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Stocks hover near session lows

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A stronger than expected November new homes sales report that showed new home sales surging to a 1.07 million rate hasn't been enough to keep the major indexes in positive territory, and it may well have been the 26% decline in new home sales in the North East that removed much of the glitter from the report.

The Dow Industrials (INDU) 8,366.62 -0.78% has managed to hold the 8,350 level as support on two tests of this level this morning, but resistance on an intraday basis looks to be building right near the 8,375 level.

A key level of support that has been holding so far today has been the 445 level of the S&P 100 Index (OEX.X) 446 -1.02% as today's low of 445.04 came within a "frog's hair" of trading the 445 level, which would have the OEX triggering a spread-triple bottom sell signal on its unconventional $2.50 box on the point and figure chart. While a trade at 445 would have the conventional $5 box p/f chart triggering a double-bottom sell signal. A trader at 445 in the OEX becomes alarming to bulls, as it would be the first sign of meaningful weakness since the OEX gave a double-top buy signal back in October at 430 in the early stages of the recent market rebound.

In last weekend's "Index Trader Wrap" at both OptionInvestor.com and premierinvestor.net, we were answering a question regarding doubl-top buy signals and selected shares of International Business Machines (NYSE:IBM) $77.33 -1.49% as our "guinea pig" stock to work through that exercise. What we may have actually uncovered in that article was also some hint of weakness beginning to build in the stock. Today's trade at $78 does have this "key" stock and Dow component generating a sell signal and suggesting a more defensive posture toward the stock, and perhaps broader technology. That is, if you or I believe IBM, is a bellwether type of stock for technology and perhaps the Dow Industrials, S&P 100 and S&P 500.

IBM Chart - $1 box

In this weekends "Ask the Analyst" column, we actually took a "historical tour" of IBM's point and figure chart, starting with early September (red 9 on a p/f chart) and made some ties to what we've been discussing in recent weeks regarding the higher levels of the bullish % charts that began reversing lower and alerting traders and investors to weakness building in the market internals. The recent "high pole warning" (pink vertical bars) that retraced more than 50% of a rather long column of X (demand) gave some hint that shares of IBM were looking a little tired. Today's trade at $78 has the stock back on a sell signal and gives the stock a more defensive look where bulls from lower levels should begin hedging positions or looking to lock in gains. Bears will begin snooping for some partial positions with stops just above the $83 level.

With IBM hovering just above the $77 level, we would not begin correlating a potential trade at $76, which would be further weakness and a spread-double bottom sell signal with the OEX possibly trading the 445 or 442.50 level, which would be a key level of support being broken.

Market volume is once again anemic with NYSE and NASDAQ volume just now above the 400 million share mark.

While yesterday's breadth remained positive at the end of a lower trading session, today's breadth shows weakness. NYSE breadth has decliners outnumbering advancers by a 2 to 1 margin, while NSADAQ breadth is also negative at 2 to 1.

New highs versus new lows remains positive, but not to the extent we saw yesterday. Still, new highs versus new lows has the NYSE showing 23:18, while NASDAQ has 33 stocks at new 52-week highs versus 29 stock at new lows.

On an intra-day basis, I'm using some "pivot" data that John Seckinger has been writing about in recent weeks and traders might be alert for a Dow Industrials break below the 8,445 level to see weakness toward session's end of 8,312. If the Dow can muster a move above 8,375, then there may be some recovery potential back to today's "pivot" near 8,468.

Jeff Bailey

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