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Stock hug best levels on strong retail sales

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Stocks have been hovering near their best levels of the session for the past couple of hours as lunchtime on the east coast comes to an end.

This morning, we've been monitoring the Dow Industrials (INDU) closely as they rallied right up to the rounding 50-day moving average. This was most likely a near-term bullish target and may find some bulls looking to take some profits ahead of tonight's earnings from Applied Materials (NASDAQ:AMAT) $26.60 +3.98%, but more importantly Dow component International Business Machines (NYSE:IBM) $84.08 +2.29% analyst meeting scheduled for tomorrow.

Dow Industrials Chart - Daily Interval

Today's trade in the Dow Industrials at 10,150 was bullish as that broke a triple-top and bearish resistance trend (pink line on bar chart). Bears immediately realized risk as the INDU rallied right near its 50-day MA. The Dow Industrials (INDU) can play a very important role in investor psychology and today's bold move higher should have some bulls showing up and looking for stocks that are breaking out of consolidation from a pullback.

Cyclicals trying to get back on trend

One of our "key indexes" for monitoring the economy and the MARKET's perception of economic activity is the Morgan Stanley Cyclical Index (CYC.X). Identified as a stronger sector early on, this group now tries to get back above its old upward trend. A break above the 600 level would be sign of further bullishness and could extend a rally in other areas of the market.

Morgan Stanley Cyclical Index Chart - Daily Interval

Bulls are getting some confirmation from the Morgan Stanley Cyclical Index (CYC.X) as this group continues to trade strong relative to other areas of the market. A bold attempt is being made by the sector to get back on a rather aggressive upward trend. This is the type of technical action that most equity bulls wanted to see. A break above the relative highs of 598-600 could have other sectors of the market extending gains in the coming weeks.

Again... key near-term events are most likely tonight's Applied Materials (AMAT) earnings and tomorrow's International Business Machines (IBM) analyst meeting. Bears seem to be showing a greater amount of jitters currently. Traders can use some of the levels outline above to monitor going forward.

Jeff Bailey
Senior Market Technician
Option Investor

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