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Semiconductors now turn red

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Earlier this morning we noticed that the Semiconductor Index (SOX.X) has "bounced" off our 625 level, but thought that bounce was more short covering than the makings of a rally. We are going to find out now if that analysis was accurate.

Semiconductor Index Chart - 60-minute interval.

For the most part, the SOX.X has held up rather well today. It had been trading in positive ground for most of the session but now looks to try and retest its lows. There will probably be some nervous bulls that give up before the weekend and its starting to look like this morning's rally was a period of short covering on broader market weakness.

Monitor those bond yields!

The bond market is closed, but we're observing that the 10-year Yield (TNX.X) fell below a recent low. We won't find out until Monday morning if this trend will continue or not, but we know what to look for and can firm up stops on any short positions or assess what to be doing before the weekend. If you've got some big profits in some bearish trades, lock a few in just in case something positive happens over the weekend.

10-year Treasury YIELD Chart - 60-minute interval.

The bond market is closed and while the yield did take out the February 1st low, it's setting just above on "old" downward trend. Traders that are short stocks should be cognizant of this and be able to assess what "might" happen if on Monday morning, the MARKET starts selling these bonds and rolls into stocks. If you have yet to take some profits on puts or shorts, it might be prudent to lock in a few before the close and carry some over.

Remember Microsoft and our alert at $60?

Hopefully some subscribers began using a logbook and may have had shares of Microsoft (NASDAQ:MSFT) as a potential short if the stock broke the $60 level. My alert was triggered this morning and gave traders time to review their game plan for the stock (February 02, 01:30 EST for OptionInvestor.com). This morning on IndexSkybox.com I reviewed the trade and we felt that only a "half position" should be shorted unless the stock were able to rally to $63 for a full position. The stock never rallied to $63, but we're looking for the gap to get filled and still make some money to the downside. OptionInvestor.com subscribers that had their alerts set at $60 should be making some money here too!

Microsoft Corporation Chart - 60-minute interval.

Having a pipeline of candidates is important when things get active. Back on February 2nd we added MSFT to our candidate list for a short and today that homework paid off. We wanted to see a trade below $60 to alert us and we got it this morning. Looking for the stock to "fill the gap" to our target of $56.25.

Jeff Bailey
Staff Analyst

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