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Stocks look to rebound with 1-hour left

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Stocks have neared their best levels of the session as the Dow Industrials have battled back to just a 68 point decline at 8,678, while the S&P 500 Index (SPX.X) 903 -0.57% has cleared intra-day resistance of 902 in the last 5-minutes to reach its best levels of the afternoon.

While hardly a bullish statement from the bulls, stocks that looked to be on the verge of some breakdowns at the 01:00 hour, have been able to move back above their shorter-term moving average as bears most likely have made their bets and just don't seem overly aggressive to be shorting stocks ahead of tomorrow's FOMC meeting.

While the Dow Industrials have recouped 1/2 of today's earlier losses, breadth for the Dow 30 remains negative with 25 components lower and just 5 higher. Today's Dow standout has AT&T (NYST:T) $10.21 +2.10% with a 21-cent gain, which has helped the North American Telecom Index (XTC.X) 348 +0.67% edge into positive territory. Weaker components has Home Depot (NYSE:HD) 26.81 -5.23% trading up from its lows of $26.55, while JP Morgan (NYSE:JPM) $25.32 -3.98% regains about 1% of earlier session trading of $25.01.

Volume remains rather anemic, so it doesn't look as if bulls or bears are going to be hanging their hats on any of today's action. With just one-hour left in today's trading, volume at both the NYSE and NASDAQ has just barely breached the 800 million shares traded level.

Oil service stocks have taken over today's biggest sector winner with the Oil Service Index (OSX.X) 82.29 +3.84% building gains as the September Light, Sweet Crude Oil futures (cl02u) $27.86 +3.72% jump and look to challenge the contract high found on July 18 of $28.18. A break to new highs has this contract having some upside potential to the $30.00 level. Many analysts point to tensions in the Middle East as reason for higher crude oil prices and not a stronger economy.

Moving into the number 2 sector gainer spot is the Utility Index (UTY.X) 279 +1.39%, which may be a "YIELD move" into the group. Traders looking to play specific stocks may want to look for Electric Utilities. According to Dorsey/Wright and Associates, the electric utilities subgroup is "bull alert" at 28%, while the gas utilities remain "bear confirmed" at 16%. HOLDRS traders may have their eye on the Utilities HOLDRS (AMEX:UTH) $71.29 +1.27% and a trade at $72, which would be a triple-top buy signal. A close stop under the $66 level and target of $79-$80 would be a trade set-up in this sector.

Biotech stocks as depicted by the Biotechnology Index (BTK.X) 381.90 +1.38% continue to trade strong again today and perhaps bucking some broader technology weakness. Ideally, bulls would like to see a pullback near the 350 level, and look for a rebound move from there as a bullish trade as the May lows of 375-380 are near-term overhead resistance. Sector bellwether Amgen (NASDAQ:AMGN) $48.02 +0.62% has reversed an earlier session loss and looks to challenge Friday's high of $48.55. I'm now looking for firm support at the $45 level, with an upside target at 50% retracement of $50. Per past bearish profile in the Sept. $45 puts, I'd feel fortunate near-term to see the stock pull back to $45 and close out these puts. According to Dorsey/Wright and Associates, the biotech sector is now "bull confirmed" at 34%, thus bears need to be looking to close out any bearish positions near-term as demand begins to outstrip supply in this sector.

Jeff Bailey
Senior Market Technician
Option Investor

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