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Stocks firm after lower open

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The markets have stabilized after a slightly lower open this morning and have been rather range bound in the last couple of hours.

The Dow Industrials are lower by 70 points at 10,564, with weakness found in tech-related stocks Intel (NASDAQ:INTC) $30.64 -3.4% and Microsoft (NASDAQ:MSFT) $60.72 -2.4%. Shares of chemical giant Du Pont (NYSE:DD) $49.61 and retailer Home Depot (NYSE:HD) $50.07 +1.15% are helping to offset losses.

The broader S&P 500 Index (SPX.X) continues to show near-term resistance at the 1,175 level and trades down 0.87% at 1,160. Airlines as depicted by the S&P Airline Index (XAL.X) 102 -3.32% leads declines for the second consecutive session.

The tech-heavy NASDAQ-Composite (COMPX) is lower by 28 points (-1.49%) at 1,852 as sector weakness in the Semiconductor Index (SOX.X) 588 -2.6%, Software (GSO.X) 166 -2.34% and Internet (INX.X) 119 -2% lead declines.

One "bright spot" found in the technology area today has been the contract manufacturing names like Celestica (NYSE:CLS) $36.98 +1.8%, Flextronics (NASDAQ:FLEX) $17.59 +3.59% and Solectron (NYSE:SLR) $8.54 +1.06% after a stronger than expected book-to- bill number in the semiconductor space.

Trading was resumed in shares of drug maker Bristol Myers Squibb (NYSE:BMY) $40.90 -15.7% after being halted for trading this morning. Last night, shares of BMY finished the session at $48.65, but the company's announcement that its Overture study presented on the use of Vanlev in the treatment of congestive heart failure did not achieve statistically significant superiority versus the ACE inhibitor enalapril, has the stock falling to the $40.00 level. Earlier today in the market monitor on OptionInvestor.com, we felt it best for any bears short/put the stock to lock in gains as the stock was very close to achieving its bearish vertical count of $40 from the point and figure chart.

Treasuries were rather quiet in the early morning session, but we've have since notice selling taking hold. Street talk is that bond traders are looking to par some of their exposure to the Treasury market with the thought that rate hikes by the Fed are now a greater likelihood. The 10-year YIELD ($TNX.X) now YIELDS 5.393% and challenges last week's high yield.

So where is this money from the Treasury market rotating? Retailing stocks as depicted by the S&P Retail Index (RLX.X) are edging higher once again today at the 979 level and challenging their recent 52-week highs. The Morgan Stanley HMO Index (HMO.X) is also edging higher at 506 +0.24% as shares of Oxford Health (NYSE:OHP) $41.22 +0.09 managed to eek out a new 52-week high of $41.54 earlier in the session.

I'm also doing some work in the mutual fund area to try and get a grasp on what type of cash may be flowing into the corporate bond market. Last week we witnessed a plethora of corporate bond offerings and YIELDS in that part of the bond market may become more attractive in light of a strengthening economy. In the market monitor on OptionInvestor.com we did note that some comments from widely followed bond analyst and fund manager Bill Gross of PIMCO funds wasn't to fond of General Electric (NYSE:GE) $38.78 -2.78% debt, saying that GE Capital has commercial paper outstanding which is three times the size of their bank credit lines, and that this exposes the company to what he calls "mercurial opinions" of analysts and managers. Gross says that as a result, PIMCO will not own GE commercial paper for the foreseeable future.

Jeff Bailey
Senior Market Technician
Option Investor

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