Option Investor
Market Updates

Now look what we're doing with the NASDAQ retracement!

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If you initiated some short/put positions this morning, by all means stick with your stops, but don't panic out of a trade that is still below your stopping point. Keep an eye on the 10-year YIELD (TNX.X) and use YIELD to help shed some light on your trade. Over the past five months we've been using YIELD to help guide us during upward and downward moves.

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

Bearish traders in some NASDAQ stocks that have seen the NASDAQ turn higher after a lower open might be watching the 10-year YIELD. It's right at two levels of resistance (old upward trend and the 200-period MA). If YIELD were to turn lower from here, we might see the NASDAQ follow that move. At the same time a move above 51.50 or 5.15% on this YIELD could see this bond YIELD move to 52.00 or 5.2%. This could bring some bears to start getting a little more aggressive with their covering in some technology stocks short term. Use the bond YIELD to give you confidence in your trades (bullish or bearish) and keep you from getting "emotional." Sometimes it's easy to initiate a trade and if it doesn't start working in the first hour you just close out the trade, take your loss, only because you started doubting yourself. Stick with your plan and pull in observations from different areas of the MARKET to formulate a firm opinion!

NASDAQ Composite Chart - 60-minute interval.

This morning in our 09:00 Update (the charts are correct now) we looked at a retracement bracket for the NASDAQ Composite to try and give us an idea of how a market maker is trying to control his/her own risk. Here's a look at that chart (2nd chart from 9:00). Remember how we "thought" that a market maker might be somewhat of a "buyer" near the 38.2% retracement level? One other think I just noticed today is how our 50% retracement level on the above chart, correlates very close with a "waterline" we had been using for this index over the past two weeks! I think we might just be on to something! Hopefully you're starting to feel the confidence build! Now, what do you think might happen if the 38.2% retracement level is broken to the downside? What do you think might happen if the 50-period MA is broken to the upside? You can use the 50-period to also help you ascertain if market makers might try and step up their buying, especially if you see bond YIELDS continue to rise!

Jeff Bailey
Staff Analyst

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