LOW INFLATION DATA SHOULD KEEP FED ON HOLD --GEORGIA PACIFIC AND SCHWAB ARE STRONG -- KROGER LEADS FOOD DECLINE -- QUALCOMM IS BREAKING OUT

LOWEST CORE INFLATION IN 37 YEARS... This morning's report on consumer inflation showed that the core CPI rose only 0.1% during August. The annual rate of 1.3% was the lowest since 1966. That drop in inflation should keep the Fed from doing anything with interest rates later today. As a result, we don't expect any change in rates or in the Fed's current bias in favor of keeping rates low to keep inflation from falling much further. Chart 1 shows that today's report isn't having much impact on bond yields. The 10-year T-note yield is modesty higher today and is trading just over its 50-day average. That means that bond prices are modestly lower. The dollar is trading higher at midday.

Chart 1

TECHS LEAD MORNING BOUNCE... Around midday, the tech sector is leading a modest market bounce. Chart 1 shows the QQQs bouncing off the 20-day moving average. The SOX is up. In other industry groups, brokers and papers are strong today. Weakness is being seen in food stocks.

Chart 2

GEORGIA PACIFIC LEADS STRONG PAPER GROUP... Georgia Pacific is today's leader in a strong paper group. The monthly bars in Chart 3 show GP hitting a new 52-week high today. More importantly, the stock appears to be breaking through a major down trendline extending back to 1999.

Chart 3

SCHWAB LEADS STRONG BROKER GROUP... Charles Schwab is today's percentage leader in a strong brokerage group. The stock is challenging its July peak near 12. The weekly bars show that SCH may also be headed for a test of its January high at 12.5. That will be an even more important test of the strength of the stock. Strength in brokerage stocks is usually a good sign for the market.

Chart 4

Chart 5

KROGER LEADS FOOD DECLINE... Kroger has gapped beneath its 50-day average on very heavy volume. That's a bad combination. That weakness is infecting other food stocks like Safeway and Albertsons which are also being sold today.

Chart 6

Chart 7

Chart 8

QUALCOMM IS BREAKING OUT... Last Friday, we showed Qualcomm on the verge of breaking through the highs of last December. Some positive fundamental news has pushed Qualcomm up 1.31 points today to 44.13. The weekly chart shows that the stock has now cleared the highs of late last year and is now trading at the highest level in 18 months. That's strong chart action.

Chart 9