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Market Wrap

All is Quiet Ahead of the Fed

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After a flat to modestly lower open, traders placed conservative bets into tomorrow's Federal Reserve decision on interest rates in what turned out to be a very tight range of trade on light volume.

While volume at the big board has been averaging 2.63 billion shares per day so far this month, today's 2.2 billion shares has the look that traders were only making minor adjustments to their equity holdings. NASDAQ's 1.86 billion nearly matched Friday's 1.85 billion shares and was notably below December's 1.99 billion share per day average.

Treasuries found some action with the shorter-dated 5-year yield ($FVX.X) falling 3.0 basis points to finish at 4.494%, while the benchmark 10-year yield ($TNX.X) fell 3.2 basis points to 4.520%. The longer-dated 30-year yield ($TYX.X) recouped some of last week's rise and fell 3.3 basis points to 4.628%.

Forward-looking Fed Funds futures currently have market participants seeing no Fed action at tomorrow's meeting. The central bank raised rates 17 straight times starting in June 2004, but has left them unchanged the last three meetings at 5.25%.

Of late, it wouldn't be a Monday without some type of merger news.

Dow components American Intl. Group (NYSE:AIG) $71.00 +0.92% said it agreed to buy the U.S. port operations of state-owned Dubai Ports. AIG will take control of six U.S. ports. AIG Global's role, officials said, is purely as an investor and will involve only the American ports.

The U.S. ports involved in Monday's transaction have been purchased for an estimated $700 million, though the exact terms were not disclosed.

Copper producer Phelps Dodge (NYSE:PD) $122.87 -0.64% jumped as high as $124.75 at the open after hedge fund SAC Capital Advisors LLC said that it would vote against Freeport McMoRan's (NYSE:FCX) $61.35 -0.74% attempt to buy its rival. SAC Capital Advisors disclosed that it and fund manager Steven Cohen had bought 10.3 million shares in Phelps Dodge, or about 5.1% of the Phoenix-based copper miner's outstanding stock. The fund, which reportedly has bought and sold shares almost daily over the last two months, said that it will use its influence to convince Phelps Dodge to hold out for a better bid.

In late November, Freeport McMoRan offered to buy Phelps Dodge for $25.9 billion in cash and stock, with amounted to roughly $126.46 per share.

Medical device maker Biomet (NASDAQ:BMET) $41.54 +4.11% jumped to a new 52-week high on speculation that U.K.-based Smith & Nephew PLC might bit $11 billion to buy the company.

One of today's most actives had shares of Nuvelo (NASDAQ:NUVO) $4.05 -79.28% plunging on heavy volume of 90.1 million shares. The company said blood-clot-busting drug Alfimeprase failed in a late-stage clinical trial. Nuvelo officials said the mechanical delivery of the drug may have disrupted the clot so that it was not adequately delivered to the site of the clot, but carried beyond it.

Closing U.S. Market Watch - 12/11/06

Today's economic report wasn't thought to be a market mover, and it wasn't. October wholesale inventories rose 0.8%, which was slightly above economists' forecast for a 0.7% gain. Sales fell 0.4% from September, but were up a healthy 6.3% versus a year ago. Compared to last month, sales of machinery, equipment and supplies were down 3.3%, while sales of motor vehicle and motor vehicle parts and supplies, increased 2.5%.

October sales of non-durable goods, which are products intended to last three years or less, were down 0.6% from last month, but were up 5.5% from last year. Compared to last month, sales of petroleum and petroleum products decreased 5.1%.

I would note that at 10:00 AM EST, when October's wholesale figures were released, the CRB Index (CEC:CRY) 312.08 -0.09% did move sharply lower from 312.50 to 310.50 in a "knee-jerk" reaction.

I'm sure the Fed is keeping an eye on commodity price. Not intra-day moves, but I would also note that since the Fed last raised its target on Fed Funds to 5.25%, commodity prices as depicted by the CRB Index have been easing.

CRB Index - Daily Intervals

June 29th was the last meeting the Fed raised its target on Fed funds to 5.25%. The recent trade at 322 in the CRB would be considered a "normal" retracement of the May-October decline and a level of near-term resistance.

Today's October wholesale data is from the month of October, and backward looking. Perhaps reflected in the CRB Index itself.

My "analysis" of the CRB Index, or what it is saying is that hyper economic growth has cooled, and the current upward trend may reflect a more "moderate growth" trend for various commodities that are used in the manufacture of goods and some services.

Energy prices were weak today. January Nat. Gas futures (ng07f) settled down 13.4 cents, or -1.77% and traded contract lows at $7.216 during today's floor trade. Trader's cited fall-like weather blanketing much of the U.S., curbing the need for natural gas to meet heating demand.

The last time gas futures settled lower was on Oct. 30 at $7.41/MMBtu, when the front-month December contract was trading.

Temperatures in the Northeast and Mid-Atlantic are set to rise 6-14 degrees above normal this week with high temperatures in the 50s to low 60s, said Jim Rouiller, senior energy meteorologist with Planalytics in Philadelphia.

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On the earnings front, shares of Dow component DuPont (NYSE:DD) $47.42 +1.10% rose after the chemical giant said it now expects to earn $3.25 per share in the quarter, which includes $370 million, or $0.39 per share, in net one-time gains as the company continues its restructuring and streamlining. The company said it was cutting 1,500 jobs at its agriculture and nutrition divisions. Analysts were looking for the company to post earnings of $2.86/share, including a $0.01 one-time gain.

After today's closing bell, mobile phone chipmaker Texas Instruments (NYSE:TXN) $29.30 -0.34% was trading relatively unchanged in an active post-market trade. The company cut its fourth-quarter outlook on lower-than-expected chip sales.

The company, which makes everything from calculators to chips for flat-screen televisions, said it now expects earnings from continuing operations of $0.37 to $0.40 a share compared with its earlier target of $0.40 to $0.46.

The company said it now expects revenue of $3.35 billion to $3.5 billion for the quarter. In October it had forecast fourth-quarter revenue of $3.46 billion to $3.75 billion.

On average analysts had expected earnings of $0.43 a share on revenue of $3.58 billion, according to Reuters Estimates.

Buyers stand their ground ....

In last Monday's Market Wrap, I noted some signs of weakness in the major indexes WEEKLY Pivot levels and established tests for WEAKNESS and STRENGTH.

With the S&P 500 ($SPX) and the S&P 500 Depository Receipts (AMEX:SPY) seeing new closing highs on Friday, I'm dragging up my 0% retracement on the SPY to Friday's closing high of $141.42, where conventional use of this retracement has the 19.1% retracement moving higher to $137.82.

S&P Depository Receipts (SPY) - Daily Intervals

Since I visit with you every Monday, I've been attaching, or "dragging up" the 0% retracement from the summer low closes when we get a new 52-week high Friday close.

In my opinion, the SPY still looks strong, it FAILED the bearish test I set in the WEEKLY Pivot levels last week, as it never traded its WEEKLY S1 (support 1) at $138.54 and showed SIMILARITY to the past

Here's the same SPY chart I showed last Monday with the MONTHLY Pivot Levels and QCharts' WEEKLY Pivot levels.

S&P Depository Receipts (SPY) - 60-minute intervals

At the conclusion of last Monday's trade, the SPY had jumped to its WEEKLY R1 ($141.56) and for the most part traded with side of that WEEKLY near-term resistance level.

Volatility watchers may want to note that the CBOE Volatility Index (VIX.X) surged to its WEEKLY R1 of 12.61 on Thursday, as the SPY fell to $141.00. It was my analysis in the Market Monitor at OptionInvestor.com that we were really seeing some pre quarterly option expiration action. In fact, that day, the UpTick volume vs. the DownTick volume on the SPY was very bullish with UpTick volume at 8.18 million vs. DownTick volume of 4.67 million.

Since Thursday, option volatility has reversed notably with the VIX.X back down below 11.00 at 10.71.

It has been a couple of weeks since I showed the daily interval bar chart of the NASDAQ-100 Tracker (NASDAQ:QQQQ) $44.06 +0.36% where I had raised the 0% retracement to its Friday, November 24 close of $44.65. Same pattern of "once above" then "no Friday close below" as the SPY chart earlier this evening.

NASDAQ-100 Tracker (QQQQ) - Daily Interval

Not much to say about the QQQQ, except that it is digesting some of November's gains.

A downgrade on Oracle (NASDAQ:ORCL) $18.07 +1.51% from last Tuesday's close of $18.86 weighed on the Software sector, with the GSO.X 184.33 +0.53% down from last Monday's close of 187.85 (see U.S. Market Watch -1.87% decline recent 5-days), where the software group really accelerated gains from mid-September for the QQQQ.

The Semiconductor HOLDRs (SMH) $34.08 -0.32% closed at $33.63 back on 09/11/06 and have traded between $32.75 and $35.95 for about three months.

With Texas Instruments (TXN) $29.30 -0.34% giving a lukewarm outlook for Q4, the heavy weight software and biotech components of the QQQQ will remain key drivers.
 

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