDRs (AMEX:XLY) $31.61 +0.70%. I (Jeff Bailey) tend to think of this group as a group of stocks whose services products find demand based more on "wants" than "needs." If there is an economic story to be told here, it would be that the consumer is becoming "more discretionary" with spending and not as indiscriminant.
 

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