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Hong Kong Phooey



"Psychic spies from China
Try to steal your mind's elation
Little girls from Sweden
Dream of silver screen quotations"

(Red Hot Chilli Peppers)

Good morning. After a roller-coaster week, Friday ended quietly as the market seemed content to listlessly digest the recent action. The weakness in the financials / rate sensitive issues (brokers, homies, REITs) and the traction in the semis/tech was the underlying current to Friday's otherwise lackluster tape.

After the Greenspan speak was spun, the focus shifted back to the earnings front. The results have generally been good - but keep in mind they should be - as the comparisons reflect a timid period when the mantra was to under-promise and blame all on the the uncertainty in Iraq as justification. Microsoft (MSFT:NASD), Altria (MO:NYSE), eBay (EBAY:NASD), Ford (F:NYSE), 3M (MMM:NYSE), Motorola (MOT:NYSE), General Motors (GM:NYSE), and Qualcomm (QCOM:NASD) all reported good vibes last week. The pageant continues with 130 of the S&P 500 set to report this week, along with six Dow components.

The question at hand remains, how much of the rosy corporate profit outlook / strong economic data is already priced in and what will the timing / impact of eventual higher rates mean for the market? It certainly seems as though the low-hanging fruit has long been picked - but does a widely anticipated rise in rates from historically low levels imply the end of the good times immediately?

The strong durable goods orders (3.4% vs. 0.7% exp) hit the bond market and the 10-year finished at a 4.46% yield (eyeing 4.50% as perhaps arguably a short-term psychological level). In any event, that's about 60 bps above the levels we were trading at before the March payrolls, and the highest closing level since November '03. The 2 year note (most sensitive to Fed rate chatter) finished at a 2.236% yield. Prof. Reynold's continues to offer tremendous educational analysis as it relates to corporate spreads. As that is truly where the rubber meets the road. Stay tuned - it will likely serve as an important tell for the equity market.

A few items worth noting on the global economic front...

Dollar hitting 5 month highs against the Euro

The continued surge in gasoline prices, to $1.83 / gallon national average for regular unleaded gas

After G-7 Meeting, France and Germany are stepping up efforts calling for an ECB rate cut

China - I've mentioned this recently and continue to wonder what impact the overheating economy / response to same will have on the global economy (currency markets, commodities). (Note that the Hang Seng is down another 2% this morning).

Chart Check

The INDU closed at 10472 with resistance overhead at 10483/10500/10566 and support at 10428/10400/10319. The S&P 500 Index closed at 1140. Resistance there remains at 1150/1160 with support at 1132/1125. The Nasdaq closed at 2049 and that leaves us looking at resistance at 2059/2079 and support at 2034/2010/2000. The NDX, driven by the stellar trade in Microsoft (MSFT:NASD) and Intel (INTC:NASD), finished at 1497. I've got resistance at 1500/1510/1523 and support at 1488/1471/1455.

Other items on the trading radar for the week ahead...

We've got a lot of action on the economic front, so watch for Beeks...

Other notable events on the docket...

As always, we'll scan the action and highlight the relevant info as it all unfolds. Good luck.

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No positions in stocks mentioned.

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