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Market averages mixed, with software edging higher

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The broader market averages are mixed as we head toward the halfway point of the trading session as the GSTI Software Index (GSO.X) leads sector gainers (+1.2% at $196) with the Semiconductor Index (SOX.X) right behind (+1% at $585).

Shares of software giant Microsoft (NASDAQ:MSFT) continue to battle with the $70 level, but the gains today seem to have the GSTI Software Index (GSO.X) and other software stocks showing some gains.

Microsoft Chart - Daily Interval

Any break above yesterday's high of $70.02 might be a catalyst for a move higher to 0% retracement of $73.59, but bulls need to push MSFT above that $70.02 level first. In October, we talked about MSFT's point and figure chart, which had a bullish vertical count of $72. Recent consolidation near the $70 level may well be some institutional bulls taking profits near their bullish price objective. Yesterday's trade at $70 was enough to have the point and figure chart giving a triple-top buy signal and that's bullish. However, with the stock trading so close to a bullish price objective from its vertical count, traders need to be aware that yesterday's trading above the $70 could well be a "bull trap"

In today's 11:00 Update, we talked about General Electric (NYSE:GE) as a key stock to be monitoring in the Dow Industrials and that a break below the $39 level could dampen bullishness in the Dow Industrials and perhaps the broader markets.

I get the feeling the "rubber band" or "the inchworm" is being stretched apart right now with GE edging lower and MSFT trying to edge higher. With GE breaking down a bit and fractionally below the $39 level, equity bulls will want to keep an eye on MSFT. Should MSFT not be able to get above the $70 level soon, we may well experience some drift lower in the broader market averages.

In essence, we're monitoring to very closely watched stocks that are both Dow components and each are major bellwethers. The action in both of these stocks really depict what we're seeing in the market's today. The action in GE is BEARISH below the $39 level, while MSFT is trying to get BULLISH, but there just doesn't seem to be enough bullish bias to get the stock breaking out.

While neither stock is giving a clear signal right now as to which way things are headed, by monitoring them from here, traders and investors should get a good feel for how things shake out near-term.

With GE edging back below its 50-day MA, I'm leaning toward near- term bearish right now. Should MSFT not be able to break back above the $70 level, then we might expect to drift lower as the week progresses.

If nothing else, equity bulls carrying some nice profits should be cautious and snugging up some stops. I don't see enough bearish action in the markets for equity bears to be getting overly aggressive. They too should be rather aggressive with their stops and lowering them to help assure some profits in stocks they may be short/put.

Jeff Bailey
Senior Market Technician
Option Investor

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