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Stocks range bound as session progresses

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Stocks remain rather range bound today as bulls and bears act much like a couple of prize fighters getting a feel for each other after yesterday's wild round of trading.

Energy related stocks as depicted by the CBOE Oil Index (OIX.X), Oil Service Index (OSX.X) and Natural Gas Index (XNG.X) are showing the greatest amount of weakness today as all three indexes trade down more than 3%.

Bond Market

Much like stocks, bond YIELDS are mixed this morning, with the 10-year YIELD ($TNX.X) fractionally higher at 4.569% and the 30, 5 and 13-week YIELDS fractionally lower. Today, the government bought back $1.5 billion in old 30-year bonds with a weighted average YIELD of 5.386%. Current YIELD on the 30-year ($TYX.X) is at 5.315%.

Bond traders feel that upcoming supply (government set to sell a record $19 billion in 2-year notes next week) and the market pricing in another Fed rate cut will have bonds consolidating near-term at this point of the YIELD curve.

Semiconductors look weak

On the technology front, semiconductors look to be suspect to further declines based on current technicals. We've been doing some relative strength comparisons in the "market monitor" on OptionInvestor.com this morning and there's little indication at this point that traders or investors should be looking toward this group for strength right now.

In our past analogies of "the snake" this is now the technology group that represents the far end tail of the snake. No signs of leadership at this point.

Semiconductor HOLDRS (AMEX:SMH)

Semiconductor weakness may have trader's short/put the Semiconductor HOLDRS (AMEX:SMH). Yesterday morning on premierinvestor.net we had profiled a bullish play in shares of Applied Materials (NASDAQ:AMAT), but it didn't take long for that one to get pushed down our throats and we were stopped out. No sense getting mad, but in yesterday's "market monitor" on OptionInvestor.com we turned bearish on the SMH with the action we were observing after Intel's (NASDAQ:INTC) news. Retracement on the SMH suggests there's a "sell side" bias in the group between $34.82 and $38.55 and there's some downside to $28.78. If thing continue to deteriorate, $22.74 may not be out of the question.

Jeff Bailey
Senior Market Technician
Option Investor

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