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Five year YIELD drops precipitously

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This morning's lower bond YIELDS had me thinking this morning's higher equity futures indications might be short lived. If I'm an equity bull at the open today, I don't like what I see in the bond market. Why is the MARKET buying the 5-year YIELD at 4.53% with some stocks down 70% from their highs? I think it's because the MARKET is still very skittish toward stocks.

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

The trend for the 5-year YIELD looks much like the trend that the NASDAQ Composite has been under. This gives credence to an observation we started making months ago and explained to subscribers. Too many it's a mystery, but it makes so much sense. Still lots of buyers for bonds and that's money that won't be buying stocks today.

NASDAQ-100 Index Tracking Stock (QQQ) - 60-minute interval

In the "hot list" I was pointing out that it might be time to get back on the short/put side in the QQQs at $44.50 and once again use the retracement bracket to help monitor the trade and assess risk. I liked the trade because bond YIELDS started falling and gives me a "heads up" to potentially lower stock prices. By having retracement levels on my chart, I can quickly assess where certain levels of resistance and support exist and can then ascertain if risk/reward is in my favor for a trade. I personally don't mind risking $1.25 to potentially make $3.50, especially when bond YIELDS are falling. Those traders that don't want to risk $1.25 could simply set their stop just above today's high at $45.35. In the past, lower bond YIELDS have led to lower stock prices for many NASDAQ stocks.

Jeff Bailey
Senior Market Technician

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