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Trading off of retracement

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Three of the major indices that many market participants watch or monitor on a daily/weekly basis are all seeing some selling from levels we have noted as potential levels of resistance. This type of action should have traders/investors booking some profits on bullish trades, or hedging those positions. Here's a quick rundown of what we're seeing (yesterday and today).

Dow Industrials Chart

On Wednesday, the INDU ran up to the 50% retracement level at 9,106, consolidated yesterday and is now beginning to give back some gains as profit taking comes in. Risk for a bull looks to be a pullback near the 8,483 level. Further bullishness would most likely come on a close above the 9,106 level.

S&P 500 Chart

Yesterday, the SPX ran up to the 1,082 level. We watched this index trade for about 4-hours near that level. Today we're seeing what sure looks like profit taking. Risk for the bulls is to 1,011. This is a good looking short/put play on today's breakdown for index traders.

NASDAQ Composite

The 50% retracement level from our "fitted" retracement on the NASDAQ sure looks to have come into play here. Good correlation with the Dow and S&P 500. All indices seeing some selling at retracement levels as smart traders/investors assess holdings and square things up after terrorist events. Expect market makers to be somewhat defensive in their inventories still. Look for some firming near the 1,455 levels, but bullish bets should remain very small. May also see some defensive action ahead of weekend for awhile. Many expect some type of military action to take place on may be thinking the weekend.

Jeff Bailey
Senior Market Technician
Option Investor

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