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Market Wrap

Technology and Small Caps Rally as Energy Prices Plunge

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The major averages finished mixed to higher, but plunging energy prices had technology and small caps notably higher by the close with advancing issues outnumbering decliners by a slim margin at both the big board and NASDAQ.

As has been the pattern in recent weeks, a dip at the open to start the week found support from buyers, while fears of building inventories among refined products had heating oil and unleaded gasoline futures pulling crude oil lower.

December Crude Oil (cl06z) settled down $2.39, or -3.93% at $58.36, while December Heating Oil (ho06z) was torched for a 4.52% decline, settling down $0.0785 at $1.66. December Unleaded futures (hu06z) settled at a new contract low, falling just more than 9 cents, or -6.17% to $1.4619.

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The Dow Industrials (INDU) 12,086.50 -0.03% finished well off its session lows of 12,050 where gains in International Business Machines (NYSE:IBM) $91.50 +0.81% and Boeing (NYSE:BA) $80.22 +0.60% helped offset weakness in Wal-Mart (NYSE:WMT) $49.53 -2.36% and Verizon (NYSE:VZ) $37.65 -3.06%.

Shares of the world's largest retailer Wal-Mart (WMT) traded weak after the company said October same store sales rose a modest 0.5%. Results showed the company's recent strategy to boost sales by catering to more upscale shoppers, paring its inventory and remodeling its stores, was not gaining as much traction as had been planned.

Verizon's (VZ) shares fell as low as $37.07 after the telecom services giant reported quarterly net income of $1.92 billion, or $0.66 per share, which included a $0.02/share charge in pension and merger costs. Revenues jumped 26% year-over-year to $23.25 billion. The company said its Verizon Wireless business added 1.9 million net customers, bringing total subscribership to 56.7 million. However, the company said it added just 448,000 net high-speed Internet connections, which include digital subscriber lines (DSL) and the more advanced fiber-optic lines, known as FiOS. The numbers for those higher margin services were lower than some analysts forecast for net additions of approximately 500,000.

Closing U.S. Market Watch - 10/30/06

Adding to some of this morning's mixed-to-lower trade for the major indices was a 0.2% increase in September's month-over-month core Personal Consumption Expenditures (PCE) price index (excludes food and energy), which is a key measure the FOMC policymakers keep close tabs on, but cooler heads prevailed when that volatile month-to-month measure of inflation was viewed in the context of a 0.3% decline in the all-encompassing PCE price index. Economists were expecting the core rate to rise 0.2%.

Personal spending rose just 0.1% and was slightly below economists' forecast for a 0.2% increase.

December Gold futures (gc06z) settled up $6.40, or +1.06% after jumping to $613.20 intra-day.

Treasury yields were little moved during today's session with the benchmark 10-year yield ($TNX.X) finishing unchanged.

Traders and investors were not inundated with merger/acquisition news, but shares of NASDAQ-100 component American Power Conversion (NASDAQ:APCC) $30.02 +26.34% surged and were today's most actively traded after the company said it would agree to be acquired for about $6.1 billion in cash by French electric-equipment maker Schneider Electric. The offer values APCC's shares at $31.00.

American Power Conversion's competitors include ABB (NYSE:ABB) $14.97 -0.26%, Emerson Electric (NYSE:EMR) $84.22 +0.07%, General Electric (NYSE:GE) $35.20 -0.02%, Hitachi (NYSE:HIT) $59.00 +0.13% and SL Industries (AMEX:SLI) $18.89 +1.50%.

NYSE Composite ($NYA) - 20-point box chart

Over the past week, the very broad NYSE Composite ($NYA.X) is up a fractional 0.34%, with near-term supply (O) outstripping demand (X). Bullish leadership as measured by new highs versus new lows (see table at top) remains very bullish, but resting from some very strong, yet overbought readings last week when on Thursday, 390 NYSE-listed stocks traded a new 52-week high versus just 8 components having traded a new 52-week low.

The first sign that SUPPLY (O) would be outstripping demand (X) on a more meaningful basis would currently come with a trade at 8,600.

NASDAQ Composite ($COMPQ) - 10-point box chart

On Thursday of last week, the also very broad NASDAQ Composite traded and closed at a 52-week/multi-year high of 2,379.29 as four and five-lettered stock symbols continue to show demand (X) outstripping supply (O). In mid-September as all of the point and figure bullish % indicators began signaling buyers were gaining control over sellers, this very broad market has given four additional buy signals. The first sign that supply (O) would be outstripping demand (X) would be a trade at 2,320.

Russell 2000 Index ($RUT) - 5-point box

Continued weakness in the energy complex has really brought buyers into the small caps in recent weeks as bulls and short-covering bears drive prices higher. While it would currently take a trade at 785 to have the $RUT making a meaningful-looking new all-time high, the $RUT is up 21.25% over the past 52-weeks, easily outperforming its next closest rival and the NYSE Composite's 18.95% 52-week advance.

The first sign of any near-term weakness for the $RUT would be a 3-box reversal to 760. It would currently take a trade at 710 to have this market giving a "sell signal" (column of O below a prior column of O).

For the broad S&P 500 Index ($SPX) and the conventional 10-point point and figure chart shown in last Monday's Market Wrap, we did see further demand (X) build to 1,380.

As of tonight's close, Dorsey/Wright & Associates' S&P 500 Bullish % (BPSPX) now shows 73.44%, or 367 of the 500 components, having a point and figure "buy signal" associated with their supply/demand chart. Compared to last Monday's closing measure of 70.77%, this represents an additional net gain of (73.44 - 70.77 = +2.67%) 13 stocks to reversing higher point and figure buy signals.
 

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