Cattle Collapses — Here’s Why
BOND MARKET RECAP
March Bonds closed down 0-10 at 111-02. This was
0-04 up from the low and 0-15 off the high.
March 10 Yr Treasury Notes finished down 0-075 at
111-085, 0-095 off the high and 0-020 up from the low.
The US Treasury market showed some minor
upside gains early Wednesday and managed to maintain a positive tilt despite the
fact that the existing home sales reading were better than expected. Existing
home sales rose by 2.7% with the unsold supply of homes unchanged. However, with
the Dollar higher Wednesday in the face of talk that the Central Banks were not
yet ready to intervene, there could a significantly lower chance of intervention
buying of Treasuries and that seemed to weigh on bonds prices into mid session.
Certainly, the improvement in the US economy is noted from the information
released this week and that has certainly begun to alter the structure of the
Treasury market.
Technical Outlook
BONDS (MAR) 12/30/2004: The downside crossover of
the 9 & 18 bar moving average is a negative signal. Momentum studies are
declining, but have fallen to oversold levels. The close below the 18-day moving
average is an indication the longer-term trend has turned down. The downside
closing price reversal on the daily chart is somewhat negative. The close below
the 1st swing support could weigh on the market. The next downside target is now
at 110-18. The next area of resistance is around 111-11 and 111-23, while 1st
support hits today at 110-25 and below there at 110-18.
TNOTES (MAR) 12/30/2004: The downside crossover
of the 9 & 18 bar moving average is a negative signal. Daily stochastics are
trending lower but have declined into oversold territory. The close under the
18-day moving average indicates the longer-term trend could be turning down. The
market setup is somewhat negative with the close under the 1st swing support.
The next downside target is 110-310. The next area of resistance is around
111-135 and 111-215, while 1st support hits today at 111-025 and below there at
110-310.
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STOCK INDICES RECAP
March S&P finished up 1.5 at 1217, 0.3 off the
high and 4.1 up from the low.
March S&P E-Mini closed up 1.5 at 1217. This was
4.25 up from the low and 0.25 off the high.
March Dow closed down 22 at 10844. This was 44 up
from the low and 16 off the high.
March Dow E-Mini finished down 23 at 10843, 32
off the high and 42 up from the low.
The stock market seemed to be a little overbought
early in the action Wednesday but a stronger than expected existing home sales
report and a stronger Dollar seemed to discourage the initial selling wave. We
thought that the equity market would get a lift from bearish energy inventory
data but initially energy prices rallied and that prompted some profit taking in
long stock positions. Traders should note that the Dow futures fund long is
probably holding at a record long position and that is an indication that the
December rally has left the market overbought.
Technical Outlook
S&P 500 (MAR) 12/30/2004: The market made a new
contract high on the rally. Studies are showing positive momentum but are now in
overbought territory, so some caution is warranted. The cross over and close
above the 18-day moving average indicates the longer-term trend has turned up.
It is a mildly bullish indicator that the market closed over the pivot swing
number. The next upside objective is 1220.44. The market is becoming somewhat
overbought now that the RSI is over 70. The next area of resistance is around
1219.19 and 1220.44, while 1st support hits today at 1214.80 and below there at
1211.65.
SP EMINI (MAR) 12/30/2004: The rally brought the
market to a new contract high. Rising stochastics at overbought levels warrant
some caution for bulls. The cross over and close above the 18-day moving average
is an indication the longer-term trend has turned positive. With the close
higher than the pivot swing number, the market is in a slightly bullish posture.
The next upside objective is 1220.50. The market is approaching overbought
levels with an RSI over 70. The next area of resistance is around 1219.25 and
1220.50, while 1st support hits today at 1214.75 and below there at 1211.50.
NASDAQ (MAR) 12/30/2004: Momentum studies are
rising from mid-range, which could accelerate a move higher if resistance levels
are penetrated. The market now above the 18-day moving average suggests the
longer-term trend has turned up. The market has a slightly positive tilt with
the close over the swing pivot. The next upside target is 1646.37. The next area
of resistance is around 1640.25 and 1646.37, while 1st support hits today at
1626.75 and below there at 1619.38.
MINIDOW (MAR) 12/30/2004: Studies are showing
positive momentum but are now in overbought territory, so some caution is
warranted. The market now above the 18-day moving average suggests the
longer-term trend has turned up. The daily closing price reversal down puts the
market on the defensive. It is a slightly negative indicator that the close was
lower than the pivot swing number. The next upside objective is 10914. With a
reading over 70, the 9-day RSI is approaching overbought levels. The next area
of resistance is around 10880 and 10914, while 1st support hits today at 10806
and below there at 10767.
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CURRENCY MARKET RECAP
March US Dollar finished up 30 at 8110, 18 off
the high and 40 up from the low.
March Euro finished down 0.28 at 135.96, 0.3 off
the high and 0.27 up from the low.
March Euro Dollar closed unchanged at 97.09. This
was 0.01 up from the low and 0.005 off the high.
March Canadian Dollar closed up 0.15 at 82.34.
This was 0.45 up from the low and 0.13 off the high.
March British Pound finished down 1.46 at 190.6,
0.59 off the high and 0.31 up from the low.
March Swiss closed down 0.08 at 88.4. This was
0.28 up from the low and 0.17 off the high.
March Japanese Yen closed down 0.81 at 96.74.
This was 0.42 up from the low and 0.38 off the high.
The action in the Dollar was really surprising
Wednesday as the trade could easily have pounded the Dollar into new lows on the
talk that the ECB and other central banks were not set to intervene. In fact,
the Dollar even managed to rally in the face of the “no intervention” talk but
was probably helped along by the fact that US existing home sales readings were
slightly better than expected. Even more surprising is the fact that the Pound
and Yen were under the most pressure and that the Canadian generally showed
solid support under the market despite the strength in the US Dollar. While the
maneuvering Wednesday might have simply been year end book squaring, we have to
give the Dollar some credit for its performance.
Technical Outlook
YEN (MAR) 12/30/2004: Stochastics are at
mid-range but trending higher, which should reinforce a move higher if
resistance levels are taken out. The market now above the 18-day moving average
suggests the longer-term trend has turned up. The gap lower price action on the
day session chart is a bearish indicator for trend. The defensive setup, with
the close under the 2nd swing support, could cause some early weakness. The
near-term upside target is at 97.53. The next area of resistance is around 97.14
and 97.53, while 1st support hits today at 96.34 and below there at 95.93.
EURO (MAR) 12/30/2004: Daily stochastics have
risen into overbought territory which will tend to support reversal action if it
occurs. The market now above the 18-day moving average suggests the longer-term
trend has turned up. The market’s close below the 1st swing support number
suggests a moderately negative setup for today. The next upside target is
136.53. The next area of resistance is around 136.24 and 136.53, while 1st
support hits today at 135.68 and below there at 135.40.
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PRECIOUS METALS RECAP
February Gold closed down 8.3 at 437. This was
2.6 up from the low and 7 off the high.
March Silver finished down 0.231 at 6.827, 0.183
off the high and 0.027 up from the low.
January Platinum closed down 12.8 at 862.5. This
was 0.5 up from the low and 7.5 off the high.
The metals showed early liquidation pressure on
Wednesday morning and with the Dollar managing a morning rise in the wake of
comments that downplayed the near term chance of intervention in favor of the
Dollar many gold bulls were disappointed. In fact, following the no intervention
talk we would have expected the Dollar to come under aggressive attack but
apparently US numbers continue to be strong enough to discourage Dollar selling.
Since the gold market is primarily driven by the Dollar it is not surprising
that an aggressive profit taking slide unfolded. It should also be noted that
both gold and silver were holding moderately long small spec and fund positions
in the last COT report and therefore the bigger than expected washout Wednesday
was not that surprising.
Technical Outlook
SILVER (MAR) 12/30/2004: Momentum studies are
rising from mid-range, which could accelerate a move higher if resistance levels
are penetrated. The major trend has turned down with the cross over back below
the 18-day moving average. There could be some early pressure today given the
market’s negative setup with the close below the 2nd swing support. The
near-term upside objective is at 707.6. The next area of resistance is around
693.2 and 707.6, while 1st support hits today at 672.3 and below there at 665.6.
GOLD (FEB) 12/30/2004: The close under the 40-day
moving average indicates the longer-term trend could be turning down. Positive
momentum studies in the neutral zone will tend to reinforce higher price action.
The market back below the 18-day moving average suggests the longer-term trend
could be turning down. The market is in a bearish position with the close below
the 2nd swing support number. The next upside objective is 447.7. The next area
of resistance is around 441.8 and 447.7, while 1st support hits today at 432.2
and below there at 428.5.
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COPPER MARKET RECAP
March Copper finished down 0.80 at 144.50, 0.80
off the high and 1.20 up from the low.
The copper market might have been partially
undermined by the aggressive weakness in the precious metals sector and copper
was also certainly undermined by the revelation that a mine strike in Peru was
averted. Also pressuring copper prices Wednesday were indications that Chile
November copper production rose by just above 13%. We also get the sense that
the copper market is a little top heavy and that some year end profit taking is
possible, especially in the event that the US equity market decides to bank some
profits. Overbought technicals and slackening fundamentals could lead to a more
pronounced corrective posture.
ENERGY MARKET RECAP
February Crude Oil closed up 1.87 at 43.64. This
was 2.24 up from the low and 0.06 off the high.
February Heating Oil closed up 4.70 at 127.83.
This was 7.63 up from the low and 0.67 off the high.
February Unleaded Gas finished up 4.33 at 112.01,
0.44 off the high and 5.51 up from the low.
February Natural Gas finished up 0.06 at 6.40,
0.03 off the high and 0.18 up from the low.
February Propane closed unchanged at 0.72. This
was 0.01 up from the low and equal to the high.
The energy complex surprised the trade with an
initial rally following the weekly inventory reports. However, with the
exception of the moderate decline in gasoline stocks at the API we didn’t find
too much in the report to support the bull case. With the refinery operating
rate rising sharply to 95.7 from 92.8, it would seem like there is the prospect
of increasing product stocks in the future but apparently the market saw the
reports in a different light. Certainly seeing the refinery operating rate ramp
up would suggest greater demand for crude oil but the crude oil market continues
to have a pretty large annual surplus tally. In the end, the market isn’t
getting much help from the weather and that should leave the bears with an edge.
Technical Outlook
CRUDE OIL (FEB) 12/30/2004: Momentum studies
trending lower at mid-range could accelerate a price break if support levels are
broken. The major trend could be turning up with the close back above the 18-day
moving average. The outside day up is somewhat positive. The market has a
bullish tilt coming into today’s trade with the close above the 2nd swing
resistance. The next downside target is 40.80. The next area of resistance is
around 44.79 and 45.39, while 1st support hits today at 42.49 and below there at
40.80.
UNLEADED (FEB) 12/30/2004: Daily stochastics are
trending lower but have declined into oversold territory. The market back below
the 18-day moving average suggests the longer-term trend could be turning down.
The outside day up is somewhat positive. Since the close was above the 2nd swing
resistance number, the market’s posture is bullish and could see more upside
follow-through early in the session. The next downside objective is 104.80. The
next area of resistance is around 114.98 and 116.69, while 1st support hits
today at 109.04 and below there at 104.80.
HEATING OIL (FEB) 12/30/2004: Momentum studies
are declining, but have fallen to oversold levels. The close below the 18-day
moving average is an indication the longer-term trend has turned down. A
positive signal was given by the outside day up. Since the close was above the
2nd swing resistance number, the market’s posture is bullish and could see more
upside follow-through early in the session. The next downside target is now at
117.79. The next area of resistance is around 131.97 and 134.39, while 1st
support hits today at 123.68 and below there at 117.79.
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CORN MARKET RECAP
March Corn finished down 3 3/4 at 203 1/4,
3 3/4 off the high and 1/4 up from the low. May Corn closed down 3 1/2 at 211
1/4. This was 1/4 up from the low and 3 1/4 off the high.
A lack of new export news for US corn and news
that Malaysia bought 60,000 tons of corn from Argentina helped pressure the
market early in the session. Ideas that US prices may need to move lower in
order to be more competitive with Argentina helped push March futures to the low
of the week. Fears that producer selling could pick-up in early 2005 as US
producers sell more of their 2004 record crop into the new tax year added to the
negative tone. The USDA Hogs and Pigs report, released yesterday afternoon
indicated that producers did not expand the herd in 2004 and there are less hogs
than traders had anticipated. As a result, domestic demand may not be quite as
strong as traders had anticipated. For the weekly export sales report, released
before the opening, traders are looking for corn sales near 650,000-850,000 tons
as compared with 725,800 tons last week. Resistance for March corn comes in at
206 1/2 and 208 with support at 202 3/4.
Technical Outlook
CORN (MAR) 12/30/2004: A crossover down in the
daily stochastics is a bearish signal. Momentum studies trending lower at
mid-range could accelerate a price break if support levels are broken. The close
below the 18-day moving average is an indication the longer-term trend has
turned down. The defensive setup, with the close under the 2nd swing support,
could cause some early weakness. The next downside target is 200 1/4. The next
area of resistance is around 205 1/4 and 208, while 1st support hits today at
201 1/4 and below there at 200 1/4.
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SOY COMPLEX RECAP
March Soybeans finished down 2 1/4 at 544 1/2, 8
off the high and 1 up from the low. May Soybeans closed down 1 1/2 at 549 1/2.
This was 1/2 up from the low and 6 1/2 off the high.
March Soymeal closed up 1.1 at 160.4. This was
0.9 up from the low and 0.9 off the high.
March Soybean Oil finished down 0.21 at 21.11,
0.32 off the high and 0.01 up from the low.
The market found support from a strong tone in
the cash market for much of this week and from anticipation of only light
deliveries against the January soybeans and products. Thursday is first notice
day for January contracts with soybean deliveries expected at 0-200 contracts
for soybeans and oil and light deliveries of meal as well with many traders
looking for less than 200 contracts. However, gulf basis levels for soybeans
were a little weaker this morning on talk of a pick-up in producer selling on
the rally this week. Midwest basis was also steady to a bit lower depending on
the location following an increase in producer selling on Tuesday afternoon.
This cash news could limit the buying support on the session. Taiwan is
tendering to buy 40,000-60,000 tons of US soybeans. Fears that producer selling
might pick up next week along with more rains in the forecast for key growing
areas in Brazil for next week were seen as bearish forces. For the weekly export
sales report, released before the opening, traders are looking for soybean sales
near 600,000-800,000 tons, meal sales near 75,000-150,000 tons and oil at
15,000-25,000 tons. March Soybean resistance points come in at 552 and 553 1/2
with support at 542.
Technical Outlook
BEANS (MAR) 12/30/2004: A crossover down in the
daily stochastics is a bearish signal. Stochastics trending lower at midrange
will tend to reinforce a move lower especially if support levels are taken out.
The market now above the 18-day moving average suggests the longer-term trend
has turned up. The market tilt is slightly negative with the close under the
pivot. The next downside target is 537 1/4. The next area of resistance is
around 549 and 555 1/4, while 1st support hits today at 540 and below there at
537 1/4.
MEAL (MAR) 12/30/2004: The cross over and close
above the 60-day moving average indicates the longer-term trend has turned up.
The downside crossover (9 below 18) of the moving averages suggests a developing
short-term downtrend. Momentum studies trending lower at mid-range could
accelerate a price break if support levels are broken. The major trend could be
turning up with the close back above the 18-day moving average. With the close
higher than the pivot swing number, the market is in a slightly bullish posture.
The next downside target is 158.6. The next area of resistance is around 161.3
and 162.2, while 1st support hits today at 159.5 and below there at 158.6.
BEANOIL (MAR) 12/30/2004: Rising stochastics at
overbought levels warrant some caution for bulls. The major trend could be
turning up with the close back above the 18-day moving average. The swing
indicator gave a moderately negative reading with the close below the 1st
support number. The near-term upside target is at 21.51. The next area of
resistance is around 21.27 and 21.51, while 1st support hits today at 20.95 and
below there at 20.86.
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WHEAT MARKET RECAP
March Wheat finished down 1 1/2 at 303 1/2, 2 1/2 off the high
and 3 up from the low. May Wheat closed down 1/2 at 310 3/4. This was 2 3/4 up
from the low and 2 1/4 off the high.
Fears of fund short covering ahead of the end of
the year helped proved early support to the wheat market after futures managed
to hold support yesterday. Talk of export business to Iraq and maybe even
Pakistan helped provide some support as well. However, news that Pakistan bought
200,000 tons of wheat from Australia and that the country was negotiating with
Canada on the other 200,000 tons was seen as a slightly bearish development.
Traders were hopeful that US exporters might get a little piece of this tender.
A lack of weather damage fear with a mild forecast for the southern plains has
helped limit the support. Volume is slow this week and a lack of new export news
and steady cash basis levels were contributing factors to the choppy, two-sided
trade early in the day but long liquidation selling emerged to trigger the weak
close. For the weekly export sales report, released before the opening, traders
are looking for wheat sales near 350,000-500,000 tons as compared with 608,800
tons last week. March wheat resistance comes in at 305 and 307 1/2 with support
at 297.
Technical Outlook
WHEAT (MAR) 12/30/2004: A crossover down in the
daily stochastics is a bearish signal. Momentum studies trending lower at
mid-range should accelerate a move lower if support levels are taken out. The
market now above the 18-day moving average suggests the longer-term trend has
turned up. It is a slightly negative indicator that the close was under the
swing pivot. The next downside objective is 298. The next area of resistance is
around 306 1/4 and 308 3/4, while 1st support hits today at 300 3/4 and below
there at 298.
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LIVE CATTLE RECAP
February Live Cattle closed down 1.92 at 88.62.
This was 0.10 up from the low and 1.82 off the high.
January Feeder Cattle finished down 1.90 at
103.05, 1.90 off the high and 0.85 up from the low.
February cattle collapsed and closed at the
lowest level since December 16th with talk of steady at best cash cattle this
week as compared with talk of $2.00-$3.00 higher at the start of the week
helping to pressure. Fund long liquidation selling was active after the reversal
type action on Tuesday confirmed a near-term technical top. Surging hog prices
helped to provide some initial support but talk that boxed-beef volume was slow
at the higher price this week led to the logic that prices will need to move low
enough to find increased demand. Boxed-beef cut-out values at mid-session for
600-750 pounders was down 1 cent to $144.19 as compared with $141.12 last week
at this time. Other weight groups were down with 750-900 pounds down $1.17. A
50% correction of the November to December rally is at 88.52.
Technical Outlook
CATTLE (FEB) 12/30/2004: The daily stochastics
gave a bearish indicator with a crossover down. Negative momentum studies in the
neutral zone will tend to reinforce lower price action. The major trend has
turned down with the cross over back below the 18-day moving average. The gap
lower price action on the day session chart is a bearish indicator for trend.
The close below the 2nd swing support number puts the market on the defensive.
The next downside target is 87.150. The next area of resistance is around 89.570
and 90.970, while 1st support hits today at 87.670 and below there at 87.150.
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LEAN HOGS RECAP
February Lean Hogs closed up 1.60 at 75.35. This
was 0.55 up from the low and 0.40 off the high.
February Pork Bellies finished up 1.62 at 95.37,
1.32 off the high and 0.47 up from the low.
February hogs gapped higher and ran to 75.75
before experiencing long liquidation selling on ideas that the market was
overbought and ideas that the premium of futures to cash may be a bit too rich.
The bullish news from the USDA Hog and Pig report set the tone for the rally and
a surge higher in pork cut-out values along with a bullish weekly cold storage
added to the bullish tone early. The close below the opening is a technical sign
of a possible near-term top. The market is overbought with February futures up
510 points from the December 15th lows at the highs today. Nearby hog futures
closed at 53.42 in 2003 which leaves the market up near 40% on the year in spite
of higher pork production. Cash hogs were $1.00 higher at terminals. The CME
2-day lean index for the period ending December 27th was reported at 65.00, down
$.46 on the session and down from 70.20 one week ago.
Technical Outlook
HOGS (FEB) 12/30/2004: Rising stochastics at
overbought levels warrant some caution for bulls. The cross over and close above
the 18-day moving average is an indication the longer-term trend has turned
positive. With the close over the 1st swing resistance number, the market is in
a moderately positive position. The near-term upside objective is at 76.250. The
next area of resistance is around 75.820 and 76.250, while 1st support hits
today at 74.900 and below there at 74.370.
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COCOA MARKET RECAP
March Cocoa finished down 22 at 1539, 35 off the
high and 4 up from the low.
The cocoa market violated close-in critical chart
support in the early action Wednesday and that might shift the favor of the
market to the bear camp. News that Ivory Coast exports totaled 390,226 tons up
to December 23rd and that might have applied some pressure to a thin market
condition. We also have to think that a slightly higher Dollar prompted some
arbitrage selling pressure and with the Pound falling sharply during the session
that might have made US cocoa look even less attractive.
Technical Outlook
COCOA (MAR) 12/30/2004: Momentum studies are
declining, but have fallen to oversold levels. The major trend has turned down
with the cross over back below the 18-day moving average. The swing indicator
gave a moderately negative reading with the close below the 1st support number.
The next downside objective is 1508. The next area of resistance is around 1558
and 1585, while 1st support hits today at 1520 and below there at 1508.
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COFFEE MARKET RECAP
March Coffee closed up 2.75 at 107.95. This was
2.85 up from the low and 0.45 off the high.
London coffee seemed to lead the US coffee market
into a rally on Wednesday but the US trade saw some fresh buying from the
professional trade and in the process managed the highest close of the contract.
Once again the trade noted an absence of hedge selling pressure and that allowed
the spec buying to run prices up more significantly than many would have
expected given thinning holiday conditions. With an extended holiday closing
ahead we suspect that more stop loss buying than normal was evoked during the
session.
Technical Outlook
COFFEE (MAR) 12/30/2004: Momentum studies are
trending higher but have entered overbought levels. The major trend could be
turning up with the close back above the 18-day moving average. The market has a
bullish tilt coming into today’s trade with the close above the 2nd swing
resistance. The next upside objective is 110.60. The next area of resistance is
around 109.55 and 110.60, while 1st support hits today at 106.30 and below there
at 104.05.
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SUGAR MARKET RECAP
March Sugar closed up 0.04 at 9.06. This was 0.10
up from the low and 0.01 off the high.
Like coffee the sugar market also saw some spill
over buying from London and with the March sugar contract managing the highest
close since mid October we have to think that the spec and fund crowd is being
drawn into the fray. However, open interest is ramping up in sugar and is
probably rising in synch with the net spec and fund long positioning. It is also
possible that a minor amount of spec buying was able to spur on the rally more
so than would have been seen in a normal trading session.
Technical Outlook
SUGAR (MAR) 12/30/2004: Momentum studies are
trending higher but have entered overbought levels. The major trend could be
turning up with the close back above the 18-day moving average. With the close
over the 1st swing resistance number, the market is in a moderately positive
position. The next upside target is 9.14. The 9-day RSI over 70 indicates the
market is approaching overbought levels. The next area of resistance is around
9.11 and 9.14, while 1st support hits today at 9.01 and below there at 8.93.
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COTTON MARKET RECAP
March Cotton finished down 0.19 at 44.01, 0.57
off the high and 0.36 up from the low.
The cotton market ran to another new high for the
move but then fell back sharply from the highs in a move that appears to suggest
that the recent rally is at least partially exhausted. We continue to think that
fund short covering is driving the recent gains and that with export sales
running behind and mounds of cotton still waiting to be sold we doubt that the
market is making a major bottom. In fact, we suggest that the majority of the
rally off the December low is simple short shorting ahead of year end. For the
weekly export sales report, released before the opening, traders are looking for
cotton sales near 200,000-230,000 tons as compared with 222,800 tons last week.
Technical Outlook
COTTON (MAR) 12/30/2004: Momentum studies are
trending higher from mid-range, which should support a move higher if resistance
levels are penetrated. The cross over and close above the 18-day moving average
indicates the longer-term trend has turned up. With the close higher than the
pivot swing number, the market is in a slightly bullish posture. The next upside
objective is 44.99. The next area of resistance is around 44.47 and 44.99, while
1st support hits today at 43.55 and below there at 43.14.