Option Investor
Market Updates

Monitor your levels and trends.

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Things are fast and furious this morning, but it is important for traders to be monitoring levels. When you're doing this you can get a good feel for why certain sectors and even stocks are acting like they are today. Let's face it, the YIELD on the 10- year at 4.855% has a bears attention as he/she now comes to grip that there might be some sellers in bonds and new money coming into stocks. This is exactly what a bullish trader wants to see. The bears have been able to laugh in the face of every stock rally lately, only because bond YIELDS haven't been able to break some downward trends. While today's action is by now means a sign that the bottom has been found, the breaking of some short- term downward trends on YIELDS in the 10-year Note (TNX.X) and now the 30-year (TYX.X) has to have some bears stepping up their covering. At 10:30 I updated traders on the 10-year YIELD chart, now lets take a look at the 30-year YIELD chart (TYX.X).

30-year YIELD Chart - 60-minute interval

Late Friday the 10-year YIELD (TNX.X) broke a downward trend. Today the YIELD on the 30-year (TYX.X) threatens to do the same. This is the only thing I can think of that will get a bear to put on some bullish horns short-term. We are by no means out of the wood yet, so trade disciplined.

Forest/Paper Product Index (FPP.X) Chart - last eleven months.

There are different kinds of trades that traders will mix into their trading plan. This morning I felt that the FPP.X looked to be an attractive group that might get a bounce if bond YIELDS turned higher. I liked the 200-day MA at 291 and 50% retracement bracket at 289 to offer any bears a reason to come in and cover. I'm also looking for longer-term equity bulls betting on a good economy down the road to step up to the plate on the recent pullback and round out their positions. If institutions were buying back in the 240-260 range like I think they were in October, then now is as good a time as any for them to top things off and round out their positions. As a trader that's all I need if I'm looking for a couple of points on a low volatility option play like we were this morning in IP. We were looking at the April$35 calls which were offered at $1.60 this morning. They're starting to show some signs of life here. Bid $1.75, offered $2.00. If the FPP.X can get through downward trend at current levels, the IP option should pay off for those that bought at the open.

Jeff Bailey
Senior Market Technician

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