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Stock unchanged with weakness in Networking

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The major market averages are hovering near unchanged levels at the halfway point and it has been a rather tight range of trading from the opening bell.

The Networking Index (NWX.X) 168.10 -2.5% leads today's sector losers and has been trading somewhat heavy all morning. Sector heavyweight Cisco Systems (NASDAQ:CSCO) $14.93 has traded off its best levels of the session after an early morning rally right up to its 50-day moving average. Most likely, some short-term bearish traders were looking to short the stock with a tight stop just above the 61.8% retracement level and the intermediate-term 50-day MA.

Cisco Systems Chart - Daily Interval

The Networking Index (NWX.X) probably will not go anywhere without leadership from Cisco (CSCO). As such, I'd expect bears to be active in the stock today with very little bullishness in the sector itself.

The Dow Jones Home Construction Index (DJUSHB) 364.86 +0.97% is holding onto gains, but off its best levels of the session. Bears in this sector have found profits rather difficult to come by as housing starts and building permits remain strong.

Dow Jones Home Construction Index Chart - Daily Interval

We're seeing some similar technicals shape up currently like that found back in October when the DJUSHB made a sharp move from the lows and rallied to test the upper-end of downward regression and a rolling lower 50-day MA. Trader will want to monitor this group of stock going forward and look for any correlation or divergence to past trading. A break much above the 375 level could see a bullish move take hold once again in the sector. Many technicians have pointed out the potential head and shoulder top formation, with a right shoulder at the 375 level.

It worth noting that both the DJUSHB and the Dow Transportation Average (TRAN), both economically sensitive sectors, both rallied to their 50-day MA's this morning, but so far have not been able to hold above those levels.

That action may have some bears looking to short some of the weaker technology stocks once again that have rallied near resistance levels.

Jeff Bailey
Senior Market Technician
Option Investor

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