Option Investor
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Equities strong despite falling bond yields!

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The broader market averages are higher this morning, despite a very strong bond market resulting in lower yields. Traders should continue to trade the trend in stocks, but at least be alert to the FACT that there are buyers in bonds that evidently prefer 5.5%, 5,1% and 4.8% percent yields in the 30-year (TYX.X), 10-year (TNX.X) and 5-year (FVX.X) treasuries. I don't like to trade against the trend, but will use what is going on in the bond market to plant a seed in my mind that some stocks could be susceptible. Therefor, I will use tight stops in stocks that I'm trading bullishly.

Altera Corporation Chart - 60-minute interval.

This morning at 09:30 I highlighted a bullish trade in shares of Altera (NASDAQ:ALTR) for Indexskybox.com subscribers. In the first 30-minutes of trading, shares of ALTR could have been entered at $31 as the stock pulled back after the open to as low as $30. This is a good stock to keep an eye on throughout the day. If you're a trader that believes the market will respond favorably to the Fed's decision on rate cuts, the stock looks very good here. If you're a trader that thinks there might be a short-term negative reaction, followed by an upward move in stocks, you might look for a pullback to our "swing-trader's trend" near $28. A more aggressive trader willing to roll the dice can use our "aggressive traders trend" as a stopping point currently at $29.

Monitor you observations and trade the trends!

Just as it was painful for bullish traders to be buying semiconductor stocks in the fall of 2000 when major trends were downward, today isn't any different for many technology stocks. Right now (today, this hour) the trend is up and traders should be trading accordingly. While I laid out a "just in case" plan this morning, we're monitoring those indicators.

NASDAQ Composite Index Chart - 60-minute interval.

The current trend for the NASDAQ Composite is upward on the 60- minute chart and that's the trend I want to be trading. I'm alert to potential resistance at 2,892 and it wouldn't surprise me in the least if that's the level we're trading at right during the Fed's interest rate decision. You can just imagine a "negative response" sending the NASDAQ through our upward trend and 50-period MA at 2,800 (I'd set an alert on my trade station there) or a "positive response" sending this index to our bullish target of 3,025 (I'd set an alert at 2,892). The moving averages and MACD are all trending higher and traders should be trading with the trend.

30-year Treasury Yield Chart - 60-minute interval.

Monday's closing yield on the 30-year (TYX.X) at 56.87 (5.687%) was no more a coincidence than last nights closing yield at our correlation level of 55.83 (5.583%). Both of these levels were recent highs and low for yield and smells like institutional hedging before the fed. This mornings trading shows aggressive buyers ahead of today's meeting. This may be a defensive move and we'll be watching the 200-period MA at 55.00 and our "confirmation" level at 54.64 like a hawk! A break of those levels could be a major alert that a very defensive posture is being taken by the market. All we have to do is observe our trends in the stocks we're trading bullishly in.

Gold/Silver Index Chart - 60-minute interval.

Currently the XAU.X is up 0.49% which is a higher percentage than the Dow Industrials (INDU) up 0.16%, the S&P 500 (SPX.X) up 0.13% and the NASDAQ Composite (COMPX) up 0.42%. We make this observation and know what to do if the "wheels come off".

Jeff Bailey
Staff Analyst

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