Option Investor
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Stocks shrug off payroll with turn higher

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I don't think any type of market action is surprising to traders and investors anymore as this morning "bad news" from the Labor Department that the economy actually lost jobs instead of adding them has seen the major indexes reverse earlier losses and some "key" technical levels of resistance have been broken to the upside.

At just around 11:00 AM EST, the S&P 100 Index (OEX.X) 472.70 +0.59% traded the needed 472.50 level we had been eyeballing as a "key" technical level of resistance and now has bulls looking to make a break-through and challenge of the early December highs.

Just prior to the OEX upside alert at 472.50, the NASDAQ-100 Index Tracking Stock (AMEX:QQQ) $27.09 +1.46% broke above the $27.00 level and today's "R1" of $27.06.

Sector action has reversed the bulk of earlier loss as technology bullishness was first noted in the Fiber Optic Index (FOP.X) 56.69 +5.96% and Networking Index (NWX.X) in this morning's market monitor, when both sectors were up 1.98% and 2.5% respectively, and has built in the early morning trade. Yesterday's "catalyst" stock has shares of Foundry Networks (NASDAQ:FDRY) 9.61 +1.90% holding the bulk of yesterday's gains, with a morning high of $9.85, which just barely breached yesterday's session high of $9.82.

The Defense Index (DFX.X) 162.28 +0.21% trades with a marginal gain despite news out of North Korea that it is pulling out of the Nuclear Nonproliferation Treaty, which follows Monday's ultimatum from the IAEA calling on North Korea to readmit nuclear inspectors as well as last night's meeting between North Korean diplomats and former U.N. ambassador Bill Richardson.

While equities look to reverse early morning losses, the Treasury market has seen its gains reversed, and most major maturities trade relatively unchanged. I thought Jonathan Levinson's observations and comments this morning regarding the "lack of buying" in the major maturities despite the weaker than expected payrolls data was compelling and had traders on the alert for a bit of a "soft landing" in equities on the lower move in early morning trade. Yesterday's trade saw a rather "fierce" round of selling in Treasuries, and some of that cash raised in that market may indeed have found its way into stocks at this morning's open.

With all of the various "bullish" and "bearish" scenarios currently at play in the markets, it would be my suggestion that trader continue to trade with smaller positions, to help buffer accounts from any potential sharp swings that will certainly come as various geopolitical and U.S. tax policies continue to play out.

The ability of some levels I've deemed as being "key" that have been broken to the upside today in what some bears may feel is a rather surprise early morning reversal, have even the most bearish bears assessing their accounts and implementing some types of risk management if need be.

We will not know until after today's session, how the bullish % charts shape up.

However, our "intra-day" indicator that we discussed this morning in the Market Volatility Index (VIX.X) 27.16 +1.04%, has traded inside of yesterday's 27.88-26.80 range and gives a rather "neutral" look to things. With some technical action in the indexes showing some upside breaks of resistance, I'm monitoring a VIX break below yesterday's lows of 26.19 for any type of "confirmation" to the downside from this indicator that volatility would drop under a more bullish outlook for equities.

Jeff Bailey

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