Traders that did some selling just before yesterday's close may have done so thinking they may have taken some profits too soon, but prudent account management looks to be paying some rewards this morning. Currently, we're seeing S&P futures trade lower by 1 point, NASDAQ futures are down 17 and Dow futures are off 32. Fair value for today is $14.92, with program buying set at $18.51 and selling set at $12.43.
Don't deviate from the plan!
Too many times I've seen less experienced traders throw out their trading discipline and plan with the thought that "the worse is over and now I don't need my plan." What a HUGE mistake that type of thinking becomes. Hopefully what many traders did last night was what I'm going to do this morning. Review many of the observations we've been making and see if any patterns have been broken. When patterns start getting broken is when good traders fine tune their scenarios and begin to realize that a "change" in the marketplace is beginning to take place. We're not going to guess, but follow our disciplined approach to technical analysis to interpret for ourselves if "things have changed."
First observation is Treasury Yields and the Gold/Silver Index
These two indexes have hopefully kept traders out of a lot of trouble and had us on the right side of the market for months, so I'm not about to throw them out the door and say they don't matter anymore. If I felt (I did and still do) that a rising Gold/Silver Index and lower bond yields were trouble for equities then I can use a "change in pattern" to my advantage. Here's where we stand and some levels traders can put into their trading scenarios.
30-year Treasury Yield Chart - 60-minute interval.
Yesterday's rate cut moved the yield on the 30-year Treasury (TYX.X) back above our downward trend and this morning (last bar on the above chart) our horizontal level of resistance has been broken to the upside at the 54.90 or 5.490% level. This tells us short-term that there is now selling in this bond at levels that we haven't seen since early December. The next level we'll be watching is the 200-period MA (thin red) currently at 5.534%. Don't be surprised if this bond tries to get back closer to trend and begin to drift back to the 50-period MA (thin blue)
Gold/Silver Index Chart - 60-minute interval.
Yesterday we alerted traders early in the session that the XAU.X had broken our upward trend line, but to look for this index to break our horizontal support or "confirmation" level at $51.00 (thick pink). Notice how the XAU.X rallied back above our upward trend right before the Fed announcement yesterday and then got hammered late in the session. We'll be setting an upside alert at 51.00. If we see bond yields fall, traders can be alert that they may want to lock in further profits from yesterday's powerful rally.