Better-than-expected retail sales data failed to cheer the market out of anxiety over geopolitics and jobs on Thursday. On Wednesday , stock proxies overcame negative news. Thursday, by contrast, was a session in which shares proved unable to benefit from some positive developments.

The Dow Jones Industrial Average closed down 0.6% to 8538.40 after having traded as high as 8615.13 and as low as 8510.84, while the S&P 500 shed 0.4% to 901.58 vs. its earlier best of 908.37. Meanwhile, the Nasdaq Composite added 0.2% to 1399.60 but finished well off its intraday high of 1411.70.

Trading volumes were below average yet again, with just over 1.2 billion shares traded on the NYSE, where advancing stocks led decliners by a slim 17 to 15 margin. Losers led 16 to 15 in Nasdaq trading, where just under 1.2 billion shares were exchanged.

The intraday range and, certainly, the final price movements for major proxies, also were below average. The market's relatively subdued action lately has optimists hopeful the averages were building a base for another move higher. The old Wall Street saw, "never short a dull market," has been frequently referenced this week.

On the other hand, some believe the market's inability to muster forward progress -- especially amid positive news flow -- is a harbinger of another sharp downturn.

"Using a combination of breadth, volume and price data, the momentum of all three components of our model turned negative" earlier this week, prompting a sell recommendation, Jeff deGraaf, senior technical analyst at Lehman Brothers, reported Thursday. That's the first sell signal from his indicator since it generated a buy recommendation on Oct. 11, he noted. Previous sell signals were on Jan. 16, March 22 and Sept. 3 earlier this year, and on Dec. 4, and June 1 last year.

DeGraaf, who was not available for additional comment, observed that price momentum -- while far from infallible -- "rarely fails us in the major calls and big moves."

Forward price momentum for major averages has certainly been absent lately. That was the case again Thursday following a brief morning spurt after the government reported retail sales rose 0.4% in November -- 0.5% excluding autos. Both results were well in excess of consensus estimates. Separately, the Bank of Tokyo-Mitsubishi reported U.S. same-store sales rose 2% last week.

A much higher-than-expected jobless claims report -- it initially rose 83,000 to 441,000 vs. estimates of 393,000 -- was an offsetting factor to the retail sales data. But considering the latter was reportedly a major concern among traders Wednesday, the market's tepid reaction was disappointing.

As was the case with John Snow's nomination as Treasury secretary earlier this week, traders paid little heed to news that President Bush appointed former Goldman Sach co-chairman Stephen Friedman as his economic adviser. Instead, traders were more focused on geopolitical concerns.

Specifically, The Washington Post reported Iraq may have given chemical weapons materials to al Qaeda. Meanwhile, North Korea is planning to restart a nuclear power plant that may produce weapons-grade uranium.

Such developments helped give a boost to gold and related shares. The price of the yellow metal rallied 2% to $332.10 per ounce, while the Philadelphia Stock Exchange Gold & Silver Index jumped 6.8%.

Gold (Again) Regains Lost Luster

After rallying steadily in 2001 and early 2002, gold and mining stocks stumbled through the summer, then spiked higher in September. When that move faltered and the price of gold reverted to around $310 per ounce in mid-October, many observers declared the nascent bull market in gold to be over. Among others, veteran technician Martin Pring commented previously that a close above $328 per ounce would confirm both a new bull market for gold and the likelihood of an upturn in inflation.

"I believe we've just started the next leg of the bull market in gold , supported by silver breaking out and gold shares as well," said Pring, editor of The Intermarket Report, after the close. "The dollar index broke to a new bear market low today and the whole thing fits analytically very well together," adding that a ratio of inflation-sensitive vs. deflation-sensitive stock groups also broke out today after a four-month basing period.

The U.S. Dollar Index fell 0.83 to 104.52, its lowest level since July 19 when -- it should be noted -- the S&P was trading at just below 850. ( Earlier today, we examined more closely the link between gold's ascent and weakness in the greenback.)

Pring observed that while "major exceptions" have occurred, gold and the dollar usually move inversely. "It's better if you're forecasting higher gold prices to have the dollar going down, but I wouldn't bet the mortgage on it," he quipped.

Furthermore, he observed a tight relationship between a smoothed rate of change in the price of gold and the performance of industrial prices going forward. Thursday's rally in gold suggests "another three- to four-month up leg," taking the yellow metal as high as $370 per ounce and indicating "a peak in industrial commodities a year down the road," he said. "Where they go, so do bond yields," which move in the opposite direction of bond prices.

On Thursday, the price of the benchmark 10-year note rose 1/32 to 99 27/32, its yield unchanged at 4.02%. Still, it strikes me that the folks who should be most worried about this latest uptick in gold are investors who've poured billions into bond funds in the past year-plus.

Favorable Flow, Lackluster Results

The company news flow was generally weighted toward the positive Thursday. Ciena ( CIEN) rose 19.5% after posting a narrower-than-expected loss and forecast improving sales, while Amgen ( AMGN) railled 6.7% after upping its earnings guidance for 2003.

Those names, along with Yahoo! ( YHOO) and BEA Systems ( BEAS), were major contributors to the Comp's relative strength and the Nasdaq 100's 0.3% gain.

Nevertheless, bulls were largely unable to parlay those developments into anything more than gains for the specific names.

Costco ( COST) rallied 3.8% after reporting fiscal first-quarter results in line with expectations and despite lowering its sales and earnings guidance for the remainder of the year. Nevertheless, the S&P Retail Index dipped 0.1%.

Even when the news was outwardly positive, it didn't guarantee gains. Halliburton ( HAL) dipped 2% and Honeywell ( HON) shed 1.5% despite reports each is close to reaching a settlement in asbestos litigation, removing a major uncertainty, albeit at a steep cost.

Halliburton also failed to respond to a 2.2% rise in crude futures, to just over $28 per barrel, after OPEC members agreed to cut production by 1.5 to 1.7 million barrels per day. The Amex Oil & Gas Index rose 0.4% while the Philadelphia Stock Exchange Oil Service Index rose 3.5%.

Blue-chip proxies were restrained by weakness in drugmakers such as Johnson & Johnson ( JNJ) and Bristol-Myers Squibb ( BMY), the latter down 6.6% amid renewed concerns about its accounting practices. The Amex Drug Index fell 1.1%.
Aaron L. Task writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to Aaron L. Task.

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