SHARES STRONGLY UP/DOWN this week 26/12/05 (Master RSI)

Wall Street - U.S. stocks sharply lower as yield curve inverts -

NEW YORK (AFX) -- U.S. stocks fell sharply and broadly Tuesday, with the Dow
Jones Industrials Average suffering its worst one-day point loss in two months,
as developments in the bond market that have typically foreshadowed recessions
spooked investors, and overshadowed a sharp drop in energy prices.
The Treasury yield curve inverted -- shorter-term maturities yielded higher
interest rates than longer-term maturities -- for the first time in five years.
The only time in the last 30 years that an inverted curve wasn't followed by a
recession was in 1998, when it inverted briefly during the Asian financial
crisis.
The Dow industrials slumped 105.50 points to a two-week low of 10,777.77,
with 27 of 30 components contributing to losses, and was in danger of suffering
its worst one-day point loss in 2 months. The blue chip barometer, which had
been up as much as 49 points in early trading, closed with its first
triple-digit loss since Oct. 27.
Within the Dow, Exxon Mobil slid 2.2% and American Express shed 2% to lead
the losers, while General Motors paced the winners with a 0.9% gain.
The Nasdaq Composite shed 22.53 points to 2,226.89, reversing gains of as
much as 10 points earlier in the session. The S&P 500 Index slid 12.12 points to
a 2-week low of 1,256.54, and also suffered its worst point loss in 2 months.
"The yield curve is beginning to frighten people," said Paul Mendelsohn,
chief investment strategist at Windham Financial Services.
The bond market grabbed headlines when the yield curve first inverted in
European trading. It normalized briefly in early New York trading, but settled
in inverted territory, with the 2-year Treasury note last yielding 4.347%, and
the yield on the 10-year Treasury note last down 0.039 percentage points at
4.341%. See .
"The inversion isn't a good sign," Mendelsohn added, as it suggests
liquidity is being drained from the market at a rapid rate.
He feels the market is telling the Federal Reserve that they may have raised
interest rates too far, considering the relative rate of change in overnight
rates since the current rate hike cycle began "has been enormous."
The fed funds rate, what banks charge each other for overnight loans, has
more than quadrupled in the last 18 months, going from 1% in June 2004 to the
current rate of 4.25%.
Adding to selling pressure, Mendelsohn said the stock market is also
technically overbought, and speculators may be prone to close out positions
ahead of yearend.
Investor sentiment had received an early boost from a sharp drop in energy
prices, which came amid forecasts of warmer-than-normal temperatures across the
U.S. in the coming week. The January natural gas futures contract tumbled
$1.261, or 10%, to settle at a 4-month low of $11.022 per million British
thermal units on the New York Mercantile Exchange. See .
February crude closed down 27 cents at $58.16, paring earlier losses to a
4-week low of $57.30 in the final hour of NYMEX trading.
The U.S. National Weather Service had said over the weekend that demand for
heating fuels could be 25% below normal this week, with natural gas heating
demand almost 28% below average, as most of the country will see unseasonably
mild temperatures.
The early gains in stocks had revived hope that a so-called "Santa Claus"
rally, a phrase attributed to the Stock Trader's Almanac, was in the works. The
Almanac indicates that the average gain over the last five trading days of the
year and first two days in January has produced an average gain of 1.7% for the
S&P 500 since 1969.
"We won't know about that until next week," said Phil Roth, chief technical
market analyst at Miller Tabak. "For now, we give the benefit of the doubt to
the upside and still look for nominal additional gains early in 2006."........