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Starting to get a little choppy

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Trading in the last hour has started to get a little choppy after the Dow Industrials jumped to a new session high 10,349, but is giving back some of those gains and once again dips into negative territory, down 44 points at 10,252.

One stock I'm keeping a close eye on near-term as a "key" stock is Dow component and heavy-weight in the QQQ's Microsoft (NASDAQ:MSFT) $55.25 +0.67%.

Microsoft Corporation Chart - Daily Interval

Today, shares of MSFT did trade right up to the upper end of the downward regression trend we've been monitoring in our QQQ Sep. $30 call (QAVID) bullish trade from May 6th. Today's high in MSFT also comes just shy of the still trending lower 50-day moving average.

MSFT has been identified as a "key" stock in our QQQ trade and with the stock at a level of resistance, it has me looking to protect gains and expecting a potential pullback in the stock that could adversely impact current gains in the QQQ calls we hold.

NASDAQ-100 Trust Chart - Daily Interval

The QQQ looks to still have some upside in its bar chart to my target of $34-$35, but near-term, MSFT's technical action may keep the QQQ from trading the upper end. With a 90% gain currently at risk in the Sept. $30's, I prefer to error on the side of caution and look to take some gains.

True! I did profile September expiration, but that doesn't necessarily mean we have to hold on to the very end. We can still look to trade the September expiration yet again and we will. Should we get another good trade setup like we had on May 6th, where the QQQ and MSFT stars align again, then the trade makes sense. Right now however, MSFT is nearing a level of technical resistance and with a 10% weighting in the QQQQ, we must not simply ignore it and let it erode some relatively nice gains.

At the same time, I've looked for bullish exposure to the Dow Industrials (INDU) 10,253 -44%, which I view as technically stronger than the QQQ's. There's also less volatility in the average. Near-term risks are tonight IBM analyst meeting. Earlier today, I profiled the Dow Diamonds (AMEX:DIA) at $103.17, stop $99.00 and targeting the $110 level.

As a NASDAQ alternative, I also like the Biotech HOLDRS (AMEX:BBH) at the session high of $101.00, stop $99.00 and targeting the $110.00 level. I felt this trade gave a bull some exposure to "technology" while perhaps sidestepping tonight's IBM analyst meeting.

Jeff Bailey
Senior Market Technician
Option Investor

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