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Bond yields fall and equity futures follow

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Yesterday we were concerned about falling bond yields along with higher gold/silver stock prices and this morning we are perhaps seeing the result. Bond yields continue to fall this morning and now equities are starting to show the effect. Currently, equity futures are showing S&P futures lower by 3, NASDAQ futures are down 10 and Dow futures are off 38. Even though the equity futures are pointing lower they aren't "that low" as S&P 500 fair value for today is $2.78 and buy programs are set at $4.68 and sell programs are set at $1.02. For an explanation of fair value please visit www.programtrading.com.

5-year Treasury Note YIELD (FVX.X) Chart - 60-minute interval.

The break of our upward trend on YIELD and this bond trading below our "waterline" at 48.70 tells us there is still money flowing into this bond. Many mutual fund inflow statistics for the latest quarter show that the bulk of new money being attracted by mutual funds is being designated toward bond funds and short-term money market funds. In recent years, money being deposited by investors to fund yearly contributions to retirement accounts had been put into stock/equity funds, but this year it has been different.

S&P Banks Index (BIX.X) Chart - 60-minute interval.

Today, traders should be using the BIX.X and the BKX.X to help guide them in their trading. Yesterday the BIX.X traded higher even though bond yields fell and gold/silver stocks (XAU.X) rallied. Today however might be different and traders should keep an eye on things here.

Jeff Bailey
Staff Analyst

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