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Chips and Software Weighing on NASDAQ

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As touched on by Steve in the 1:00 update, the semiconductor index isn't looking so hot after breaking under Friday's low. Tech bulls are also reeling from the recent sell-off in the GSO.X software index, which has trended lower ever since it briefly popped above 120 last Monday. The next level of support lies at 100, just above the 50-dma.

PeopleSoft (PSFT) might offer a bearish trading opportunity if the sector continues to move lower. The company's VP commented this morning that they were stealing market share from SEBL (another major player in the e-business software arena), but these comments aren't doing much to prop up the stock. Shares are underperforming the GSO and trading at fresh short-term lows. Pulling back to the daily chart, we see an ominous-looking formation that looks a bit like head-and-shoulders. Although there's not a clearly defined right shoulder, last week's rollover from the 200-dma ($20.34) was definitely not a positive development for the bulls. The stock is now trading just above its 50-dma at $17.15 after testing support at $17.00.

The oversold daily stochastics (5,3,3) indicate that PSFT might be due for a short-covering bounce. However, the p-n-f chart should have shareholders very concerned. The stock is threatening to break below bullish support at $16.50. A trade at this level would create a triple-bottom sell signal. This would also put PSFT below the late October low of $16.69. Should a breakdown occur, we'd be looking for a test of the psychologically-important $15.00 level. The bar chart doesn't show any clear levels of support until the October lows near $12.00.

Annotated Chart - PSFT:

An Unconvincing Rebound

It looks like the prospects for a late-session rally are fading fast. This marks the sixth consecutive session that the $INDU has posted a lower low. As was the case on Friday, the Dow managed to bounce from 8500...But thus far the bulls aren't exactly rushing in to by the dip. The index couldn't even make it above early-morning support at 8560. More significant resistance lies overhead in the 8600-8650 area. Meanwhile, the NASDAQ has spent most of the past four hours trading in a narrow range between 1380 and 1390.

Kent Barton

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