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No Surprises

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The pull back in the markets today comes as no surprise to Wall Street or OptionInvestor.com readers. What is encouraging for the bulls is how modest the selling really is. Unfortunately, for the longer-term health of any rally we are going to need a more significant pull back. Currently, the Dow Jones Industrials are down 37 points to 8689. The NASDAQ Composite is down just 5 points to 1536 and the S&P 500 is down 2 points to 942.

Market internals are negative as would be expected. The NYSE advance-decline numbers are 964 winners to 1617 losers. The NASDAQ is just a tad stronger with 10 advancers for every 15 decliners. New 52-week highs are still strong at 413 while new 52-week lows are at 24. Down volume of 290 million is besting up volume of 164 million on the NYSE. The NASDAQ is reporting 295 million in down volume and 252 million in up.

The pull back does appear pretty widespread but most sectors have managed to bounce off their early morning lows and a few have even turned green. The DDX disk drive index, the GHA hardware sector index and the INX Internet index have all turned fractionally green. These three indices all closed at new 52-week highs on Monday. Bullish investors should be very encouraged by the strength shown in financials today. the BIX and BKX have both bounced back into the green as well. The last two sectors showing strength are the OSX oil services and the UTY utility sector index.

Hardest hit today is the DFI defense group down almost one percent as the index struggles with resistance in the 500 region. Also feeling some selling pressure is the SOX, currently down just 0.79%, up off its lows for the day. A Merrill Lynch analyst downgraded the chip sector telling investors that the SOX could lose more than 20% by the end of summer. Merrill also downgraded five chip stocks from "buy" to "neutral". These were NVDA, SMTC, MXIM, ISIL and ATYT.

Thus far one has to wonder where the sellers are. Bear Stearns came out this morning and suggested that the markets are overbought, all the good news is priced in and investors should take profits. Right now the profit taking is pretty light. Even Wal-Mart's disappointing Q1 numbers this morning, which were inline with estimates but gave disappointing guidance for the Q2, did not discourage traders. We're not even seeing any reaction to the Riyadh, Saudi Arabia bombings last night where more than 20 people appeared to have lost their life including 10 Americans.

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