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Stocks rebound from lows with little news

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Stocks have rebounded from earlier lows as the major market averages have either clawed their way back to break-even or show some gains on what looks to be a short-covering rally.

The widely quoted Dow Industrials (INDU) 9,007 (unchanged) has battled back from a session low of 8,897, erasing a 110 point deficit from earlier this morning. Shares of Home Depot (NYSE:HD) $36.10 +6.96% lead the Dow's gains, while a rebound in Intel (NASDAQ:INTC) $17.53 +5.7%, and Hewlett Packard (NYSE:HPQ) $15.22 +4.03% offset losses in Eastman Kodak (NYSE:EK) $27.26 - 2.88%, Caterpillar (NYSE:CAT) $46.11 -2.2% and American Express (NYSE:AXP) $35.84 -2.68%.

The NASDAQ Composite (COMPX) 1,370 +0.94% and narrower NASDAQ-100 Index (NDX.X) 988 +2.54% and NASDAQ-100 Trust (AMEX:QQQ) $24.62 +2.71% are getting a boost from beleaguered telecom WorldCom (NASDAQ:WCOME) $0.23 +130%, while a rebound from a 52-week low in Flextronics (NASDAQ:FLEX) $7.09 +19.1% on no news hints that bears are locking in gains.

While a rebound in WorldCom (WCOME) comes after yesterday's comments from the company that it "might not" have to go into bankruptcy, but there weren't any guarantees, has given some hope to telecom and telecom equipment stocks, Goldman Sachs believes that the future removal of WorldCom (WCOME) from the NASDAQ-100 has in order of likelihood, that Sigma-Aldrich (NASDAQ:SIAL) $47.04 -4.98%, Lincare Holdings (NASDAQ:LNCR) $30.67 +2.06%, Expeditors International (NASDAQ:EXPD) $31.29 -2% or Patterson Dental (NASDAQ:PDCO) $46.60 -0.19% are candidates to replace WCOME.

Weakness in Goldman's "most likely" candidate Sigma-Aldrich (SIAL) is being attributed to the negative perception of association with the NASDAQ-100 as recent year's additions have seemed to be the kiss of death.

Earlier today in the market monitor (01:21), Jim Brown mentioned just how negative the combined new highs/new lows were for the NYSE/NASDAQ. Currently, the NYSE shows 25 stocks hitting new highs with 240 achieving new lows, while the NASDAQ isn't much better at 18 new highs and 267 new lows. Combined total here is 43:507, compared to Jim's benchmark of 36:450, so some intraday improvement from very bearish levels.

Breadth remains rather negative on the NYSE with decliners outnumber advancers by a 2:1 margin, while over at the NASDAQ, breadth is a bearish, but to a lesser extent at 5:2.

We've seen very little change in the U.S. Dollar as depicted by the U.S. Dollar Index (dx00y) 107.06 +0.29 and Treasuries are rather mixed, with the benchmark 10-year YILED ($TNX.X) 4.744% hovering near unchanged levels.

In essence, with little change in the U.S. Dollar since this morning, and little change in the Treasuries, I'm thinking that current buying in stocks is simply short covering and not necessarily a sign that new bullish capital is being put to work. As such, would be looking for some stocks that may have recovered from a morning spike lower back to a level of resistance for a bearish trade entry.

While the NASDAQ-100 Bullish % ($BPNDX) is very "oversold" at 10%, stocks with some "unreasonable" bearish vertical counts that rally to levels of overhead supply still offer the bearish trader some attractive opportunities.

One stock I like from the put side that looks to have a great deal of overhead supply is shares of previously mentioned OSI Systems (NASDAQ:OSIS) $17.40 -1.02%, which has bounced from a morning low of $16.48. Current vertical count from its point and figure chart is $6.00, and first sign of strength would be a trade at $21-$22.

Jeff Bailey
Senior Market Technician
Option Investor

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