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I can't explain this....

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Stocks are under pressure again today with the major indexes in the red. Except for one, and I have no clue as to what is taking place here, other than some type of aggressive short-covering.

While the NASDAQ-100 Index (NDX.X) 885 -1.0% trades lower, the NASDAQ-100 Index Tracking Stock (AMEX:QQQ) $22.07 +0.54% trades positive. When I look at the NASDAQ-100 Heatmap from the NASDAQ market site http://screening.nasdaq.com/Heatmaps/Heatmap_100.asp I find breadth negative in the 100 stocks at roughly 83 decliners for 17 advancers, with the largest gains found in Paychex (NASDAQ:PAYX) $24.34 +3.9%, Genzyme (NASDAQ:GENZ) $22.68 +4.51% and Tellabs (NASDAQ:TLAB) $4.87 +2.31%. While several stocks have NXTL -8.07%, SUNW -8%, CPWR -6.17%, VTSS -6.17%.

My only thinking here is as it relates to last night's Index Trader Wrap, that investors are bidding up shares of GENZ ahead of next week's FDA meeting for its Fabrazyme drug. With biotechs carrying some meaningful weight in the QQQ, then bears may be locking in recent gains with biotech exposure in the security.

Meanwhile, we've seen the Dow Industrials (INDU) 8,047 -1.52% reach our near-term bearish target level of 8,045, which marks the relative reversal low from August 5th. A close below the 8,030 level, which was the August 5 close, could then have the 7,700 further in play. In today's market monitor, I thought bears should look to lock in some gain, especially if they're holding some index puts in the SPX and OEX.

The S&P 500 Index (SPX.X) 855 -1.62% trades lower with the various sectors that comprise a larger weighting in the broader market all in the red. The "key" sector a bear was monitoring for strength was/is the retailers as depicted by the Retail HOLDRS (RTH) $80.57 -0.55%, which continues to show relative strength versus the broader market.

S&P 500 Index Chart - Daily Interval

The SPX has slipped below our 19.1% retracement and now threatens a potential close below that level. The retailers continue to trade relatively strong versus the SPX and OEX, so bears know where they want to see some weakness come from to act like a weight and push the SPX lower to our bearish target of 835.

There's been plenty of "help" for a bearish index trader from the technology stocks of late and even some of the financials have done their part with below expectation earnings.

I would think an index bear that held BOTH bearish trades in the Dow Industrials, should lock in some gains there as targets have been achieved, then hold the SPX/OEX bearish trades. What this will do for your account management is raise some cash from the Dow Indu. trade, and give you a little room from locked in profits to work with as a trader monitor SPX/OEX for weakness to targets. A trailing stop of OEX/SPX traders above the 19.1% retracement levels we've discussed in recent weeks should serve as a profit stop at this point.

Should 835 be achieved, we might se a rebound back into the 870- 900 range, which gives stochastics some time to recover from current "oversold" levels as another potential bearish entry point.

Especially if the NYSE Bullish % ($BPNYA) reverses back into a "bull correction" status, which might be taking place as we speak.

Jeff Bailey
Senior Market Technician
Option Investor


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