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Technology dampens bullish response to Fed

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The major indices reclaimed the bulk of Monday's losses with the S&P 500 Index (SPX.X) 1,079.04 +1.29% jumping more than 13-points on broad sector gains after the Federal Open Market Committee raising its target for the fed funds rate to 1.5% from 1.25%.

Treasuries, which traded either side of unchanged for the bulk of the session finished at their price lows of the session with yields moving higher, as the benchmark 10-year yield ($TNX.X) jumped 4.3 basis points to close at its WEEKLY Pivot of 4.287%.

A quick look at the October Fed Funds futures contract (ff04v) 98.33 -0.03%, which would encompass the September 21 FOMC meeting has market participants forecasting a 68% chance of another 25 basis point rate hike to 1.75% at the September meeting.

U.S. Market Watch - 08/10/04 Close

A sector downgrade on the semiconductors had the Semiconductor Index (SOX.X) 392.96 +1.37% lagging today's gains among technology sectors. An after-the-bell earnings warning from SOX.X component National Semiconductor (NYSE:NSM) $15.70 +0.51% found the stock hit lower at $14.20. The Semiconductor HOLDRs (AMEX:SMH) $30.86 +1.04%, which NSM is also a component, was hit lower at $30.15, where today's high in the SMH did NOT see trade at its QCharts' derived MONTHLY Pivot ($31.44), but may have its WEEKLY S1 ($29.68) challenged in tomorrow mornings trade.

Networking giant Cisco Systems (NASDAQ:CSCO) $20.46 +2.04% fell to $19.39 in extended hours (WEEKLY S1 $19.46, S2 $19.01) after reporting quarterly results. Forward quarterly revenue guidance of flat to up 0.2% sequentially (consensus was +2.9%) failed to impress traders in tonight's after-hours session. In the above U.S. Market Watch, I marked the Networking Index (NWX.X) with its QCharts' WEEKLY S1 (201.30) as a near-term level of potential support, where we would expect some of the networkers to exhibit weakness in tomorrow morning's session.

Another tech casualty in Tuesday evenings extended session was Computer Sciences (NYSE:CSC) $44.20 +1.28%, where the information technology (IT) service provider reported bottom line results of $0.58 per share, which was a penny better than consensus, but revenues disappointed.

Market Snapshot / Internals - 08/10/04 Close

Just prior to today's decision on interest rates, I profiled a BEARISH trade in the underlying NASDAQ-100 Tracker (AMEX:QQQ) at $32.18, stop $32.55, target $32.25, as it looked like sellers were going to keep a lid on things at the MONTHLY S1s.

The TRIN started to edge up from post-lunchtime lows and both the NYSE and NASDAQ a/d lines looked to be fading a bit.

Since the equity markets responded bullish to the Fed's decision, and equity indices were able to move above their MONTHLY S1s, I have to view those correlations with tomorrow's DAILY S1s as a viable level of near-term support.

Pivot Analysis Matrix -

The major equity indices traded up to their MONTHLY S1s just ahead of today's FOMC decision to raise its target for the fed funds rate by 25 basis points to 1.5%. Just after the decision was announced, the major indices slipped back to Tuesday's DAILY R1s, but buy program premiums were found on that dip which drove the major indices to new session highs and their WEEKLY Pivots.

Negative responses to tech earnings released after the closing bell (04:00 PM EDT) has the Dow Diamonds (AMEX:DIA) down 27 cents from its 04:15 PM EDT close at $99.30, the S&P Depository Receipts (AMEX:SPY) $108.38 +1.28% lower at $107.92 and the NASDAQ-100 Tracker (AMEX:QQQ) off 20 cents at $33.01. So far, the QQQ hasn't been able to break below tomorrow's DAILY S1, where my extended hours chart shows the tech-heavy QQQ having traded a low of.... $32.93.

While technology will grab tomorrow's headlines, traders may be well served to keep an eye on your financial sectors where a bold break above WEEKLY R1 (I didn't see MONTHLY Pivot correlation until this writing) in the S&P Banks Index (BIX.X) could be an alert to broader market strength.

Jeff Bailey

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