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The Market Waits on Rates?

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Chart check!

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"Now the sun's coming up,
I'm riding with Lady Luck,
freeway cars and trucks,
Stars beginning to fade,
and I lead the parade"

(Tom Waits)

Good morning. The market hops into the hump day with one eye on Thursday's GDP report. Yesterday, the market caught a lift when Beeks dropped off better than expected existing home sales (6.48 mln vs. 6.28 mln exp) and consumer confidence (92.9 vs. 88.5 exp). Volume flows ran at 1.52 bln on the Big Board and 1.98 bln on the Nasdaq. Advancers outpaced decliners 1827 to 1480 on the NYSE and while things were relatively flat on the Nasdaq at 1556 adv to 1596 dec. The market had been higher in earlier trade but uncertainty about terrorist bombings abroad reigned in the rally.

Looking at the indices, I continue to monitor the following levels:
S&P 500 Index 1125-1132/1150-1163, NDX 1450/1500-1510, COMP 2008/2059-2079, INDU 10400-10420/10500-10566.

Taking a glance at the sector dance...

Energy powered higher and it continues to generate indications of leadership. The Philly Oil Service Index (OSX) climbed 3.17% (with each of the 15 components showing strong gains). The index, which has now climbed 10.6% off the March 24 lows, is left eyeing the early March highs at 110 on the move. Smith Int'l (SII:NYSE), BJ Services (BJS:NYSE), Baker Hughes (BHI:NYSE) all fueled the charge. For its part, the AMEX Oil Index (XOI) touched a 52 week high (up 1.3%) to close at 620.53. Nice breakouts there from Amerada Hess (AHC:NYSE), Kerr McGee (KMG:NYSE), and Conoco Phillips (COP:NYSE) [has earnings today after the bell]. Exxon Mobil (XOM:NYSE) got stopped at resistance just under 44 on the initial attempt.

The chips continued their slip (down about 9% from the highs) - as the SOX index again edged thru the 200-day ma (477) and is eyeing support at the 455 area. Broadcom (BRCM:NASD) contributed to the weakness (dipped thru 50-day ma at 40.25) along with National Semi (NSM:NYSE) which is eyeing the 50 dma (42.32). I continue to watch the action in KLA Tencor (KLAC:NASD) [which is 9% of the SOX index and closed directly at the recent low (44.45)] and Texas Instruments (TXN:NYSE) which closed at its 200 dma (27.02) as tells in the space.

The biotech's continue hogging the spotlight, as a function of the OSI Pharma (OSIP:NASD) Tarceva news, positive Imclone (IMCL:NASD) earnings, MedImmune's (MEDI:NASD) lift, and the CIBC Biotech conference (final day on Wed). As I highlighted on the Buzz, the bio's are a very sentiment driven group and while momentum is a best friend on the way up - it can also be a killer on the way down. This move has shades of the froth in the genomics names (as well as the Mar/Apr '02 action) in which the BTK precipitously proceeded to drop 45%.

I also pointed something out on the Buzz yesterday that I wanted to circle back to. It was somewhat naively represented on CNBC that trading biotech ETF's (BBH) somehow implies that you're adequately diversified. Let me tell you that in my opinion this is simply misleading. ETF's certainly may be better than holding a single stock, however, don't fool yourself into thinking you're protected. If you look at the BBH, Genentech (DNA:NYSE) has a 33% weight, Amgen (AMGN:NASD) 22%, and Biogen Idec (BIIB:NASD) 10%.

Also keep in mind as I said yesterday, few of these acorns grow up to be tall oak trees - and that's not an evaluation of the potential benefit of the science but more about the Darwinian nature of launching a high risk business. Nonetheless, while the AMEX Biotech Index (BTK) is still checking up on the recent highs - I find it notable that DNA was down over 5% and IMCL was unable to stay in positive territory (finished down $3) after the parabolic move higher and the earnings driven gap open.

As Toddo noted, keep an eye on the Philly Bank Index (BKX) 94.50 level if/when we get there, in addition to Citigroup (C:NYSE) which is sitting at recent lows (48.85). Other names I am watching in the financial complex - Bank of America (BAC:NYSE) which tested important resistance at 82 - we noted last week the fact that this name had tried to exert group leadership. Wells Fargo (WFC:NYSE) at the 50-day ma (57.07). Merrill (MER:NYSE) thru the 200 dma (60.13). Morgan (MWD:NYSE) got stuffed at the 200 dma (54.51). Mellon (MEL:NYSE) got no help with its Longfellow at the 200 dma (31.34). MBNA (KRB:NYSE) is eyeing the 200 dma (25.08). Jeffries (JEF:NYSE) at 50 dma (36.23). AG Edwards (AGE:NYSE) cracked the 50-day ma (37.87). Ameritrade (AMTD:NASD) eyeing the 200 dma (13.34). Raymond James (RJF:NYSE) is bucking the trend and testing resistance at 26.30ish.

A number of events on the trading radar...

Pru has their Gold, Metals and Paper conference. Yesterday, the Philly Gold & Silver Index (XAU) gave up 1% and is now testing recent lows at 87.25 on the heels of the Goldman upgrade. The retailers got returned after a price check at 94.40 resistance (note Kohl's (KSS:NYSE) has a shareholder meeting along with the Lehman Retail conference). Wal-Mart (WMT:NYSE) edged thru the 50 dma (58.80). The trannies (TRAN) reversed right at resistance at 3,000. Big Blue (IBM:NYSE) is hovering around the 200-day ma (90.72), And General Electric (GE:NYSE) is pin-balling between support at the 200-day ma (30.41) and resistance at the 50 dma (31.29).

Citigroup has a Software conference. General Electric (GE:NYSE), Adobe (ADBE:NASD) and Verizon (VZ:NYSE) all give shareholders the song and dance at their annual shareholder meetings.

Finally, on the earnings front, Boeing (BA:NYSE), Bristol Myers (BMY:NYSE), Conoco Phillips (COP:NYSE), Comcast (CMCSA:NASD), Halliburton (HAL:NYSE), and Newmont Mining (NEM:NYSE) report this morning. After the bell, look for Advanced Fibre (AFCI:NASD), JDS Uniphase (JDSU:NASD), LSI Logic (LSI:NYSE), Millennium Pharma (MLNM:NASD), Qlogic (QLGC:NASD), Time Warner (TWX:NYSE) and Symantec (SYMC:NASD).

As always, we'll scan the action and highlight the relevant info as it all unfolds. If you're not on the Buzz - do yourself a favor and try it out. Good luck.

position in c, imcl

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