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Bond yields send word of caution

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With all the excitement in equities today, some traders may have forgotten about the bond market. That shouldn't be the case for our subscribers as bonds saw quite a bit of buying late in today's session and lately that hasn't been good for stocks. This might explain part of the Dow Industrials lackluster performance today and the weakness we're seeing may not all be attributed to Minnesota Mining (NYSE:MMM) which is off better than 4%.

Bullish traders beware

Bullish equity traders should be concerned with what took place in the bond markets today, as lower yields in the treasury market have not been a good omen for stocks. We're watching our bullish trade in VeriSign (NASDAQ:VRSN) very closely and we're starting to see weakness.

VeriSign Chart - 60-minute interval.

For the first time today, shares of VRSN are showing some weakness. This weakness is exhibited by the current interval trading below the previous interval on the chart. For a short- term trader, this is reason enough to either exit the position with a profit or snug up a stop under the $87.50 level. Traders with more of a swing-trade discipline are gradually moving their stops up with our upward trend or 50-period MA (thin blue). Swing-traders are often more akin to exposing their capital to the markets for a longer timeframe (more risk) than a day-trader, but they're also willing to give the trade this time to potentially make a higher return.

NASDAQ-100 Index Tracking Stock (QQQ) - 60-minute interval.

The QQQ's have pulled back nearly $1 since our 01:30 EST update and is now back below our downward trend. Traders that realize this index did NOT break above a confirmation level may not be surprised with this action. We'll be watching our short-term trend (ST Trend) closely in the coming sessions and use the $60 level as a downward confirmation level if the short-term trend is broken to the downside.

Biotechnology Index Chart - 60-minute interval.

Earlier today I wondered why the Biotechnology Index (BTK.X) wasn't participating in the NASDAQ rally. A quick look at an "old chart" quickly brought me up to speed as the index looked like it had rallied right to an old support level (thick green) that was acting like resistance. Traders could have then set up an action plan to play the downside on a break below 570 (light blue). The BTK.X does trade options on the AMEX as we all learned from "Guitar George". They're not cheap, but traders could have used some of the signs here to go snooping for stocks in the group that looked susceptible to a downside move. We'll be watching the 550 level very closely as it coincides with a day-traders target (Target #1) and the 50-period MA (thin blue). MACD is rolling, but still above the zero level. Traders can envision how this index may be trading near 550 when MACD approaches the zero level. Bearish traders want to see both of these levels (MACD zero and the 50-day) violated to the downside.

Strength or weakness?

We've covered a lot of ground today and it's impossible to cover all of it in an hour. Of those observations made this morning, how are they looking now? Are you seeing strength or weakness? If you've got some profits and are unsure, then take those profits. If you've got some profits and are seeing weakness, then lock in those profits where warranted. If you're holding profits and see strength you're trades should become more profitable.

Jeff Bailey
Staff Analyst
www.indexskybox.com
www.OptionInvestor.com

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