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Rally holds and has bear's attention

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My e-mail has gotten filled with e-mails regarding questions concerning various stocks in various sectors and there's just one thing a trader can do at this point. Monitor the sector your trading in (bull or bear) and understand the sector technicals. If there looks to be upside for a rebound in the sector, then be alert to the potential upside and manage the stock you're trading accordingly.

One sector we covered in detail in recent weeks was the GSTI Software Index (GSO.X) 133 +3.2%. A couple of weeks ago we thought this sector might be susceptible to the lower end of downward regression near the 130 level and that's pretty close to where today's bounce is coming from.

GSTI Software Index Chart - Daily Interval

The GSTI Software Index (GSO.X) did trade right near the lower end of our regression channel that we put in place a couple of weeks ago and the 130 level was achieved. This was an "index target" where bears most likely start putting some bids under stocks or taking offers and locking in some handsome gains. Bears should at least have a plan in their trading strategy that this group could rally to the 145 level and mid-point of regression. If your short a stock that is within 5-10% of a bearish vertical count from the point and figure chart, don't try to squeeze blood from the turnip and take some gains off the table. This type of "action" is most likely what has the group finding some higher prices today.

NASDAQ-100 Tracking Stock (AMEX:QQQ) - Daily Interval

While the NASDAQ-100 Trust (QQQ) broke below the February lows, its interesting to note that the NASDAQ-100 Bullish % ($BPNDX) didn't and currently reads 28% bullish, the same as found at the February's lows. This is a slight amount of bullish divergence, as the internals don't necessarily reflect the outward appearance of the patient. Any bulls in the QQQ's have a short-term view on things right now and targeting the $33.00 with a stop just under $30. Notice the similarity in the GSO.X and the QQQ chart as it relates to both regression channels and retracement. QQQ looks a little "stronger" as it didn't test the 80.8% retracement level or lower end of its regression channel.

Economic data

For subscribers that may have missed today's economic data. Both the Consumer Confidence and Chicago PMI data came in line with expectations. Today's action looks to be driven more by short covering and profit taking than a bullish response to the data released.

Jeff Bailey
Senior Market Technician
Option Investor

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