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Stocks give back some of Friday's gains

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Stock's have given back about 1/3 of Friday's gains as the U.S. Dollar Index (dx00y) 106.53 -0.16% shows some marginal weakness and Treasuries see some buying as the YIELD on the benchmark 10-year Treasury ($TNX.X) slips back to 4.825%, but still holding above our 50% retracement YIELD of 4.801%. This action hints of some early morning profit taking in stocks after Friday's aggressive rebound.

In this morning's market monitor, I quickly ran through some of the bullish % charts, which showed marginal strengthening of the market internals, but not nearly enough to have the bullish % charts registering any type of reversal. As such, the market internals still look rather weak and defensive, with the more volatile NASDAQ-100 Bullish % ($BPNDX) at 13%, but up from Thursday's reading of 8%. This morning's downside gives equity bears a chance to reassess some risk/reward profiles for bearish trades they may hold and measure them against Friday's action which looks to have come from an oversold bounce type of condition and some relief that there were not any terrorist attack from the July 4th holiday. If it appears the current bearish vertical counts or probabilities study from Professor Davis' work from past point and figure chart patterns has played out, the bearish traders may cover some positions on today's weakness, or lower some stops just above recent highs.

Breadth is marginally negative on both the NYSE and NASDAQ. Decliners outnumber advancing issues by a 15:13 margin on the big board, while breadth is slightly more negative on the NASDAQ at 17:12.

There have been 38 new highs on the NYSE versus 27 new lows, while the NASDAQ has seen just 35 new highs today, while 53 stocks have achieved new lows. Breadth, along with the new highs/lows hints that listed stocks on the NYSE are perhaps finding more sponsorship than NASDAQ's 4-lettered brethren today, which seems to have been a trend over the last couple of years.

Morning sector weakness has the Semiconductor Index (SOX.X) 381 -2.9% and GSTI Software Index (GSO.X) -2.71% giving back some of Friday's gains, while the Gold Silver Index (XAU.X) 71.71 +2.64%, HMO Index (HMO.X) +1.4% and Airlines Index (XAL.X) +1.24% show gains.

Jeff Bailey
Senior Market Technician
Option Investor

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