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Industrials lead declines, but NASDAQ-100 wouldn't break

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Industrials lead declines, but NASDAQ-100 wouldn't break

An early morning downgrade to "sell" on shares of Dow component General Motors (NYSE:GM) $31.27 -5.69% got the ball rolling for weakness in the Dow Industrials (INDU) 7,704 -1.69% as this major index pulled the S&P 500 Index (SPX.X) 821.99 -1.53% and S&P 100 Index (OEX.X) 415.36 -1.61% below their WEEKLY S1 levels of support, but technology bulls held tough and wouldn't fully relinquish their hold on the NASDAQ-100 Index (NDX.X) 982.98 -0.81% and NASDAQ-100 Tracking Stock (AMEX:QQQ) $24.50 -0.6% as they held above their WEEKLY S1s throughout the session.

Little economic data was released from the government today, but outplacement firm Challenger Gray & Christmas said that announced that February layoff announcements reached 138,777, up 5% from January and 8% from a year ago, which kept bulls at bay as just another reminder that corporate and State and local government branches tighten the purse strings against a sluggish economic backdrop.

Treasuries, which had the longer-dated and "riskier" 30-year bond (us03h) $116'010 +0.13% under modest selling pressure for the better part of today's session, saw defensive buying into their close. The 10-year bond (ty03h) $117'040 +0.18% found gains for a seventh consecutive session (up 10 out of last 11) with the 10- year YIELD ($TNX.X) falling to 3.65%, its lowest closing YIELD since a strong round of selling took hold on October 10th of last year.

Bottom line: Bonds have found buyers for seven straight sessions and the bond market looks so bullish, its ridiculous! The Dow Industrials look like they're going into the tank, but not unlike last October, the NASDAQ-100 just won't collapse, when it had ample opportunity to do so today. As such, I'm on the alert for a reversal in both bonds and stocks.

Tonight I'm showing the major indexes with their CONVENTIONAL retracement brackets. The MONTHLY and WEEKLY retracement shows last night will not have changed and traders preferring to use their levels can review last night's wrap.

Dow Industrials (INDU) - Daily Chart

The Dow Industrials closed below our WEEKLY S1 level of support, but now sits right on upward trend and lower Bollinger Band. A continued break below the 7,700 would trigger a "bearish triangle" pattern in the Dow's point and figure chart and could have the Dow "plunging" to my MAX WEEKLY decline near 7,578. With the Dow Bullish % at lower levels of Bullish %, I'm looking to protect bearish gains, and could do so with a tight stop just above WEEKLY S1 of 7,735.

I've marked the October 10th date on the Dow's chart to show us where the 10-year YIELD closed today and how a tight stop above the Dow's WEEKLY S1 of 7,735 or 61.8% retracement of 7,902 could help a Dow bear guard against a sharp reversal should bond bulls pull the plug.

Today's action saw no net change in the very narrow Dow Industrials Bullish % ($BPINDU). Status remains "bear confirmed" at 13.3%.

NASDAQ-100 Index (NDX.X) - Daily Interval

I've been trading the QQQ on with a very short-term type of viewpoint and have been hesitant to hold bullish/bearish positions for more than 2-days (I like to trade the Q's) and when the Q's held just above their WEEKLY S1 early in the morning, moved to the sidelines. When some selling looked to be taking hold in the 30-year and 10-year Treasury, I "speculated" with a small position in the QQQ March 25 calls at $0.65 (sat a bid at that level and eventually got filled), but as Treasuries began reversing into their close and found buyers, the Dow fell below WEEKLY S1 and I pulled the plug on my bullish trade, with the thinking that the Q's and NDX would "give up" their WEEKLY S1s of 981.80 and $24.42. The QQQ session low was $24.42 and closed $24.50.

As a QQQ/NDX trader, it is REALIZED how this indexes action is DEPENDENT on Treasuries and even the Dow at this point. Believe it or not, the Dow and QQQ seemed to move up almost in unison from their intra-day consolidation "bases," and Dow weakness is soon followed by QQQ/NDX weakness.

My hesitancy in holding BULLISH trades overnight in the QQQ/NDX at this point is the perception of downside risk to lower Bollinger Band.

If I couldn't monitor the QQQ/NDX on an hourly basis like I can during the day, I'd feel much more comfortable holding a straddle/strangle trade in this more volatile index.

Today's action saw no net change in the NASDAQ-100 Bullish % ($BPNDX). Status remains "bear confirmed" at 34% bullish.

S&P 100 Index (OEX.X) - Daily Interval

Similar to the Dow Industrials, the OEX never really challenged its WEEKLY pivot at the open and by session's end, closed just a smidge below its WEEKLY S1. We can perhaps see how the OEX is "trailing" the Dow's declines as it relates to the OEX's close relative to lower Bollinger-Band and this gives the impression that there may be further downside for a bearish trader relative to the Dow on a technical basis.

Today's action saw some further deterioration in the S&P 100 Bullish % ($BPOEX) as it lost a net 1%, or 1 stock to a reversing point and figure sell signal. This has the S&P 100 Bullish % falling to 27% and the lowest reading for this indicator during its decline. The recent low on the OEX chart above was February 13th. My records show the bullish % was at 29% that day. With an indicator like the bullish % LOWER than the actual price level of the OEX itself, this would be "bearish divergence" and therefore deemed more bearish, with the OEX vulnerable to its 02/13/03 lows and perhaps our MAX weekly target of 407, where we find correlative support at the conventional 80.9% retracement and WEEKLY S2.

S&P 500 Index - Daily Chart

Similar to the Dow and OEX, the SPX didn't test its WEEKLY pivot of 836.0, but came close at 835.43. A swing-trader that's targeting a weekly decline to 807 is about 1/2 way to that target right now, and I personally wouldn't be risking a stop clear above WEEKLY R1 of 853.40 and would think a tighter stop was in order above 840, or the 61.8% conventional retracement.

Today's action saw a net loss of 5 stocks to reversing point and figure sell signals, which has the broader S&P 500 Bullish % ($BPSPX) falling 1% to 33.4%. I made a similar note in the above chart to that in the OEX's chart as it relates to February 13th.

Here's a quick look at our Pivot Analysis Matrix. In "pink" I've made a note regarding today's 10-year YIELD ($TNX.X) session low as it relates to the WEEKLY S1 level of 3.633% (or 36.33). It was the slight amount of selling during today's session that held up until about the last hour of trade, that has me wondering if there might not be some type of profit taking in Treasuries. Therefore, I would think a bearish equity trader would want to see some 10-year YIELD action below the 3.633% level tomorrow morning to portend session weakness in equities.

Pivot Analysis Matrix

Since the QQQ held the $24.42 level of WEEKLY S1 today with a session low trade of $24.42, I would view early support on an intra-day basis tomorrow in a little "zone" of $24.36-$24.42.

Correlative levels of resistance exist between the MONTHLY pivot in the Dow and its DAILY R2. Similar MONTHLY/DAILY resistance can be found in the NDX's Monthly Pivot and DAILY R1.

It would be my thinking at for the Dow or NDX to test these levels of resistance tomorrow, we'd have to see some type of catalyst in equities come from some type of profit taking in Treasuries. That type of action might move some equity shorts to covering and bring a rebound to stocks.

Jeff Bailey

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