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Bears not out of the woods yet

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The major indexes have edged to their lows of the session and while bears got the much needed reversal from what we felt was a "critical" juncture in last night's Index Trader Wrap at OptionInvestor.com, there's still a lot of work to be done before bears become "confident" that they've turned back what some are beginning to call "the tax-relief rally."

The major indexes covered, Dow Industrials (INDU) 8,635 -1.2%, S&P 500 Index (SPX.X) 913.90 -0.97%, S&P 100 Index (OEX.X) 462.37 -1.16%, NASDAQ-100 Index (NDX.X) 1,045 -2.4% and the NASDAQ-100 Index Tracking Stock (AMEX:QQQ) $25.99 -2.47% have achieved their lower S2 support levels and that's about all a bearish index trader could have asked for on what could be a reversal top in the indexes.

A quick look at the Dow Industrials (INDU), which is being lead lower by component Alcoa (NYSE:AA) $21.96 -9.92% has traders monitoring the Dow for support at the still trending higher 50- day SMA of 8,570 and starting to round higher 21-day SMA of 8,515, which serves as the mid-portion of our Bollinger band (21- day with 2 STD. Deviations). Bears will perhaps now be pressing the issue to the downside with stops set just above the recent relative highs of 8,805.

Dow component and building products retailer Home Depot (NYSE:HD) $21.24 -1.07% also exhibits weakness and is a notable new 52-week low on the NYSE.

As the morning progresses, the NASDAQ-100 Index, which had only seen a test of its intra-day S1 of 1,058 picked up some steam to the downside and did eventually trade its lower S2 support of 1,045 as losses built from the morning lows in the Semiconductor Index (SOX.X) 320.63 -3.83%, which continues to lead today's sector loser list.

This morning's downgrades of some of the "baby bells" by UBS Warburg has some profits being taken in the telecoms as the North American Telecom Index (XTC.X) 492.90 -2.97%, which extended itself above its upper Bollinger Band in the past two sessions, looks to pullback and digest some recent gains. The upward trending 50-day SMA, which served as support at the 450 level on the most recent pullback in late December, should be viewed as support as it trends higher now at 459.49.

Shares of MGM Mirage (NYSE:MGG) $28.25 -13.3% are today's 8th largest loser on the session after the hotel/gaming company preannounced that earnings would miss analyst's estimates by a wide margin. The negative tone from this gamin concern has shares of slot machine maker International Game Technologies (NYSE:IGT) $74.30 under some selling pressure, but off its lows of $72.70 found earlier in the morning trade.

Jeff Bailey

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