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Slow fade

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Check your local theme park this summer for a new ride called the "slow fade." If you can't find it, then watch today's market action as this morning's gains have slowly started to fade and the market averages have now become more mixed.

Stocks held earlier morning gains despite consumer confidence slipping to 106.3 from May's revised higher reading of 110.3 and while existing home sales fell 0.3%, the 5.75 million annual rate was still better than the 5.68 million consensus.

However, it looks like neither number was enough to have bulls pushing their way to the front of the line. Instead, bulls appear hesitant to jump on the "slow fade" and instead hang onto their cash until some carnival barker is able to get their juices flowing.

The U.S. Dollar attempted an early morning rally, but here too we've seen "dollar bulls" unable to hold a rally or at least push it higher. The U.S. Dollar Index (dx00y) 108.21 (unchanged) had rallied to the 108.47 level early this morning, but fell short of a break above the 108.50 level which might just help extend stock gains.

US Dollar Index Chart - Daily Interval

Stocks tried to rally this morning, but I was somewhat skeptical of the move as the U.S. Dollar Index (dx00y) just wasn't "confirming" the bullishness found in the broader markets. I will admit to a point that the U.S. Dollar Index and perhaps currency traders are keying off of stock market action, but until I see some type of renewed "faith" in the good old greenback, I'm remaining cautious of most stocks.

One thing that has me remaining cautious of stocks is that we continue to see some internals weakening from the bullish percent charts. Late last week, we saw marginal improvement, but nothing to impact the charting of this important indicator on the various market averages. Yesterday's action however, found more "Os" being charted and further internal damage being done, with the S&P 100 Bullish % ($BPOEX) falling one-box to 44%, the S&P 500 Bullish % ($BPSPX) down one-box to 44% and the broader NASDAQ Composite Bullish % ($BPCOMPQ) falling one-box to 40%.

The more volatile NASDAQ-100 Bullish % ($BPNDX) remains in a column of X and "bull alert," but has slipped to 18%. A reading of 16% would have this shorter-term bullish % completing a three- box reversal back into O's and "bear confirmed." While this hasn't happened yet, the more major/broader bullish % continue to erode and won't have bears in the NASDAQ-100 to overly nervous to step up their short covering.

This, combined with the still rather weak U.S. dollar gives the trader a perspective of a "slow fade" lower for stocks.

Jeff Bailey
Senior Market Technician
Option Investor

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