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NASDAQ sees gains, while Dow and S&P struggles

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There's been little change for equities in the latter part of this morning's trade and into the early afternoon except to see a slight bid come into technology stocks with the Networking Index (NWX.X) 157.79 +2.16% and Fiber Optic Index (FOP.X) 53.97 +1.2% building on some of this morning's fractional gains, and having both the NASDAQ Composite (COMPX.X) 1,381 +0.35% and larger-cap NASDAQ-100 Index (NDX.X) 1,025 +0.77% buck weakness in the Dow Industrials (INDU) 8,525 -0.7%, which is lower by 60-points, and the S&P 500 Index (SPX.X) 897.04 -0.52%.

Early morning bullishness was quickly turned lower at today's intra-day pivots in the major indexes. For those that were looking for information regarding how these intra-day pivots and levels of support and resistance are calculated, we covered this top in this weekend's "Ask the Analyst" column at both premierinvestor.net and OptionInvestor.com sites under the Education sector of the site.

In that article, we not only discussed the daily pivots and levels, but set up some "new" levels for this week for traders to monitor. We discussed the S&P 500 Index (SPX.X), which for the most part is often quoted as "the market" as it contains a broader spectrum of stocks with multiple sector association, which runs the gamut of technology to deeper cyclical sectors.

In this morning's market monitor at OptionInvestor.com, I discussed a bearish trade in the S&P 500 Index (SPX.X) based on early morning action near 900.75, with downside targets of today's S1 of 896 and potentially S2 of 890. So far, the SPX session low has been 893.84, but bears are most likely holding out near-term for a lower low of 890, with newly suggested stops just above 899 on a 5-minute bar chart close.

In this morning's market monitor, we were using the "5-minute fitted" retracement technique, but I will also show how the technique of fitting a retracement bracket from the daily pivot analysis S2 and R2 levels has been traded by the market.

S&P 500 Index Chart - 5-minute interval

We've seen the SPX hovering either side of today's S1 support of 896, but haven't really seen any type of trade close to our correlative weekly and daily support of 890. This morning's decline and rally back near the 900 level was what I felt a good action point for bearish traders, base on our retracement technique of anchoring a retracement at the daily S2 and R1 levels. In this weekend's "Ask the Analyst" column, we used similar technique of retracement, but instead of using the daily levels, used more of a "swing trader's" approach and anchored retracement from the S2 and R2 levels given by the weekly pivot analysis.

Shares of Cisco Systems (NASDAQ:CSCO) $14.42 +1.98% remain today's most actively traded stock and currently trade near their session high after Lucent (NYSE:LU) $1.70 +3.65% announced that it has signed a multi-year, non-exclusive agreement to integrate and resell select Cisco packet data and media gateway products as part of its mobile networking product offerings for the mobile service provider market.

Dow component IBM (NYSE:IBM) $81.35 +0.04% trades with a marginal gain, but just off its session high of $81.85 after it filed a $20 billion shelf offering.

On a broader scale, today's market volume is just about average for this time of day and after a three-day weekend, traders don't look overanxious. NYSE and NASDAQ volumes are at 835 million and 920 million respective, with decliners having the upper hand on advancers. NYSE breadth is negative at roughly 2 to 1, while NASDAQ breadth is negative, with decliners outnumber advancers by a 3 to 2 margin.

From the new highs versus new lows category, we are perhaps seeing some softening in the lower end of things, with 24 stocks hitting new 52-week lows on the NYSE compared to 77 stocks achieving new 52-week high. Similar action is found in the NASDAQ with 32 stocks hitting fresh 52-week lows compared to 73 stocks trading a new 52-week high. Last weeks lowest reading on the NYSE for new 52-week lows was found on Monday at 30, while NASDAQ's low reading for the category last week was on Friday at 31.

My observation from the 52-week high versus 52-week low information is that the "bottom feeder effect" of looking for rallies in weaker stocks may have played itself out. As such, those bulls that like to play bottoms in stocks need to be careful with the list of new 52-week lows starting to grow.

Jeff Bailey

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