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Markets digest economic data with sour taste

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This morning's larger than expected jump in producer prices provided a somewhat volatile first hour of trading, but as the markets begin to digest the plethora of economic data released, a souring tone has developed.

I wouldn't characterize the market's response as overly negative as many of the support levels we've been monitoring from WEEKLY and MONTHLY pivot analysis have served support as the major indexes have seen marginal declines after a higher open.

The Dow Industrials (INDU) 7,949 -0.64% was the first major index to trade and violate its DAILY pivot, but has found a slight morning bounce from its first support zone of 7,902-7,925 after brief trading at the 7,923 level. Similar technical action has taken place in the broader S&P 500 Index (SPX.X) 842 -0.37% at its near-term support zone of 836-839, with a morning low trade of 839.24.

Dow Industrials Chart - Daily Interval

In recent weeks, it has been the Dow Industrials (INDU) that have tended to trade support levels "first" when compared to the SPX, OEX and NDX. This has me focusing some attention on the Dow as the major index that might exhibit earlier sings of technical weakness as it relates to the WEEKLY/MONTHLY retracement analysis we have been performing lately.

While the markets seem a bit "soured" by today's economic data, I wouldn't characterize it as overly negative as the Dow Industrials have found support at our fist level we would be looking for such support. Had the Dow simply "blown through" the support zone in play, then I would have then felt today's economic data would have been viewed of greater "concern" to traders.

Sector action which started out broadly to the upside is now mixed to lower. Sector losers have the Biotechnology Index (BTK.X) 318.74 -1.73% leading today's sector decline as Cephalon, Inc. (NASDAQ:CEPH) $48.33 -6.47% gaps lower after Lehman Bros. downgraded the stock to "equal-weight" from "overweight" to reflect increased commercial risks facing their lead product Provigil following disappointing Q4 sales results and cloudy guidance for Q1. Also adding to sector weakness is Biogen (NASDAQ:BGEN) $35.14 -7.91% after Europe's Committee for Proprietary Medicinal Products requested more information relating to Amevive application for psoriasis.

The weakness in the biotechs that would impact the NASDAQ-100 Index (NDX.X) 1,004 -0.17% and NASDAQ-100 Tracking Stock (AMEX:QQQ) $24.98 -0.39% is being offset by the semiconductors as the Semiconductor Index (SOX.X) 292.60 +1.24% benefits from Merrill Lynch saying it is shifting its stance to slightly positive on the group. Merrill upgraded the following stocks to "buy" from "neutral" (AGR.A, ISIL, MRVL, MXIM, SMTC, TSM and XLNX).

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Jeff Bailey

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