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Psychology at play with Dow 9,000

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After the first hour of trade, the major market averages have been stuck in a trading range with the Dow Industrials (INDU) 9,006 +0.93% continuing to hover either side of the 9,000 level. A close above the 9,000 level should grab some headlines on the evening news and could further lift investor psychology.

With psychology at play, then traders that have heard the saying "90% of stock that trade $90 trade $100" might be looking to play bullish in shares of Intl. Game Technology (NYSE:IGT) $90.49 +5.95% after the company announced today that it will be splitting its stock 4 for 1. In late April, IGT's point and figure chart generated a double top buy signal at $86, which then built a bullish vertical count to $110. With market psychology still holding bullish, I like a "late bull's" play for IGT to trade $100, using today's news of a 4:1 stock split and upside room from the bullish vertical count to have the stock trading $100. Add to that the stock breaking to an all-time high leaves little overhead supply. As such, I'd think bulls looking for a target to sell at might be the "obvious" and "psychological" $100 level for lack of a better target.

Given an upside trading target of $100 for IGT, I would currently advise the placement of a protective stop 3% below current levels to then establish a 1:3 risk/reward ratio for this type of trade.

Sector action remains positive with the Airlines Index (XAL.X) 48.79 +7.32% beginning to extend gains after some afternoon consolidation. Shares of JetBlue Airways (NASDAQ:JBLU) $34.18 +0.55% have fallen back from their session high of $35.04 when JP Morgan cut its rating on the stock to "neutral" from "overweight" based on valuation.

I don't have the 03:00 market internals at this hour, but 02:00 PM EST data had the NYSE turning just over 941 million shares with advancers outnumbering decliners by a 3 to 1 margin with 433 stock hitting new 52-week highs compared to just 3 stocks at new 52-week lows.

NASDAQ volume was brisk at over 1.6 billion shares traded with breadth positive at 2:1. NASDAQ reported 237 stocks having traded a new 52-week high compared to 3 stocks hitting new 52- week lows.

Index traders that may be "wondering" if they should hold some bullish positions overnight, I would currently think that holding a bullish position overnight a pretty good idea at this point and market internals continue to show strengthening. My only caution at this point is OVERLEVERAGING from the bullish side at the higher levels of RISK as depicted by the bullish %.

Jeff Bailey

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