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"Dr. Juice's" motor still running

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In this weekend's Index Trader Wrap I discussed one sector that most likely was an area that S&P bears needed to find weakness. For the most part, a bear "hates" strength and looks for strength to turn to weakness and eventually act like a sledge hammer to drive a corresponding index further into the ground.

In Friday's Index wrap, we talked a little about how that day's action was a bit like "Dr. Juice" shoving a carrot into his blender, which in the early going of the trading session had that juicer's motor bogging down a bit as pressure was applied to the carrot. For bears, they like today's action, but still understand there's one heck of a lot of work to be done as it relates to the retailers, as depicted by the Retail HOLDRS (AMEX:RTH) $81.88 -1.34% to provide the weakness needed from a still rather strong sector to help push the OEX and SPX to our swing-trader's targets of 491 and 835 respectively.

Retail HOLDRS (RTH) - Daily Interval Chart

Let's face it. The retailers as depicted by the RTH are BULLISH relative to what we see in the major market averages. Remember how we "tied" the RTH retracement similar to the Dow Industrials and S&P index charts. Look at these darned RTH still well above their 19.1% retracement and also above trend, while the Dow, OEX, and SPX all flirt with their upward trends. Bears like today's selling back in the range between $83 and $84.50, just like found in mid-August and then on 09/11, with MARKET participants willing to sell and outstripping demand for the potentially fatal push higher above $84.50.

However, bears can't be breaking out the party favors just yet. Next levels of support are easy to measure with the 21-day SMA at $81.46, then 50-day SMA at $79.11 and more important support at 19.1% retracement, which we tried to tie in with our bearish OEX and SPX targets.

Again, a trader can't just monitor the retailers to try and envision a potential outcome in the Dow, SPX and OEX, but it is perhaps the strongest group that a bear needs to see weakness from.

Trading is somewhat like football. For a bear, you want to see the other teams "best player" removed from the game. While nobody really wishes another player get hurt, you're just hoping the "best player" on the opposing team has a bad game and you end up winning the game as the index your trading hits your trading target.

At the same time, you want to monitor the weakest players. I'm telling you. If the "best player" for the opposite team has an off game and the weakest ones perform to their usual below average performance, a bearish trader stands a much better chance of his/her team winning.

Jeff Bailey
Senior Market Technician
Option Investor

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