Bear Mountain Bull

	The S&P Small Cap 600 Index was able to move back above its 50-day moving average today.
	Ditto the Mid Cap 400 Index. Last time, the MID was only able to hold above the 50-day for one session.

Charts courtesy of StockCharts.com

The Nasdaq has traded in two tight ranges since the initial breakdown the first two trading days of January. The current range was entered with a gap down at the open on January 20th. The index has yet to exceed the high of that day and begin to fill that gap – but it’s trying.

Chart courtesy of StockCharts.com

Guaranteed that CNBC will be slobbering all over themselves tomorrow anticipating Google’s (GOOG) earnings report after the market close.

You have been warned.

Personal income rose a record 3.7% in December – but did it really? As a BMB reader pointed out, much of the increase was due to Microsoft’s dividend distribution, which by itself was larger than the market cap of General Motors.

The major indices all posted gains today, dipping going into the final hour but rallying back into the close. But the numbers could be somewhat deceiving due to the very light volume, bringing into question the conviction of the buyers.

The Dow finished up 63 points (+0.6%) at 10490, the S&P 500 gained 10 points (+0.9%) to 1181 and the Nasdaq posted the best performance, adding 27 points (+1.3%) to 2062. The small-cap Russell 2000 outpaced the big boys, tacking on 11 points (+1.8%) to 624, and the bond market held the 10-year yield down at 4.13%

Market internals looked good, with the exception of the volume. Advances/declines were more than 3 to 1 on the NYSE and 11 to 4 on the Nasdaq. Up/down volume was nearly 4 to 1 on the NYSE and more than 3 to 1 on the Nasdaq. There were 340 new highs to only 41 new lows.

The moves across the industry groups looked good too: the up side was led by disk drives (+2.6%), broker/dealers (2.4%), airlines (+2.3%), internets (+1.8%), transports (+1.8%), computer hardware (+1.7%), oil services (1.6%) and oil stocks (+1.4%). Only a few groups moved down, led by the drug stocks (-0.5%).

Crude oil traded down overnight, but rallied in the afternoon today to finish higher by more than $1 at $48.20/barrel. The dollar move slightly higher (+0.1%) and gold prices fell to around $422/ounce.

MetLife to acquire Travelers from Citigroup.

Chicago Purchasing Managers Index up.
December new home sales flat – also note that November’s big drop in sales was revised downward even further.

The weekly look at technicals and sentiment from Schaeffer’s. Indications are that we may see a bit of a bounce in the markets here, and the opening today seems to support that view.

Another departure from the markets…

The blogosphere is filled with stories on the Iraq elections, and some of them are truly fascinating to read, but some of the best come from the Iraqis themselves – like this one and this one.

You know, you’ve got to admire these people. In the U.S., a lot of people don’t bother to vote because it’s too much trouble – they have to stand in line and wait, blah, blah, blah. These folks?? Their very lives were threatened – and some were indeed killed – but they voted anyway. God bless ‘em all.

To read much more, a good place to start would be at Instapundit — just keep scrolling and following the links.

Items of note on the latest industry moves:

• Seeing green on the ‘best’ list – somewhat encouraging. At least some areas are holding up.
• The industry breakdown mirrors what we noted in the sector exam – energy related stocks and utilities moving their way up.
• Some divergence in what would be considered interest rate sensitive stocks – utilities working their way higher, housing stocks holding up well, but REITs weak.
• Airlines had a bit of a bounce this week. They need some help.

In what appears to be a market struggling to stay afloat, the top two sectors of last year have risen back to the top of the sector charts and are once again the top performers over the most recent 1, 4 and 8 week periods.

Update: Here is a link to BMB’s year-end sector performance table for ‘04.

	As BMB noted earlier in the week, energy stocks – last year’s best performing sector – look to be trying to bust free of their trading range once again.
	The second-best performing sector of ‘04 was the utility stocks. The XLU has also held up well in a tough market, and could attempt a move higher. Utilities could eventually be hurt if interest rates begin to move higher, but so far, the bond market hasn’t let that happen.

Here’s how all of the AMEX Sector SPDRs have performed over the past 8 weeks:

Charts courtesy of StockCharts.com

Stephen Roach of Morgan Stanley finds that the attendees of the World Economic Forum in Davos, Switzerland all seem to understand that there are problems with the current state of the global economy:

The consensus at this gathering was far more sympathetic to the perils of ever-mounting global imbalances than groups I normally encounter. The notion of a newly symbiotic world — America consumes and the rest of the world finances it — didn’t cut it in this crowd. Concerns over ever-mounting US current account deficits, saving shortfalls, budget deficits, and household sector debt were not taken lightly. But while there was agreement on the broad outlines of the problem, there was little conviction on how these imbalances might get resolved.

But as Mr. Roach states, not everyone agrees on just what the solutions to these problems might be, and it sounds as though some might be comfortable with the idea of doing very little — for fear of disruption — and just keeping their fingers crossed that everything works out without bringing on a larger crisis:

In the end, the Davos crowd drew its greatest comfort from the passage of time — that an unbalanced world survived yet another year without a disruptive outcome in financial markets.

I find it unlikely that things will just be fine if America is left to continue to consume everything in sight as it racks up mounds of debt by borrowing from the rest of the world. Sooner or later, other countries are bound to get tired of forking it over. If (or when) that happens, Americans (both consumers and the government) are ill prepared to deal with an inability to finance their every whim — or even to make the payments on the ‘whims’ they’ve already accumlated.

Read the whole thing if you’re interested.

The hope of market strength we saw earlier in the week faded somewhat today after a pretty pathetic performance. The major indices came off their worst levels heading into the close, but the Dow still finished down 40 points (-0.4%) at 10427, the S&P 500 dropped 3 points (-0.3%) to 1171 and the Nasdaq fell 11 points (-0.6%) to 2036. The Russell 2000 also gave up ground, losing 4 points to 613, and the bond market rallied on the morning’s GDP report, pushing the 10-year Treasury yield down to 4.13%.

Market internals were negative, with advances/declines coming in at 15 to 17 on the NYSE and 8 to 11 on the Nasdaq. Up/down volume ran 2 to 3 on the NYSE and 7 to 11 on the Nasdaq. There were 162 new highs and 67 new lows.

Airlines were one of the few groups on the positive side, gaining 1.3% on lower crude oil prices. On the down side were oil services (-1.9%), biotechs (-1.4%), networking (-1.3%), drug stocks (-1.1%) and semiconductors (-1.0%).

Crude oil backed off today, falling more than $1.50 to $47.18. The US dollar was unchanged and gold prices held at $425/ounce.

From the Barclays press release:

SAN FRANCISCO, January 28, 2005 — Barclays Global Investors, N.A., (BGI) announces that the iShares COMEX Gold Trust (ticker: IAU) began trading on the American Stock Exchange today. The shares of the Trust are expected to reflect, at any given time, the price of the gold owned by the Trust, less the Trust’s expenses and liabilities.

Here is the iShares detail page on IAU, where you can also download a prospectus on the fund.

Just in time to catch the current bottom in gold prices…

No end to the big pharma troubles. Merck is starting to look like Florida during the past hurricane season.

The stock market is stumbling and the bond market is rallying on the news that in Q4, the US economy experienced its slowest growth in the last seven quarters.

News articles highlight the fact that growth in all of ‘04 was the highest since ‘99. The markets seem to be more concerned with the rate slowing in the most recent quarter.

But don’t expect this news to stop the Fed from continuing to raise interest rates. They can’t really afford to let the cheap money continue. Negative real interest rates have discouraged investment in the US, devaluing the dollar, and resulted in massive debt loads being accumulated.

The merger possibilities just keep on comin’. Yesterday, it was SBC and AT&T; today it’s P&G and Gillette.

Or nerves, or muscles, or any of that stuff.

I know the Venus flytrap has nothing to do with the markets, but this information is cool anyway. You needed to know.

The Dow Jones Utilities average took a hit – along with everything else – the first week of the year, but has recovered nicely and is now flirting with new highs. The same cannot be said for the DJ Industrials and Transportation indices.

Chart courtesy of StockCharts.com

Well, the markets didn’t do too much to tip their hand as to which direction they’re headed from here, staving off midday losses and pushing upward as the afternoon wore on. The Dow, weighed down by a 4.7% drop in Caterpillar on their earnings report, fell 31 points (-0.3%) to 10467, the Nasdaq added just 1 point to 2047 and the S&P 500 gained less than a point to finish at 1175. The Russell 2000, too, gained less than a point and the yield on the 10-year Treasury held pretty steady at 4.21%.

Market internals were very slightly positive, with advance/declines 9 to 7 on the NYSE but just less than even on the Nasdaq. Up/down volume ran 4 to 3 on the NYSE and just better than even on the Nasdaq. There wre 223 new highs to 64 new lows.

No major movement in the industry groups, with winners led by defense stocks (+1.7%), oil services (+1.2%) and natural gas stocks (+1.1%). Losers were led by REITs (-1.2%) and housing stocks (-0.9%).

Crude oil hung near the $49 level at $48.84, the dollar gained slightly and gold prices hovered around $426/ounce.

Durable goods orders and initial jobless claims – each up slightly.

During earnings season, the news doesn’t stop when the market closes. Marketwatch provides the wrapup of tonight’s reports and reactions.

Face it, Microsoft stock just hasn’t done much of anything for quite a while. And for those of you that either own it or are thinking of buying it, Bernie Schaeffer says the prospects don’t look that great for the future either.

Put your money elsewhere. MSFT has been, and will most likely continue to be, dead money.

That’s better. A little more volume, better internals – even though the Dow numbers weren’t as large, today’s action looked a little more encouraging than yesterday’s. The Dow finished up by 37 points (+0.4%) at 10499, the S&P 500 gained 6 points (+0.5%) to 1174 and the Nasdaq had the best day, adding 26 points (+1.3%) to close at 2046. The Russell 2000 also had a strong day, tacking on 10 points (+1.7%) to 617, and the 10-year Treasury yield held around 4.20%.

Internals were much more convincing today, with advance/declines better than 2 to 1 on both exchanges, and up/down volume 11 to 5 on the NYSE and nearly 3 to 1 on the Nasdaq. There were 171 new highs to 70 new lows.

Another sign of the strength of today’s action was the breadth across the industry groups – no losers. Leading the move to the upside were the semiconductors (+2.6%), internets (+2.2%), biotechs (+2.1%), networking (+1.9%), transports (+1.8%), utilities (+1.7%) and airlines (+1.6%).

Crude oil is hanging onto the $49 mark, the dollar slid by 0.8%, and gold moved higher to $426/ounce.

Good day today. Maybe the worst is over in the short term – the market finally showed a little strength today. We will see if there’s any follow-through in the next few days.

France’s president calls for the world’s richest nations to help the poor through new taxes.

Hmm. So who would we get to administer this great new tax program, the U.N.?? You can’t trust the U.N. with your lunch money.

Tell ya what, Jacques: how ’bout we talk about new world taxes as a replacement for the U.N., oui?