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Is the Bernanke Buying Binge Ending?

Continued uncertainty in the oil-rich countries of the Middle East and North Africa and rumors of an impending slowdown in QE2 bond purchases by the Fed sent Nasdaq lower. But the broad market was flat with the Dow Jones Industrial Average trading in about a 100-point trading range due to a lack of any specific news.

Daily Stock Market News

Dow: -1 at 12,213

S&P 500: -2 at 1,320

Nasdaq: -14 at 2,752

Volume & Breadth

NYSE: 870 million, decliners ahead 1.1-to-1

Nasdaq: 531 million, decliners ahead 1.4-to-1

Futures & Related ETFs

April Crude Oil: -$0.64 at $104.38; Energy Select Sector SPDR (NYSE: XLE ) -$0.53 at $76.62

April Gold: +2.40, settled at $1,429.60; PHLX Gold/Silver Sector Index (NASDAQ: XAU ) -$3.34 at $208.78

What The Markets Are Saying

The broad market traded in a very narrow range yesterday with the highs and lows of the Dow and the "500" hitting the tops and bottoms of Tuesday's symmetrical triangle. Nasdaq was under more pressure than the other indices because of a sell-off in semiconductor stocks. But even though it was down 0.51% vs. 0.14% for the "500" and 0.01% for the Dow, it still held above its triangle's support line (see Wednesday's discussion of triangles ) and slightly above its 50-day moving average.

However, of the major indices, Nasdaq appears most vulnerable to a breakdown. With its 50-day moving average just 8 points under yesterday's close and support at 2,730 to 2,744 we should not forget that this index was the market leader on the way up and could retain that status on the way down.

Our internal indicators are mildly bullish with momentum turning slightly positive this week. But with the news controlling virtually every tick of trading, the trend must take precedence over all other indicators. And it is positive for both the long and intermediate term. The short-term trend is still in doubt.

I've lately mentioned the upcoming rate hike that the Fed is planning for later this year, and each time I receive dissenting emails. But last Thursday we saw a red herring thrown out by the European Central Bank, and this was no slip of the tongue by President Jean-Claude Trichet when he said that the ECB "could raise rates as early as next month." The central bankers are testing the waters and at the same time giving notice that sometime this year rates will increase both in Europe and here.

Yesterday the second warning came from none other than the bond king Bill Gross, founder and co-chief investment officer of PIMCO, which runs the world's biggest bond fund. Mr. Gross announced he has "sold ALL of his company's U.S. government related holdings, including Treasury debt" WSJ. Gross said that QE2 will end this summer, but he, too, is no doubt thinking that the Fed may have a small rate hike sooner rather than later.

What should investors do? The first action that most growth-oriented investors should take is to sell underperforming bond funds. But junk bonds should be held because of a recovering economy and a higher yield edge. And tax-free General Obligation and water and sewer bonds of municipalities should be held, as well. All else is subject to review and now is the time to do it.

Check out today's Trade of the Day here .

If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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