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Internet weakness could hint at lower NASDAQ-100

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In this morning's market monitor on OptionInvestor.com, I noted that I had just gotten a downside alert at a retracement level on the CBOE Internet Index (INX.X) at the $102 level and this had me thinking the weakness found in this group (usually find aggressive bulls here) could hint that there was a lack of aggressive bulls in the MARKET. The technicals here are almost "identical" to what we were talking about in the NASDAQ-100 Index (NDX.X) from this morning's 09:00 Update.

CBOE Internet Index Chart - Daily Interval

I've said before that the Internet Index (INX.X) is a good sector for traders to follow and perhaps understand from a "market psychology" perspective. This group of stocks lacks earnings, but tends to trade strong when the market environment is bullish and aggressively bullish. Today's violation of the 19.1% retracement level and February 22 low tells us that there is not a lot of aggressive bulls in the market place, let alone this sector.

In this morning's 09:00 Update, we noted a relative low in the NASDAQ-100 Index (NDX.X) also at the February 22nd date. With the INX.X breaking that February 22 low, this has me cautious on any bullish trades in the NASDAQ-100 or the QQQ for that matter.

If a trader is short/put the QQQ, he/she likes what they are seeing here. A "weak" sector is headed lower and most likely will weigh on technology bulls psychology. Should it worsen, then so should psychology. Bulls now assess INX.X risk to the lows near $80.

A QQQ bear could now set an "upside alert" on the INX.X at the $103 level. If violated to the upside a QQQ bear may get an alert that the MARKET may be starting to see some aggressive bulls coming back, or at least some bears starting to get aggressive with their short covering.

Jeff Bailey
Senior Market Technician
Option Investor

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