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Washout continues as Dow Industrials approach 52-week lows

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Stock continue to edge lower as the session progresses with the tech heavy NASDAQ Composite (COMPX) 1,142 -1.98% breaking to a new 52-week low and dragging the other major market averages along for the ride.

Traders will be keeping a close eye on the Dow Industrials (INDU) 7,566 -1.95% and what looks to be a destined test of its 52-week low set on September 30, 2002 at 7,460.

A quick look at the 60-minute chart shows the Dow Industrials (INDU) trying to hang onto the mid-point of downward trending regression, but ever so slowly slipping below and putting the 52- week lows back into play.

Dow Industrials Chart - 60-minute interval

After a break of a "right shoulder" from a potentially bullish reverse head and shoulders pattern (60-minute interval) at 7,650, the Dow now tries to hold the mid-point of regression. However, with the weaker NASDAQ Composite (COMPX) and NASDAQ-100 Index (NDX.X) 813.50 -2.3% breaking new lows, I would expect the Dow Industrials and S&P 500 Index (SPX.X) 799 -2.3% and S&P 100 Index (OEX.X) -2.17% to get "pulled lower."

For a first sign of a market rebound, I would look for a Dow Industrials break back above the 7,650 level with confirming bullishness above 7,820. Until then, the markets look very defensive.

Volume at both the NYSE and NASDAQ is just below the 1 billion level, so volume is not heavy and does not hint of any type of "capitulation" taking place.

However, the daily internals are extremely bearish with NYSE breadth negative with decliners outnumbering advancers by a 4 to 1 margin, while NASDAQ breadth is negative at 3 to 1.

New highs versus new lows has the NYSE showing just 30 stocks at new highs versus a growing 307 stocks at new lows. NASDAQ has just 12 stocks at new highs versus 285 stocks at new lows.

Only the Gold/Silver Index (XAU.X) 67.14 +0.70% shows a sector gain and that is minimal. Also a sign perhaps that the markets are not "panicking" at this point.

Bearish equity traders holding some handsome gains may want to tighten down some stops in their trades or take partial positions off the table with the bullish percent charts in more oversold conditions. Especially in stocks that may have achieved prior bearish trading targets.

Jeff Bailey

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