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Stocks begin to extend losses

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We've started to see the major indexes extend some of their earlier losses here at the middle of today's session as the Dow Industrials (INDU) 8,583 has come very close to this morning's low of 8,574, but the more tech-heavy NASDAQ-100 Index (NDX.X) has just violated its morning low by a "frogs hair" at 1,024.04, which traders will note is right at a "round number" of some psychological support of 1,025.

With the NASDAQ-100 Index (NDX.X) 1,024.04 now back below all three of its simple moving averages (21-day, 50-day and 200-day) current levels may indeed be critical at somewhat of a "round number" type of psychology at 1,025 as next level of support from comes in at 1,1000. I showed a chart of the NDX yesterday morning in the 09:00 Update at both Premierminvestor.com and OptionInvestor.com. The upward trend on that chart looks to be at approximately the 1,015 and current assessment is that it will be tested in the not too distant future.

Another trend and levels I'm keeping a close eye on is in the Treasury bond markets. Treasuries are seeing buying and subscribers may remember some time ago we were looking at a potential reverse head/shoulder pattern in the 10-year YIELD, which at the time was hinting of bullishness for stocks. And while equities did indeed hit some relative highs after that time, I think traders once gain turn their attentions to this YIELD as it may be an indicator "away" from all the earning hoopla, and help traders and investors get a read on the bond market, which usually is looking down the road to the future, where stocks will sometimes see "knee jerk" reactions, especially during earnings season, when company's report what was, but also what they think will be, in the coming two quarters or so.

10-year YIELD Chart - Daily Intervals

Treasuries are seeing buying today and we do see a "gap lower" in the 10-year YIELD, which is sign that there was some pent up demand for these bonds in the early gong. Current YIELD levels near 4% on this bond have seen selling at certain points, and I'm sure a stock trader understands the extreme low in this bond's YIELD in October, and then again in late December to tie in with the indexes. A slip below the 4% YIELD then has the 3.955% level suspect. I've marked the 3.955% level on the chart, which was the January 8 relative low YIELD.

A quick benchmark for that date against the major index was INDU (8,580), SPX (908), OEX (459) and NDX (1,040). This would give the impression that equity traders or investors are either a little jittery and giving a knee-jerk reaction to things (related to the 10-year benchmark). However, a bear will say, heee, hee, heee..... equities were overbought to begin with and now its time to pay the piper.

I might disagree with that to a point. While I didn't benchmark to the recent relative high in the 10-year YIELD at 4.2%, it looks very similar technically to the major indexes, but now looks a little "out of whack" as if the 10-year YIELD either needs to see a decline (more buying in this bond) or equities might try and move back up to at least their January 8th benchmark.

While I would NOT make major bets on such a scenario, I do make the observation here as something that traders and investors might be aware of.

Should equities see some type of rebound back to their January 8 levels and bond YIELD not budge, then that January 8 level may be a resistance level that comes into play.

Jeff Bailey

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