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Stocks starting to soften

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Stock have started to drift off their best levels of the session and there are some signs that profit taking may be starting to have an effect on things. The Dow Industrials (INDU) have been trading back and forth the unchanged level at 9,120 and the S&P 500 (SPX.X) is up fractionally at 1,074. The NASDAQ Composite (COMPX) currently trades at 1,609 (up 1.8%) but off its best levels of 1,641.

The Biotechnology Index (BTK.X) was one of the first technology groups where we saw strength several days ago, but yesterday's lackluster performance by the group had us questioning the bullishness of bulls to be overly aggressive. With the BTK.X not showing much leadership ability today and a 2% decline here at 465, the "stalling action" from the past two day's may indeed be a sign that bulls aren't going to be willing to chase.

The S&P 500 Index (SPX.X) has drifted back off the 1,082 level that we've been monitoring. The September 10th close of 1,092 is still within reach, but for many, even the rally from 1,000 (7.3% gain) might be reason enough to take a profit and reload should a pullback occur. In my book, that's called "good strategy."

For many, the recent rally has been a chance to reassess some portfolio decisions and make adjustments. The first stocks to go should be those where the downside caused worry and where the recent rally gives traders/investors a chance to cut and run. A trader that may have been saying, "Why did I buy this stock" a week ago, may want to part ways today if that stock has rallied back up to their original purchase price. If you were wishing you hadn't bought it, then now may be the best time to sell (especially if you've got a profit.)

Financials carry weight in S&P 500

After trading at $619.99, the S&P Banks Index (BIX.X) has found selling down to 604. This type of action really "smells" like a sell program of some sort was sitting just below $620. There could be any number of reasons for a sell program at the 620 level, but most likely it could have been due to a 12% gain from the 550 level.

S&P Bank Index (BIX.X) - last nine months

Today's action in the BIX.X helps explain part of the problem the S&P 500 had when trying to break above the 1,082 level today. Financials account for roughly 14% of the S&P 500 and we'll want to keep an eye on things here. If a sell program did hit near 620, we'd expect easing of selling at the $602 level. Heck... let's make it a round number of $600. Monitoring things here will perhaps give hint to see just what type of opportunity there might be for other sectors that perhaps come under some profit taking. If the banks can rebound from current levels, then this will give some confidence to bulls to perhaps be buying some pullbacks near similar types of retracement levels in the indexes they're trading in.

Jeff Bailey
Senior Market Technician
PremierInvestor

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