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Back at the lows

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After a bullish morning session, stocks have retreated to their session lows with the Dow Industrials (INDU) 7,738 trading lower by 17 points and giving back an earlier 158 point gain.

The gains for the Dow and even the S&P 500 Index (SPX.X) 822 -0.69% waned as banking stocks traded lower from the start.

The continued weakness in the financials and specifically the banking sector now puts market theory that financials lead a stock market advance at risk. As such, I've placed a fitted retracement on the S&P Banks Index (BIX.X) 256 -5%, which hints that this index is most likely set to test the recent lows.

S&P Banks Index (BIX.X) - Daily Interval

Today's break of upward trend in the BIX.X was not gradual and has some selling behind it. In the last couple of days, Comerica (CMA) $37.80 -5.5% and Bank of New York (NYSE:BK) $23.92 -10% both warned on earnings, citing "credit losses" from bad loans, with the bulk coming from telecom borrowers.

Telecom stocks as depicted by the North American Telecom Index (XTC.X) 332.69 +1.24% is Goldman Sachs saying they are now turning more positive on the regional bells given lower valuations and the likelihood of some better news over the next 6-months. Goldman raises their sector weightings to "market weight" and favors BLS $20.67, SBC $21.21, VZ $32.42 and CTL $25.21.

I'll have to check some updates from a over a year ago, but I could have sworn one of Goldman's heavily followed analysts was bullish on telecom a year ago at XTC.X 800 on thoughts of a technology resurgence.

Market Internals

Yesterday's action did see some modest net gains in the point and figure bullish % charts, but not nearly enough to have these broader measure of market internals reversing higher.

At the 01:00 EST hour, volume is running just under 1 billion shares at both the NYSE and NASDAQ.

Daily internals are weak with NYSE breadth negative with decliners outnumber advancers by a 3 to 2 margin. NASDAQ breadth is also negative with decliners having the upper hand by a 3 to 2 margin.

New highs versus new lows shows 58 stocks on the NYSE trading new 52-week highs, compared to 172 stocks at new lows. NASDAQ new highs versus new lows remains week on an ongoing basis with 11 stocks at new highs versus 222 stocks at new lows.

Jeff Bailey

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