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Eyeballing tech bellwethers

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Networking giant Cisco Systems (NASDAQ:CSCO) $12.56 +0.06% and software giant Microsoft (NASDAQ:MSFT) $51.30 -0.27% are both near critical support levels and could be "pivotal" stocks to be monitoring in the next couple of weeks.

Both are components of the very tech-heavy NASDAQ-100 (NDX.X) 970.21 +0.67% and the NASDAQ-100 Trust (AMEX:QQQ) $24.15 +0.83% and a break lower at $12 in Cisco (CSCO) could have the stock vulnerable to its bearish vertical count of $7, while today's sell signal in Microsoft's (MSFT) at $51, puts this stock back on a sell signal and turns the bearish count back to $46.

Cisco Systems Chart - $1 box

I consider Cisco (CSCO) as the "bellwether" for networking. We were skeptical of CSCO at $16 and felt it offered bears a good risk/reward trade on the rally to resistance. Near-term target was for the stock to be able to retest the recent lows of $12.50, which it has done. Good range to monitor here. $14.50 is near- term strength, while a break at $12.00 opens the door to the bearish vertical count of $7.00. Risk for bears here is that the NASDAQ-100 Bullish % ($BPNDX) is now at 10%. Cisco's "sell signal" back in April (after the red 4) took one stock away from the NASDAQ-100 bullish % with its trade at $15.50. A trade at $14.50 from here would actually have CSCO's chart contributing positively to the bullish %. If not for higher option volatility right now, very good technicals for a $12.50 straddle.

Microsoft Chart - $1 box

Today's trade at $51 in MSFT has supply back in control on a near-term basis, and it would now take a trade at $56 for bulls to feel otherwise. Risk must now be assessed to $46 at a minimum. The bearish vertical could grow should the current column of O grow further.

Trader's can perhaps understand from a weakness perspective that if these two technology "bellwethers" are breaking down, then the less institutionally held stocks in the respective networking and software sectors are not going to be finding too many buyers.

The "big" stocks are often the last to fall, especially when the NASDAQ-100 Bullish % ($BPNDX) reaches such "oversold" levels of 10% like it is now. If tech is going to turn around, then I'd have alerts set on MSFT at $56 and CSCO at $14.50.

If one "peep" of bad news comes from either, look out below. Current supply/demand charts don't look as if the MARKET is looking for any type of "good news."

Jeff Bailey
Senior Market Technician
Option Investor

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