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Stocks falter after higher open

HAVING TROUBLE PRINTING?
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Equities have give back early session gains despite this morning's housing data which showed July's new home sales gaining 6.7% to an annual rate of 1.01 million, which was slightly ahead of the forecasted 975,000 rate. Existing home sales for July was pretty much inline with forecast and rising 4.5% to a 5.33 million-unit rate.

Two sectors that traders and investors like to correlated against this data has the Dow Jones US Home Construction Index (DJUSHB) 337.19 +0.62% and the Housing Index ($HGX.X) 250.42 +0.18% showing marginal gains.

Biotech's as depicted by the Biotechnology Index (BTK.X) 370.96 -2.88% have recouped about 5-points of their early morning lows after the Wall Street Journal reported that some generic drug makers were calling on Congress to establish an approval process for generic biologics, which would be similar to that found for drug companies and their more established drug approvals.

Some sector technical action in the Retail HOLDRS (AMEX:RTH) $81.75 -0.63% is perhaps worth noting as this group edged below their 50-day simple moving average early this morning (50-day MA at $81.50) but managed a slight rebound. Tomorrow, the group could be impacted by August's consumer confidence report, scheduled for release at 10:00 AM EST. Technical action here is slightly weaker as it relates to the 50-day MA, when compared to the broader market averages that we've been talking about in recent weeks. A close below the 50-day MA by the RTH may hint of a defensive posture ahead of tomorrow's consumer confidence numbers.

The Dow Industrials (INDU) 8,783 -1.01% have edged back below the still trending lower 50-day MA (50-day MA at 8,787) and hints of weakness. Dow decliners have United Technologies (NYSE:UTX) $58.28 -3.63% and Boeing (NYSE:BA) $36.10 -2.8%, both stocks mentioned as potential bearish candidates in prior commentary showing weakness after US Airways (NYSE:U) had filed for bankruptcy and concerns that UAL Corp. (NYSE:UAL) $3.94 +5.89% might be the next major airline to follow US Airways into bankruptcy.

Other Dow components showing weakness today are McDonalds (NYSE:MCD) $23.49 -2.73% and General Electric (NYSE:GE) $31.51 -2.29%.

Dow strength shows only one stock, AT&T (NYSE:T) $12.40 +1.47% showing a gain of more than 1%.

Volume at both the NYSE and NASDAQ is light, with just over 534 million shares traded at the big board and 800 million traded at the NASDAQ. NASDAQ volume leaders have JDS Uniphase (NASDAQ:JDSU) $3.20 +5.26% gaining on bullish comments from Soundview's upgrade of fellow fiber optic stock Cienna (NASDAQ:CIEN) $4.38 +5.28%. Late this morning, Standard & Poors cut Ciena's (CIEN) downgraded the company's debt.

Breadth at the NYSE is even with 15 stocks up for every 15 stocks down, while breadth is marginally negative at the NASDAQ with 8 stocks declining for every 7 stocks advancing.

New highs at the NYSE currently show 25 stocks achieving new highs versus just 15 stocks hitting new lows, while this indicator still looks weak at the NASDAQ with 43 stocks hitting new lows versus 23 trading new highs.

Jeff Bailey
Senior Market Technician
Option Investor


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