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While yesterday's closely watched earnings from Intel (NASDAQ:INTC) were positive, with the company reporting earnings that beat estimates, today's results for Intel's stock don't reflect an upside surprise. For those that believe the market is forward looking, today's decline for Intel gives proof to that thought.

For weeks, we've been mentioning the "overbought" condition of the semiconductor bullish percent and pointing out the sector bulls had the risk there. Today bulls are getting a somewhat bitter taste of what a higher risk reading is.

It's not just the semiconductor sector bullish percent that has been in a bearish phase near the "overbought" level of 70%. The NASDAQ-100 has also been in a "bearish" phase at a higher level of risk for bulls. Yesterday's action has the NASDAQ-100 bullish percent back in "bear confirmed" status after a brief period of "bear correction."

NASDAQ-100 Bullish Percent Chart - 2% box

I might argue that today's broader decline from technology stocks isn't Intel related. Since early December (red C) on the bullish percent we've been alerting bulls to be cautious and snugging up stops in stocks that may comprise the NASDAQ-100 as the bullish percent above 70% told us that bulls were carrying the bulk of the risk. Think of the bullish percent like a football field and a level above 70% being the bulls having scored a touchdown? Just like in football, the Bulls would have to kick the ball away and turn it over to the bears. In mid-December, the NASDAQ-100 entered a "bear confirmed" status and that should have had the bulls starting to play some defense and any bullish type of trades should have had a very short-term type of trading strategy associated with it.

Today we've had some e-mails asking if it is OK to buy this current pullback? As it relates to the above bullish percent chart, I would only be looking at buying stocks in more "defensive" sectors. Last week we turned more bullish on some of the healthcare stocks like Unitedhealth (NYSE:UNH), as the group and that stock looked to be benefiting from some sector bullish rotation.

In essence, it's OK to trade bullish, but I'd continue to avoid technology right now. The NASDAQ-100 bullish percent is the more volatile and quicker moving bullish percent indicator. It often turns lower first (like we've been seeing) before the S&P 500 bullish percent will do. Try to study the action that took place as recent as April and May (red 4 and 5) in the bullish percent. If we get a decline back near 30%, what is the probability of a call option performing if the bulk of the NASDAQ-100 has given sell signals? Right now, the bears have the ball in this part of the market and its not a time for the quarterback to be on the field.

Jeff Bailey
Senior Market Technician
Option Investor

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