Market Update

Market Close, June 26, 2006

There is enough going on in the markets to entertain any observer. Some of the goings on are good, some not so much.

The market rose today, but the volume was too light to consider it a follow through day of any kind, and so we stay in the Intermediate Term downtrend. Market breadth was nearly 2 to 1 positive, but new highs trailed new lows 31 to 178. The McClellan Summation Index had is first positive reversal day in the past 15 sessions.

One of the things keeping the markets supported are the mega mergers, which appear to be in a race like can you top this. Friday, Anadarko Petroleum stepped up with the purchase of two rivals, Western Gas and Kerr-Mcgee for $21 billion.

Today, Phelps Dodge jumped in with the purchase of Inco and Falconbridge in a combination valued at $40 billion. Johnson and Johnson announced the acquisition of the Pfizer consumer products division. Also finalized was the acquisition price of the Arcelor and Mittal Steel at #33 billion.

Not to be outdone, Warren Buffet is giving $31 billion to Bill Gates' foundation. I hope he has adeqate savings.

The 10 Year Treasury Note closed at 5.23%, the highest level in four years. The yield curve is inverted to flat as we await the Fed. The quarter point is a given. After that is subject vigorous debate. Barclay's, a Fed Primary Dealer, has gone on record with a projected final Fed Funds Rate at 6%. Several others are projecting 5.75%.

If that is true, we think the market will suffer against the competition of the rate and the uncertainty surrounding it.

On the positive side, with just a few days left in earnings warning season, the earnings warnings have been subdued, so it may help the earnings season. Right now many of the oil service companies and metals should have solid earnings performances for the second quarter. If one or two other sectors join that parade, we may get the tradable rally we spoke of a few days back.

Our suggestion remains one of money markets, short term treasuries, and utilities. And we wait.

Good Trading,

Joe