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What gives\?

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Weren't technology stocks supposed to get crushed after a major technology bellwether like Dow component Hewlett Packard (NYSE:HPQ) $19.80 -10.44% failed to meet Wall Street's quarterly earnings and revenue benchmarks?

How can drug giant Merck (NYSE:MRK) $52.12 +2.51% finish Tuesday's session at $53.72, but still post a gain of 2.51% in today's session?

While terminology has changed over the years, a popular phrase for expressing confusion or wonder back in the 1980's "was gives?" was often used.

Today, there was little give as if traders/investors figured that Hewlett Packard's quarterly disappointment was Hewlett Packard's problems, and despite a weaker dollar, which has had many U.S.- based exporters to Europe actually benefiting from the dollar's weakness in the recently completed second quarter, HP's inability to find any type of foothold in Europe, must simply be HP's problem. Heaven for bid the dollar strengthens and European economies continue to struggle.

Merck (MRK) $52.12 +2.51%? It spun off its Medco Health (NYSE:MHS) $25.22 unit today, and as Merck challenges its March lows of $50.00, Medco Health's (MHS) debut started with an opening tick of $23.10 to finish its first day of trading at $25.22. S&P 500 Index (SPX.X) 1,000.30 -0.02% bulls were heard cheering as Medco Health replaced McDermott (NYSE:MDR) $4.40 +3.53% as S&P felt McDermott no longer carried the market cap standards needed for any further representation. No doubt McDermott bulls cheered as institutional selling by mutual funds set up to mimic the performance of the S&P 500 Index are finally rid of the stock.

Europe? After Italy and then Germany recently reported a second consecutive decline in quarterly GDP, jokes were spreading around many water coolers here in the U.S. that France surrendered to the trend, after economic data showed the French economy shrank in the second quarter, providing further evidence that Europe was lagging the recovery being seen in the United States.

Societe Generale economist Irina Topa said "This is very negative for France. Now we expect a weak second half, not necessarily a contraction, but not the upturn that had been expected." France's CAC 40 actually eased up from its late-session lows to finish down 30-points at 3,280.34. That's not too bad considering three counties in the euro-block have seen economic signs of recession.

The main complaint among European countries and sluggish economies is the STRENGTH of the euro.

A nation's, or economy's currency, in the case of the euro can be a double-edged sword that will cut both ways. Too strong in a weak global economic environment and your exports become too expensive and pressures economic growth. Too weak of a currency, and monetary-like inflation becomes a concern.

If there were any question in recent months, if not years that it would have to be the United States' economy to lead the rest of the world out of a global economic downturn, then those questions are being quickly put to rest. Analysts' in Japan that see the Nikkei-225 breaking out to new 52-week highs lend that bullishness to better prospects for their exports, which largely ride on the U.S. economy.

Hmmmmm? Gold stocks have been on fire lately with the AMEX Gold Bugs Index ($HUI.X) 190.48 +2.24% posting 5-consecutive all-time highs since breaking above the 160 level last week. This action in precious metals stocks is a bit perplexing considering the December Gold futures contract 367.00 +1.1% is still below its contract high of $377.00 set on May 23. It is often thought that the stock market and price action within a sector precedes price action in the commodity itself. While I'm not a futures trader at this point (I keep meaning to get an account set up for futures) I've got an upside alert on the December Gold futures contract at 370.00.

Let's see.... Gold usually finds bullish price movement during times of deflation and excessive inflation. When the Fed sees excessive inflationary signs (which we have yet to see in any economic data) the Fed will raise interest rates, which the bond market has been hinting at.

Hmmmm.... one simplistic rule regarding banking stocks is that higher interest rates are often viewed as a negative for the sector. For yet another session, the S&P Banks Index (BIX.X) 304.36 -0.10% and KBW Bank Index (BKX.X) 885.05 +0.01% didn't give an inch. Maybe tomorrow?

Pivot Analysis matrix

As I continue to make some observations regarding the dollar, Treasury bonds and banks, bulls may have a slight advantage as I see things today.

I will NOT argue that just because banks may trade lower due to higher Treasury YIELDS, which may have the Fed eventually taking a tightening stance, doesn't necessarily mean the major equity indices can't advance further. But a move lower in the financials, especially the banks, combined with a move lower in Treasury YIELDS, may be combination that signals weakness of the major indices.

The dollar. Again, this is the double-edged sword at this point, and I don't think it is going to be too much of a concern or have too much economic impact as long as any move is GRADUAL.

On a global scale, perhaps using Hewlett Packard and even quarterly comments from IBM regarding sluggish sales in Europe, that it becomes somewhat important for the European economies to show stability and some growth, otherwise I would think there becomes some limit as to how much imports from the U.S. they could consume. Regardless of how strong their currency is against the dollar. I've got to give Japan some credit in that they've made a concerted effort to try and keep the yen stable against the dollar.

Tomorrow, I think the weekly jobless claims are going to get major focus. While these weekly reports only address layoffs, not hiring, economists expect weekly claims to come in at 395,000, which would be the fifth week below the critical 400,000 level, which is the benchmark level many economists say signals some stability on the jobs front.

I'm setting alerts on the BIX.X at downside 303 and upside 307. A downside alert at 303 would only be viewed as negative in my opinion, should Treasury yields FALL below their WEEKLY S2 in the pivot. I observe this type of trade as being negative only with the thought that strong buying in Treasuries, and a declining bans sector, would signal a DEFENSIVE move toward equities.

It is not entirely out of the realm, the some of tomorrow's economic data might actually be viewed as very bullish economic sign, have Treasury YIELDS heading higher, banks falling, but broader equities holding tough. However, I set the upside alert on the 10-year YIELD ($TNX.X) as a YIELD alert to closely monitor the major indices at the various levels of correlative resistance in tomorrow's DAILY and WEEKLY levels.

S&P 500 Index (SPX.X) Chart - Daily Interval

The risk/reward trade, in my opinion is in the bears favor as bears short below 105 using trend from regression and 1,004 WEEKLY R2, which also has technical tie in with recent relative high. However, this risk reward trade may unravel to SPX 1,016 on steep decline in weekly claims. The S&P Banks Index (BIX.X), which has just been stagnant for past 6 sessions is my only real hint/observation that something isn't necessarily all the bullish in the SPX's recent 3-day progression to the upper end of regressions. Oscillators have MACD bullish, while Stochastics near-term bearish and gives the look that pressure is building!

Today's trade saw a net gain of 1 stock to a point and figure buy signal in the broader S&P 500 Bullish % ($BPSPX), which was Network Appliance (NASDAQ:NTAP) $20.88 +15.6%, and has the bullish percent edging up 0.2% to 75.6%. Still "bull correction" status.

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

I received a great question from a new subscriber to OI today. Why do I show the OEX.X chart without similar regression as the SPX? I certainly could, but both look so similar. Before we placed the regression channel on the SPX, some traders may have used the downward red trend as a bearish trend, where the OEX had NOT been able to CLOSE above that trend. We can see in the WEEKLY matrix retracement (blue) that the OEX lags the SPX a bit. It's my thought that it is the current lacking of technology stocks that has the OEX lagging right now. Just last week, it was this "lack of tech" that actually had the OEX showing a little more strength as it would relate to the WEEKLY levels, when technology shares were a little late on the rebound.

This action that we've seen with technology stocks and non- technology stocks is almost like that school ground game called "crack the whip," where a string of kids all grab hands, then one end of the chain begins running, changing direction, where the end of the chain gets the bulk of the "crack the whip" type of move. Perhaps as the BIX.X and slower moving banks, which showed stability a week ago, which had the SPX/OEX/INDU firming, while the NASDAQ-100 Index inched lower for several session, then had the BIX.X rebounding, which had the SPX/OEX/INDU starting to whip higher. Now, the past couple of sessions, they've been holding ground, while the NDX has been "whipped" back higher.

NASDAQ-100 Tracking Stock (QQQ) - Daily Interval

I'm calling this new blue" regression channel, which is drawn from the 52-week high on June 14th to today's bar as a "cheater bearish channel." I call it a cheater's channel as it may only represent a trend for bears to cheat their way into a feeling of comfort into tomorrow's economic data.

I still don't have any short-interest data for validation, but it is my best guess that since short-interest has been rising in the QQQ for the past couple of months, there may well have been some bears, if not some starting to get sideways downside hedges, using HPQ's quarterly earnings report to try and square up some trades on the negative tech-related news. The 5-largest weighted NASDAQ-100 stocks were relatively little changed, with MSFT, INTC and CSCO perhaps having some closer ties to HPQ's various business units. Network Appliance (NTAP) $20.88 +15.6% was the NASDAQ-100 biggest gainer, and has a 0.63% weighting in the NDX/QQQ.

Today's trade saw a net gain of 1 stock to a new point and figure buy signal in the NASDAQ-100 Bullish % ($BPNDX) (it was NTAP) and has the bullish % edging higher to 69%. This is just 1% shy of 70%, which would be a reversal back up from current "bear confirmed" status to "bear correction" status.

Dow Industrials (INDU) Chart - Daily Interval

Being a price weighted Index, the Dow Industrials seemed to shrug off HPQ's 10% decline. 3M (NYSE:MMM) 143.82 +0.02% is the largest weighted stock in the Dow, but is about to split 2:1, when Procter & Gamble (NYSE:PG) $87.38 -0.47% would be the largest weighted Dow component. As long as the Dow hangs around 9,400, it should have a positive impact on market psychology. Not only here in the U.S., but around the world. The Dow Industrials (INDU) is the most quoted major equity index around the globe. While it seems ridiculous to comment on this type of psychology, it can have a major influence on buy/sell decisions.

Today's trade saw the very narrow Dow Industrials Bullish % ($BPINDU) unchanged at 80%, and still reading "bull correction" status.

Jeff Bailey

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