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In the red

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Stocks are near their lows levels of the session after breaking to a September low, as history look to be repeating itself with September being the most bearish months for stocks.

All the various sector indexes are in the red, with the exception being the Gold/Silver Index (XAU.X) 74.81 +1.63%, which found horizontal resistance again this morning near the 76.00 level. The group still looks to be holding bids as the commodity itself, as depicted by the December Gold Futures (gc02z) 321 +0.87% rebounds nicely from technical support found yesterday at both the 21-day and 50-day SMAs near 315.

Sector weakness is found in telecom-equipment related sectors as the Networking Index (NWX.X) 100.25 -5.22% and Fiber Optic Index (FOP.X) 32.16 -4.2% both break to fresh 52-week lows. Thinking here is that the end of the third quarter is upon most mutual funds and portfolio managers look to be conceding mistakes and ridding portfolios of stocks that lack a near-term catalyst. The alternative is to hold and then try and explain why the fund manager bought the stock in the first place.

Financials are weak after last night's earnings warning from JP Morgan (NYSE:JPM) $19.09 -11.4%. The KBW Bank Index (BIX.X) 707.41 -2.9% broke 3-day support at 725 this morning and looks vulnerable still to the August 5th close of 687 near-term. S&P Index traders may want to tie in the 687 level with their "swing- trade" bearish targets that have been outlined in the Index Trader's Wrap each night.

Also weak are airline stocks as depicted by the Airline Index (XAL.X) 37.80 -5.52% after Merrill Lynch downgraded NWAC, CAL and DAL to "neutral" from "buy" based on view that share price upside will be modest in the near-term.

One key level of technical support that was broken today was the broader NYSE Composite ($NYA.X) 467 -1.36% at the 470. This triggered a triple-bottom sell signal and hints that institutions, which stick to 1,2 and 3 lettered stocks on a longer-term basis (12-18 months) are perhaps beginning to have to sell stocks to meet redemptions from their mutual fund clients.

Notable new lows I've seen in the NASDAQ have shares of software maker PeopleSoft (NASDAQ:PSFT) $13.23 -7.16% and QLogic (NASDAQ:QLGC) $29.20 -4.85%, which designs and supplies storage network infrastructure components.

Breadth is decidedly negative at both the big board and NASDAQ with decliners outnumbering advancers by a 3 to 1 margin at the NYSE, with NASDAQ breadth showing decliners getting the upper hand on advancing issues by a 5 to 2 margin.

New highs versus new lows indications are notably weak. The NYSE has just 20 stocks reaching new 52-week highs versus 163 new lows, while NASDAQ is equally weak in this category with just 12 stocks at new 52-week highs, versus a widening 173.

Jeff Bailey
Senior Market Technician
Option Investor


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