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Stocks firm after weaker open

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I've been getting a lot of upside alerts this morning from stocks on my trading station. That's not to say there aren't some stocks showing weakness, but stocks I've been monitoring for strength are giving the upside alerts.

Software

Shares of PeopleSoft (NASDAQ:PSFT) triggered one of our upside alerts at 50% retracement of $34.31. This was a bullish target of our from earlier upside alerts at $30.37 and 61.8% retracement. Shorter-term traders that were playing the stock long with $34.31 as their target are either locking in gains, or sliding a stop up under this morning's low of $32.38. With the 200-day MA rolling at $34.38, traders will want to see any break to the upside come on volume. Next bullish target for those using a trailing stop will be 38.2% retracement at $38.24. Support should be firming at $30.

PeopleSoft (NASDAQ:PSFT) was one of the stocks in the software group we began profiling as bullish near the $24 level on October 10th. It's a stock that sector bulls want to see some continued strength from as it gives hint of conviction toward the software group. If she has trouble getting through the 200-day MA, look for other stocks in the group to also have some trouble making advances.

General Electric is stock of focus

Institutions love General Electric (NYSE:GE) as a key stock to trade, invest in and short. This company has their finger in just about every pie of the U.S. and world economy. The size of the float gives institutions the needed liquidity they need for quick exposure to a broader market move (up or down).

Institutions don't just "buy" GE, they'll short the heck out of it too if they feel the economic conditions will be reflected in the market place. This type of institutional exposure and activity has this stock now ranking at the top of my list as "THE STOCK" that could determine near-term price action.

Here's why

Dow Industrials, General Electric Charts -

It's no coincidence that the charts of the Dow Industrials (INDU) and General Electric (NYSE:GE) look so similar. The area I'm focusing on in that of April 10th earlier this year, when shares of GE moved above the $43 level and seemingly moved the Dow Industrials above the 10,000 level and both surged from there. The Dow Industrials rallied 13% over the course of the following 6 weeks, while shares of GE surged 23% from its break above $43.

Now we have a similar technical setup in the charts of these two charts. A break above $40 could have institutions jumping into the stock aggressively on the buy side and we will want to monitor volume on such a move. The surge in volume may come from shorts calling it quits, feeling that the stock and broader market is just to strong. That volume along with bulls coming into the stock on the backdrop of an aggressive Fed and potential strengthening of the U.S. economy could create a dynamic shift in supply/demand near-term and have the stock and the Dow Industrials on the move.

The Dow Industrials play an important role in investor psychology. The more bullish the Dow Industrials, the stronger investor psychology becomes.

Bullish and bearish traders are undoubtedly active in the stock at current levels. Those bears that believe the Fed rate cuts will have little impact economic conditions are most likely shorting the heck out of the stock at current levels, with stops just above what looks to be a "pivot" point of $40. Bulls that believe the future outlook for the economy is strong are most likely seeking exposure to the stock, with stops just below the $35 level. Eventually, one of the two will win out, and that's where traders will want to take action.

I like GE bullish on a break above $40.10 as relative strength vs. the S&P 500 is in a column of X's, but still on a sell signal. If the stock were in a column of X's and on a buy signal, I'd be a buyer of the stock here. Relative Strength vs. the Dow Industrials is currently in a column of O's and on a sell signal and that has me waiting for a move above $40.10.

With many of our bullish percent indicators in some sort of "bull market" alert, this is not a stock I wish to be looking short at this time. There is too much institutional interest in the stock and I'm looking to short other stocks where I feel institutional interest is fading and have a more certain feel of which way they're voting (buy/sell).

Jeff Bailey
Senior Market Technician
Option Investor

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