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Bond Yields are a trader's best friend!

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I was a little bearish on the drive into work this morning, as all I heard on the radio was how weak the equity futures were. Once I got to work, turned on the lights, the bond market put me at rest. With bond yields on the rise (selling in bonds) that had me a little more at ease. So far this morning those bond yields continue to rise and stocks have now turned green. The Dow Industrials, S&P 500 and NASDAQ Composite are up and all is well if you're a bull.

Testing my observations

One thing every trader must do every day is test and back-test their observations (not just mine). Were you (or I) right? Are things happening like we thought? Make note of your (not just mine) observations as they help you in your buy/sell decision making down the road.

VeriSign from this morning.

Before the market open, we tried doing some damage control for a fellow subscriber (maybe others too) in shares of VeriSign (NASDAQ:VRSN). Our thought was the stock might rally up to our initial stop of $84 and give the subscriber a second chance to cut their loss to $2 from what looked like a $7 loss. That chance was given and the trade should have been exited.

VeriSign Chart - 60-minute interval.

Shares of VRSB actually rallied to $84.12 in the first hour of trading. Sometimes the market gives you a second chance to correct a wrong. I didn't lose sleep over this subscriber's error, but I did feel empathetic toward him/her. I've been there, done that before. I've seen a loss turn into a gain, not get out and then see that trade once again turn into a loss. Never again will that happen. When the market gives you a second chance, take it and don't be second-guessing. This type of activity in VRSN, now at $81.50, lets us know there's still some weakness in technology and the recent trading we all experienced in the stock tell us we should still be TRADING FOR PROFITS. We're batting .500 with VRSN, but those that played both trades in the past week should be quite profitable. Those that took the second trade have a small loss of $2 or $3 per share and are ready to trade again with capital now free.

NASDAQ Composite Index Chart - 60-minute interval.

The NASDAQ Composite (COMPX) is trying to get back on our short- term upward trend. I like the test of our thick-pink line where we were looking for support (Very Nice!). This now becomes an alert level to the downside if this morning's low is broken. Traders can now see how our thick pink line at 2,722, 50-period MA at 2,660 and 200-period MA at 2,603 now become three alert levels for weakness. Traders can use these levels to understand various "risk" levels.

American Power Conversion Chart - 60-minute interval.

Shares of American Power Conversion (NASDAQ:APCC) are by no means a tech bellwether, but it is a stock that I've made observation as to being strong. Today's trading has me feeling that the NASDAQ may not be euphoric and still has me believing I should be trading for profits. I do like the fact that this stock remains well above an upward trend and looks to be technically stronger than many NASDAQ stocks. Compared to VRSN at least, this is a stock I'd rather by trying to make money in on the bullish side.

Other observations

Traders should be making other observations in the market every day. How are those observations holding up? If they're not, try to figure out where those observations went wrong and what the market may be saying. Then look to capitalize on those beliefs and test those observations on an ongoing basis.

Jeff Bailey
Staff Analyst

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