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Markets spooked on potential over-regulation

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Treasury YIELDS dipped lower and stocks confirmed with some softening of their own on what looks to be a negative response from the markets to reports surfacing that mortgage lenders Freddie Mac (NYSE:FRE) $57.26 -1.61% and Fannie Mae (NYSE:FNM) $70.23 -2.3% were working toward a deal that would expand disclosure of their securities.

According to Reuters reports, the Treasury Department and the mortgage finance companies were expected to announce that the company's would submit to requirement to disclose and possibly register their securities with their federal financial regulator, the Office of Federal Housing Enterprise Oversight.

While on the surface, this news appears to be that of government intervention that then raises the suspicion among investors that the mortgage lender are "doing something fishy" and appears to have created some unrest among investors and triggered some buying in Treasuries and selling in stocks. At the same time, some investors and economists have become concerned that the more government involvement there is in the markets, the increased regulation begin to weigh on a "free market" type of environment.

Dow Industrials Chart - Daily Interval

In today's market monitor at OptionInvestor.com, we discussed the Dow Industrials Bullish % ($BPINDU) and a level of 34% there which may be correlated against the Dow Industrials ($INDU) bar chart from above. So far, we haven't seen the internals (as depicted by the bullish%) improve enough, to have the externals (as depicted by the Dow Industrial's chart) showing strength. The above retracement hints that some type of close above 8,829 would be needed to have equity bulls observing a potential bottom. As it is, 8,235 is perceived as near-term downside risk and any thought that FNM or FRE, though not Dow Components may have to be watched closer by government entities is spooking investors.

Jeff Bailey
Senior Market Technician
Option Investor

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