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Trick or treat\?

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Today's subscriber e-mail has many wondering if today's action is some post-holiday trick, or if it's truly a treat offered to bulls after digesting some weak economic data earlier in the session.

Questioning today's "treat" shows good judgment by subscribers and something different than e-mail dating back to last year, when every rally appeared to be the beginning of a new bull market.

PeopleSoft Chart -

"Sorry, I bail out at 4.5% per day, thanks!" was one subscriber's e-mail regarding yesterday's 03:00 pm EST update. While our bullish target was/is for a near-term price level closer to $34, some subscribers have started to set targets, set achievement levels for their trading account. This is a good sign in my book and helps a trader bring some discipline to their trading and removes emotion. Anytime a trader meets or exceeds their set level of expectation they should be happy. That is how financial wealth is built. This morning's news that Microsoft (NASDAQ:MSFT) was nearing a settlement with regarding its anti- trust case didn't hurt the software sector a bit, and our PSFT trade is benefiting from group strength today. The GSTI Software Index (GSO.X) is up 4.35% and ranks #2 for today's sector gainer as the Semiconductor Index (SOX.X) gains 5.5% today. By trading bullish in a stock like PSFT where relative strength has been building versus the sector, today's action is a "treat" indeed.

Microsoft Chart -

"As Microsoft goes, so goes the software sector" is a common phrase used by traders. This morning's news that MSFT is nearing a settlement regarding its antitrust case with the Justice Department has the stock trading higher by 6%. I like to "benchmark" and make some observations based on different benchmarks. In today's calendar, I make notes that the stock opened for trading at $60.08 on good news. Then I make observation that the stock traded as high as $63.63 last Friday without the good news. If everything is truly rosy for MSFT, then the stock shouldn't have a problem breaking above the $63.63 level in the not to distant future. If however, the stock struggles at current retracement of $61.40, then I want to be snugging up stops in other software stocks I may be trading bullish in.

I do this type of "note taking" with all stocks I trade as it serves for some good tests going forward and help me check against my scenarios for why I feel there should be bullishness or bearishness in the sectors/stock I'm trading.

Jeff Bailey
Senior Market Technician
Option Investor

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