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Daily Newsletter, Sunday, 12/28/2003

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PremierInvestor.net Newsletter          Weekend Edition 12-28-2003
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In section one:

Market Wrap:      Some Have a Beef with Milk

Market Watch for Week of December 29, 2003
   - Major Earnings
   - Stock Splits
   - Economic Reports

! Holiday Schedule

Due to the Christmas holiday the normal Premier Investor Email
Newsletter will continue on Tuesday, December 30th, 2003.

Thank you have Happy Holidays from our family to yours!

Market Wrap

Some Have a Beef with Milk
by Keene Little

In what is typically one of the lightest, if not the lightest,
trading days of the year, today matched expectations for a quiet,
go-nowhere market. The Mad Bulls, not to be confused with the Mad
Cows, are still refusing to let this market drop. Of course they
had very little strength today to push it much higher either. But
for the week, the DOW closed up almost 65 points and the SPX up a
little more than 7 points (that's equivalent to 70 points on the
DOW). A look at the more speculative indexes, the NDX closed up
almost 18 points for the week while the Russell 2000 closed up
about 8 points. So there was no rotation this week--looks like
basket buying where the fund managers essentially buy a basket of
stocks instead of selectively choosing stocks. The recent
rotation out of the speculative stocks into the blue chips was
put on hold this week. And all of these gains were essentially in
the first two days of the week as the trading on Wednesday and
Friday essentially negated each other.

The case of Mad Cow disease has been confirmed by a British lab
so now begins to long and costly task of figuring out whether or
not it's an isolated incident or not. In the meantime, cattle
futures are still limit down and expected to be that way into the
new year (the price is normally limited to a maximum price change
of 1.5 cents per day, but that was increased to 3.0 cents today
and the CME said they will likely let the price drop 5.0 cents on
Monday). There is expected to be a very large negative impact to
the beef industry, and it will ripple through our economy.

But because of the reduction in the cost of beef, there was an
analyst upgrade for McDonalds' stock based on the assumption
McDonalds will have lower costs. I question this as it seems
lower sales as consumers shy away from eating beef will have a
larger negative impact on McDonalds. Could it be the analyst was
trying to protect his company's portfolio which had a heavy
exposure to MCD? Nah, that would mean analysts are disingenuous
and that they might have ulterior motives, and I certainly
wouldn't want to be accused of mistrusting analysts' true
intentions since I know they have our best interests at heart (as
my tongue is pressed firmly against my cheek). In all seriousness
though, the analyst may be right. Through the Mad Cow scare in
the U.K., Britains continued to eat large quantities of beef and
so far I haven't heard of any huge consumer concerns, yet.

The story out of Italy today regarding Parmalat, the very large
dairy company, says the U.S. does not have a lock on corporate
malfeasance. The company filed bankruptcy as it moves to protect
itself after it was disclosed that they systematically falsified
their accounting. It also raises a significant question, as it
did here after the Enron debacle, about the international
auditing firm, Grant Thornton, who has been doing Parmalat's
books since 1999. European bourses were closed today so there was
no way to gauge how European stocks will react to this news.

There were no economic reports today but in other news China
lifted its tarrifs on steel imports. U.S. Steel was up on the
news, as was Alcoa  was the earthquake in Iran. Initial
projections were for thousands, if not 10,000, deaths in the city
of Bam in central Iran. There was no reaction in the market
though. Crude oil and gold did not trade today and the bond
market closed up for the day (yields down).

In other sectors, the gold and gold/silver indexes topped the
list of gainers with a 3.1% and 2.6% gain, respectively. All
other gainers were by less than 1% and it's hard to discern
anything from that. There were very few losers today, the largest
being the biotech index but that was only -0.2%. Interestingly
the transportation index was down today while the airline index
was up, but all in all, it was a pretty quiet day.

The SPX and NDX pushed to a new high for the week today (barely),
but again these highs were not confirmed by the DOW. It seems the
DOW and the NDX are swapping positions lately as to who is
leading to the upside. The SPX can't decide who to follow.
However, because the SPX seems to be the most "consistent", I'm
using its daily chart below to help me determine what the market
is doing. The action in the market the past two half-day sessions
has been difficult to decipher as to where the market might be
headed. On Tuesday I had mentioned that I thought the market
might have peaked, but that the SPX and NDX would look better
with one more minor new high. Today we got the one more minor new
high in both of those while the DOW hung back and waited. So, my
expectations for the market have now been satisfied. Does this
mean we're heading down next week? Unfortunately, the price
pattern is not as clear as I would like in order to be able to
make a more confident call about direction on Monday. However,
based on what I see so far, I'm leaning to the downside.

The charts below show some details of what I'm seeing. We've been
in these ascending wedges which are typically bearish in their
outcome. As the ascending wedge is topping, you look for bearish
divergences between new price highs and the corresponding
oscillator highs. As of today's highs we have that. The reason
it's difficult to be confident in this analysis though is because
of the light volume. I'm not sure how much that might skew the
results of these oscillators.

I would like to have seen a clean Elliott Wave pattern (5 waves
up) to today's high, followed by a clean 5 waves down. We had
neither and I therefore have to guess at the current EW count. I
don't like to guess at the count and then make predictions based
on that. So while I'm comfortable saying the market has seen its
highs, it wouldn't surprise me in the least to still see a poke
higher. Considering this Monday is typically bullish, which will
be especially true if we have no evil-doer activities, I have a
hard time predicting we'll see a down day on Monday. So, whenever
I'm in a quandary as to where we are, I have found it's much
better to remain flat and wait for clarity in the price pattern.
Much better to be sorry I missed a trade than to be sorry I'm in
a trade.

Let's look at the major indexes, starting with the big picture
and working in closer:

The SPX 500 (SPX) weekly chart:

I showed the DOW weekly chart on Tuesday and mentioned that the
fibonacci target, based on an A-B-C correction to the move down
from January 2000, would be 10,403 where wave-C = 162% of wave-A,
a very common fibonacci relationship in A-B-C corrections. The
DOW has so far reached almost 10,376 so 27 points shy of this
target (less than 0.3% off). The SPX has overshot its 1089 target
by 9 points as of today's high (0.8%). This close to these
targets after a 15-month rally is pretty amazing. So have we
topped here? I can't say for sure, but the evidence for that is
building quickly. Note the ascending wedge we've been in since
the March low.
The SPX daily chart:

The SPX continues to find resistance around the 1096.51 area. If
it can break free of this, there is fibonacci resistance between
here and 1101. If it drops below the upper line of the ascending
wedge, there is a good chance the rally is over--the coffin lid
gets closed. Breaking below 1068 and we start nailing the coffin
closed, and a break below 1031 padlocks the coffin closed. The EW
term for an ascending wedge is an ending diagonal--it is an
ending pattern to the overall move. So we've got an ending
diagonal on the weekly chart for wave-C of the A-B-C. Now we have
another ending diagonal for the final 5th wave of that wave-C.
Check out the 60-min chart to see what we have there as well.
The SPX 60-min chart:

The final push up from December 10th has formed another ending
diagonal. So we've got an ending diagonal on the 60-min chart
finishing up an ending diagonal on the daily chart which is
finishing up the ending diagonal on the weekly chart. These
nested ending diagonals are bearish to the nth degree but we're
still waiting for price to tell us it's over. After breaking
down, price will retrace to the beginning of an ending diagonal.
Therefore we should expect price to drop back to at least the
March 2003 low. As for this last ending diagonal, the upper line
of the ascending wedge on this 60-min chart held back price
today. For now we watch the lower line of this ending diagonal.

The DOW 60-min chart:

The uptrend line for the rally from December 10th held up the
decline in the DOW today. After a small throw-over on December
23rd from this ending diagonal it has fallen back inside. It
could make another rally high from here (10,403 is that long-term
fibonacci resistance target), but if it drops further below this
uptrend line, that will be a strong signal the rally is over. My
guess going into the weekend is that the DOW topped with that
throw-over on the 23rd. But this coming Monday is typically
bullish in this holiday period and therefore I'm on guard as to
any bearish thoughts.

The NDX 60-min chart:

The uptrend line from December 17th held up the decline today
while the high on December 3rd held the rally. Can you say
squeeeeeeze? I believe the battle of the lines will determine the
next move in this index, and the market, and therefore needs to
be watched closely. My guess, as shown by the blue arrow is that
the rally is complete, but will be watching action carefully
here. The bearish EW count on the NDX is predicated on price
staying below the December 3rd high, so if the NDX violates this,
but Nasdaq does not, I'm not sure what to make of that but I'll
cross that bridge if and when I come to it.

The price action from Tuesday through Friday is unfortunately too
muddy to make a confident call in what to expect early next week.
We are entering a typically bullish week or so, but the EW
picture tells me we either topped or are extremely close to
topping. Bullish bets would be risky. The longer we go sideways,
like we have the past two half-sessions, the greater the
likelihood we'll see a push to new highs. If that happens, we
might see inter-market divergences where not all the indexes push
to a new high. With the flip-flopping between the DOW and NDX,
I'm not sure who would make the next push higher although I
suspect the DOW would only because I think institutions are going
to try to get out of the more speculative stocks in anticipation
of a January correction. It's easier to get out of the smaller
stocks before a decline gets underway.

While still wary of a rally next week, I'm still cognizant of
what I mentioned Tuesday--with everyone expecting a rally, we may
not see it. The expected rally around Christmas has effectively
not happened. Between Wednesday and Friday, the market lost a
little bit of ground. Any new money coming into the market next
week, that causes some buying to happen, may just be the
opportunity institutions are looking for to sell into. It will be
a time to be very careful about your positions, long or short.

I don't see any economic reports coming out Monday or Tuesday so
we'll be on our own. We will probably continue to see light
volume until after New Year's, so be careful in your trading. In
these light volume days we see program trades kick in and move
the market out of nowhere. I've seen the market move quickly in
one direction so that an institution can sell or buy it at a
better price which quickly moves it in the other direction. Stops
can quickly be triggered and then price moves right back to where
it was.

Good luck in your trading next week. Be careful--we're close to a
top, if not already there, and I expect some volatile action, if
not Monday/Tuesday, then certainly after New Year's. Have a great
weekend and I'll see some of you in the Futures Monitor bright
and early Monday morning.

Keene Little

Market Watch for the week of December 29th

Earnings Calendar

Symbol  Co               Date           Comment      EPS Est

------------------------- MONDAY -------------------------------

No Major Earnings

------------------------- TUESDAY ------------------------------

No Major Earnings

------------------------ WEDNESDAY -----------------------------

No Major Earnings

------------------------- THUSDAY -----------------------------

No Major Earnings

------------------------- FRIDAY -------------------------------

No Major Earnings

Upcoming Stock Splits In The Next Two Weeks...

Symbol  Co Name              Ratio    Payable     Executable

NEOG    Neogen Corporation        5:4      Dec  31st   Jan   2nd
KSWS    K-Swiss Inc               2:1      Dec  31st   Jan   2nd
ACET    Aceto Corporation         3:2      Jan   2nd   Jan   5th
AAP     Advance Auto Parts Inc    3:2      Jan   2nd   Jan   5th
JCI     Johnson Controls, Inc     2:1      Jan   2nd   Jan   5th
CLBK    Commercial Bankshares Inc 2:1      Jan   2nd   Jan   5th

Economic Reports This Week

There isn't much on the economic calendar between Christmas
and New Year's.  Those economists still on the job will be
watching Tuesday's Chicago PMI, Existing Home sales and the
Consumer confidence report.


Monday, 12/29/03
Help-Wanted Index (DM)    Nov  Forecast:   N/A  Previous:     37

Tuesday, 12/30/03
Chicago PMI (DM)          Dec  Forecast:   N/A  Previous:   64.1
Consumer Confidence (DM)  Dec  Forecast:   N/A  Previous:   91.7
Existing Home Sales (DM)  Nov  Forecast:   N/A  Previous:  6.35M

Wednesday, 12/31/03
Initial Claims (BB)     12/27  Forecast:   N/A  Previous:    N/A

Thursday, 01/01/04
- Markets Closed for New Year's Day -

Friday, 01/02/04

DM=  During the Market
BB=  Before the Bell
AB=  After the Bell
NA=  Not Available


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