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Stocks steady, but resistance holding

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The major market averages made a valiant recovery from their opening lows and rallied right back to last week's relative highs, but were unable to push through their near-term levels of resistance.

At one point, the Dow Industrials (INDU) 8,685 -0.29% traded down what's getting to be a modes 136 points, to rebound into positive territory and actually tack on a 23-point gain, to settle back at current levels. My near-term resistance/support levels on the Dow Industrial are 8,762 and 8,430 respectively.

Similar action has been found in the broader S&P 500 Index (SPX.X) 902.38 -0.33%, with a morning low of 891 and high of 909. My near-term resistance/support levels are 912 and 872.

The NASDAQ Composite (COMPX) 1,306 -0.74%, has not yet been able to trade in positive territory, but came within 1-point of yesterday's close.

NASDAQ Composite Chart - Daily Interval

The NASDAQ Composite (COMPX) has been having a tough time breaking above its mid-point of regression in recent months. With buying coming into treasuries today, the NASDAQ and other major market averages are having a tough time pushing above yesterday's highs. Near-term, I've got a downside alert set on the NASDAQ Composite at 1,280. In recent months, breaks lower from a rally have seen some quick drops as "technology bulls" have been quick to hit the sell button on signs of weakness.

Here's a quick look at the "Beetle's Balance Benchmark fund that we created at the close of trading on July 31st, just after the GDP data was released that day. The longer-date Treasury maturites are seeing the bulk of the buying today as depicted by the Lehman 20-year Ishares (AMEX:TLT) $84.77 +1.27%. While stocks as depicted by the DIA, SPY and QQQ have the tech-laden QQQ outperforming to the downside.

Beetle's Balanced Benchmark - From 07/31/02 close

Fixed income instruments along with the U.S. Dollar have outperformed stocks since July 31st. All columns to the right of the "#Shares" column is how a basket of each security has performed since its July 31st close. Columns to the left of "# Shares" is representative of today's action.

The recent rally in stocks may hint that the MARKET is looking for a rate cut next week. If equity bulls don't get a rate cut, then recent gains may be at risk.

Today's gains in Treasuries (lower YIELDS) hints that some money is taking a more cautious stance ahead of the Fed, but bearish equity traders are also a bit jittery as many Wall Street players are asking the Fed to cut rates in order to make fixed income investments less attractive and help bolster stock price.

Jeff Bailey
Senior Market Technician
Option Investor


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