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NASDAQ-100 tests lower regression

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The NASDAQ-100 Index (NDX.X) has battled back from earlier lows of 1,185 after testing the lower end of our downward regression. With the NASDAQ-100 bullish % at "oversold" levels below the 30% level, we'd expect some institutional market makers to be squaring their inventories and perhaps turning a little more to the "buy side" in stocks they've shorted in the past in order to be able to provide liquidity to the market and sellers at the lower levels.

NASDAQ-100 Index Chart - Daily Interval

Similar market condition exist today that were in play back in late February, when the NASDAQ-100 bullish % ($BPNDX) from stockcharts.com fell below the 30% level, just when the NASDAQ- 100 reached the lower end of the above regression channel. With the NASDAQ-100 Bullish % back at the 25% level and once again with a more "oversold" reading on a longer-term basis, the action intraday at the lower end of regression should have a bear's attention. A break back above our 19.1% retracement level of 1,212 (from retracement that defines the range of Sept. lows to Dec. highs) may then have bears assessing risk to the mid-point of the regression channel near 1,275.

Current market conditions should not be used by bulls to go gung- ho and be buying the NASDAQ-100 or the NASDAQ-100 Trust (QQQ). I have perhaps taken the more "conservative" approach of selecting a stronger stock in this part of the market (as defined by the NASDAQ-100) in Applied Materials (AMAT), but that's about it at this point.

The Biotech Index (BTK.X) 412.20 -0.86% currently, did trade in positive territory within the past hour. While this is not a sector I'm overly bullish on, we're taking note that this group of stocks did violate the September 21st lows of 410.54. This may have been a target for bears and now sees some buying.

If so, then the observation should be made, and traders may expect other stocks they're short/put to perhaps experience similar action at what might be identified as a key level of support.

Jeff Bailey
Senior Market Technician
Option Investor

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