Option Investor
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NASDAQ tries to hold together.

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Just wait a day or two and things start to get exciting. Who's going to win out here? I've observed that the 10-year yield (TNX.X) traded below our "water line" and I'd expect the NASDAQ Composite to follow the same pattern. Traders that are following several stocks and indices we've talked about lately will see the battle being waged between the bulls and bears.

NASDAQ Composite Index Chart - 60-minute interval.

Hour by hour the NASDAQ continues to sink, but it is not a major sell off at this point. We'll want to quickly jump over to bond yields. They gave us a "heads up" two days ago when they started drifting lower, but today bond yields are higher.

10-year Bond YIELD Chart - 60-minute interval.

Today we're seeing some selling in bonds and that has yields on the rise. Until I see a yield above the 52.00 level (5.2%) for this bond, I'd continue to have a somewhat "skeptic" view of many technology stocks.

Cisco Systems Chart - 60-minute interval.

Shares of Cisco Systems (NASDAQ:CSCO) aren't "falling apart" and that has me (as a trader) now starting to think more realistically with a bearish position. With what I'm seeing in bonds today (a higher yield and selling in bonds) I fully understand the relationship between the bond and stock market. With this observation, I'm more alert that the $33.63 level will be an area I look to cover. While $32 may be achievable, I'm really not seeing the weakness in CSCO I thought there would be considering the terrible looking technicals the stock currently displays. In my original scenario, CSCO should have been trading at $33.63 when the NASDAQ was testing the 2,686 level. As a trader, I understand that my original scenario of levels may have been wrong, thus I need to "lower my expectations" for bearishness. I was "right" on the direction of the trade, but it's just not showing the weakness I thought it should. With this in mind, I'd be more willing to cover at $33.63 and lock in a profit at that point. I've said "it's a trader's market" and I mean it!

Jeff Bailey
Staff Analyst

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