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Stocks extend losses to session lows

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What started out as a rather flat to marginally lower open has picked up some downside steam as trading curbs were put in place with the Dow Industrials fell 170 points, but continues to trade lower, now down 237 points, or 2.8% at 8,131, with not one component showing a gain on the session.

A broadening of losses in the various sectors we follow has the S&P Insurance Index (IUX.X) 248 -5% now taking today's top spot among sector losers, with the Semiconductor Index (SOX.X) 283.73 -4.93%, Disk Drive Index (DDX.X) 74.08 -4.4% and GSTI Software Index (GSO.X) 106 -4.3% all posting losses greater than 4%.

The Gold/Silver Index (XAU.X) 82.87 +3.13% has slowly been building gains during the session as the February Gold futures contract (gc03g) $369 +1.12% has just now broken above yesterday's highs and to a new contract high. The move in gold is being spurred by a new low in the U.S. Dollar Index (dx00y) 99.29 -0.57%, which extends its move lower from yesterday's breaking of the 100.00 level and has the dollar trading at levels not seen since January 2, 2000.

The DIVERGENCE between gold and the dollar puts fears of weak dollar inflation in play, but also spurred by fears that a U.S. lead war with Iraq is nearing.

Other safe havens like Treasuries sees a strong round of buying among the major maturities. It's the buying in Treasuries that has me thinking the current dollar/gold DIVERGENCE is more related to Iraq war jitters than dollar inflation as any sign of inflation would most likely have a Fed concerned and looking to begin raising interest rates at some point. If so, then Treasuries should find sell and not buying like we're seeing from the markets. As such, it is my interpretation that the defensive nature we're seeing in the markets is heightened fears of war.

S&P 500 Index Chart - Daily Interval

All of our daily and weekly pivot analysis levels of support have been violated or at least traded to the downside today, with the NASDAQ-100 Index (NDX.X) 996.63 -3.48% the only major index to hold its weekly S2 level of support at 960 and S2 support of 989. The above chart of the S&P 500 Index (SPX.X) shows a major break of support at 868 dating back to its October 29, 2002 relative low that has held as support in late December, and today's trade at 861 has the SPX retracing 50% of its rally from October. With trend lower and the S&P 500 Bullish % ($BPSPX) still falling and "bull correction" status, current levels of support on further weakness below current levels is assessed at 840, with resistance now building back in the 868-900 range. After today's close, we'll be able to plug in this weeks ranges and begin assessing support resistance levels from pivot matrix analysis for next week.

From last month's trade, current resistance for the SPX on a monthly basis is at the SPX's monthly pivot of 901, with support of 847, which may tie in with the downward trending channel I've placed on the above chart of the SPX.

Jeff Bailey

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