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Market Wrap

Drink Up and Say Yahoo!

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Stocks began the week mostly lower as volumes remained brisk at both major exchanges. The big board churned more than 5.0 billion for a third-straight session (excluding Thursday's 1/2 session 3.28 billion) with decliners outnumbering advancers for the bulk of the day, while average volume at the NASDAQ also found declining issues outnumbering advancers by a lesser degree.

New lows at the big board approached the 627 found on Tuesday of last week, and while the 5-day NH/NL and 10-day NH/NL ratios can always go to zero (0.00) and stay there, these readings continue to suggest some very oversold conditions.

Not unlike the 1, 2 and 3-lettered ticker symbols at the big board, NASDAQ's 623 new lows were equally matched with Tuesday's 528 new lows.

Bullish leadership as depicted by the new highs at both the NYSE and NASDAQ remain nonexistent and below respective 5-day averages (including Thursday) of 43 and 37.

The major averages did see a modest lift at this morning's open as oil prices eased from Thursday's record highs, but a still very short-looking US Oil Fund (USO) $114.77 -1.75% found buyers at $113.00 and July's "Max Pain Theory" tabulation of $109.00.

We should be getting some updated short interest reports on the USO in a couple of days. The most recent report had short interest at a record 18.29 million shares.

Energy futures were broadly lower to start the week and may have helped lessen a more bearish tone for equities. August Crude Oil futures (cl08q) settled down $3.92, or -2.70% (from Thursday's settlement of $145.29) at $141.37, while natural gas futures witnessed their largest percentage decline since 03/07/08 (-7.78%), settling down $0.60, or -4.42% at $12.97.

The NASDAQ-100 Index (NDX.X) 1,826.93 +0.58% and its tracker QQQQ $44.90 +0.60% bucked a more bearish equity tape, with beverage maker Hanson Natural (NASDAQ:HANS) $28.57 +13.14% bouncing from a 52-week low and leading component gainers on a percentage basis.

Goldman Sachs' analyst Judy Hong said that data received from a chain convenience store survey suggested total energy drink sales rose 13% in June and Hanson's Monster brand has been taking share in the energy drink category.

Also atop today's percentage gainers among the NDX/QQQQ components were shares of Yahoo! Inc. (NASDAQ:YHOO) $23.91 +11.99% after Microsoft (NASDAQ:MSFT) $26.02 +0.15% said it would be willing to renew takeover negotiations if Carl Icahn's effort to dump Yahoo's board is successful.

M&A analysts say that today's comments out of Microsoft give Mr. Icahn more credibility with Yahoo shareholders as he has been arguing that a new board of directors at Yahoo is the only way to salvage a deal with Microsoft.

While HANS and YHOO were among the NDX/QQQQ percentage gainers, shares of Teva (NASDAQ:TEVA) $43.18 -8.51% gapped below their 150-day ($46.16), 200-day ($45.72), 50-day ($45.34) and 21-day SMA ($44.76) and traded heavy volume of 26.8 million shares after the generic drug-maker said that top-line results of a trial dubbed "FORTE", the higher 40mg dose of Copaxone, was no more effective than the company's already FDA-approved 20mg dose in relapsing-remitting multiple sclerosis (RRMS).

It would be worth noting that today's low in TEVA ($42.49) found buyers at the 06/13/08 close ($42.50) and today's action simply back-filled the 06/13 to 6/17 gap higher from the company's Azilect study for the treatment of Parkinson's disease.

Major Global Markets, Currencies, Oil and Gold

Asian markets have been "steady" since last Monday's close and all eyes will be closely monitoring Japan's Nikkei-225 ($NIKK) 13,360.04, which gained 122 points, or +0.92% from Friday's close.

Nikkei-225 ($NIKK) - 50-point box

A quick update for Japan's Nikkei-225 ($NIKK) shows buyers lurking were we might expect, at bullish support trend. Like several of the world's bullish % from Dorsey/Wright and Associates, Japan's rather broad Tokyo Bullish % is nearing an "oversold" measure of 30%.

Any further weakness in the Nikkei-225 ($NIKK) at 13,100 or lower would have all the major global indices in the table above ($HSI, $SSEC, $FTSE, $DAX, $CAC, $INDU, $OEX, $NDX, $SPX, $RUT) all having broken below their bullish support trends.

Here's an updated World Bullish Percent Bell Curve from Dorsey/Wright and Associates, where I've made a few bullish % comparisons from a 06/24/08 screen capture.

World Bullish Percent Bell Curve -

Some sign of that things have been overdone to the downside may be developing in that the Shanghai bullish %, which measures approximately 754 securities, has rebounded from a very "oversold" measure of 0% to 14% on 6/24 to a more mid-point measure of 46% at tonight's reading.

This would suggest either some "bottom fishing" bulls, or the locking in of some very handsome gains by bears at a minimum.


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In recent sessions we have started to hear some chatter that last week's 25 basis-point hike by the ECB may be viewed as being equivalent to the highly critiqued FOMC rate hikes in 2000, where monetary policy was so focused on wage gains here in the U.S. that FOMC tightening choked the U.S. economy into recession.

Germany's DAX ($DAX) did gain 123 points, or +1.97% on Monday to close at 6,395, while France's CAC-40 ($CAC) rose 76 points, or +1.80% to 4,342.

U.S. Market Watch - 07/07/08 Close

Financials and just about anything "housing" related continued to trade weak today, where weakness in Freddie Mac (NYSE:FRE) $11.91 -17.86% and Fannie Mae (NYSE:FNM) $15.74 -16.18% was attributed to bearish comments out of Lehman Brothers. The firm said both may need to raise more capital as the credit crunch continues.

Calendar Q2 earnings season kicks off tomorrow evening with Alcoa (NYSE:AA) $33.39 +1.86% set to report results. Of the fifteen (15) analysts polled, current consensus is for the aluminum giant to report earnings of $0.68 per shares (low/high $0.60/$0.80). Nine (9) analysts making revenue projections see top-line results coming in at $7.37 billion (low/high $6.83B/$8.00B) on average.

Alcoa (AA) - Daily Intervals

Tomorrow's earnings, and more importantly the MARKET'S reaction to earnings and forward guidance will be important to many.

In fact, on 05/19/08, I changed my 2008 U.S. economic forecast from "modest recession" to "modest growth" (see 05/19/08 Market Wrap) based on the Conference Board's leading economic indicators report and some technicals from the like of the Dow Transportation Average (TRAN) 4,685.45 +0.14%.

Shares of Alcoa (AA) $33.39 +1.86% have witnessed a strong amount of selling in recent weeks, and may have "discounted" the recently completed June quarter's earnings.

IF not, then a break much below Friday's low would be a break of tentative bar chart trend (dashed green). It would take a close ABOVE the 12/31/07 close (dashed purple) $36.65 to begin to suggest that the MARKET has overly discounted calendar Q2 earnings.

And with energy prices at historic highs, the S&P 500 Index (SPX) 1,252.31 -0.83%, my primary barometer for the U.S. economy has yet to see a 3-box reversal higher after generating a double bottom sell signal at 1,380, and violating its bullish support trend at 1,340.

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

At tonight's close, Dorsey/Wright's S&P 500 Bullish % (BPSPX) has fallen further to 24.60% and remains in "bear confirmed" status.

Tonight's SPX close is also below this YEAR's support 2 level of 1,259.

At the "bottom" of Dorsey/Wright's 10-week trading band, Alcoa's earnings will be closely monitored.

With YEARLY S2 violated to the DOWNSIDE at tonight's close, the SPX's MONTHLY S1 (1,233.32) is "in play" as is its QUARTERLY S1 (1,221.27).

At a MINIMUM, a 3-box reversal back higher (1,280) is needed to observe any type of demand (X) observation.

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