Option Investor
Market Updates

Jobless claims for March 24

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Jobless claims for the week ending March 24th came in at 362,000 and this has the 4-week moving average dropping from 377,000 to 374,000. This number tells us that more people are finding work and staying employed than in recent periods. After the jobs number was reported, equity futures improved somewhat, but still remain in negative territory.

Equity futures in the red

Equity futures are lower this morning with S&P 500 futures (SP01M) down 1.5 points, NASDAQ futures (ND01M) are off 20 points and Dow futures (DJ01M) are lower by 23. Fair value for the S&P 500 today is $9.34. That price will not change during the trading session. Computers are set for program buying at $11.82 and selling at $7.26.

Bond YIELDS mixed

Much like yesterday, bond YIELDS are mixed this morning with the longer end (TYX.X) ticking modestly higher in YIELD. Yesterday, the 5-year (FVX.X) stayed in the red for the entire session, but the 10-year (TNX.X) did turn green for a brief period. The 30- year YIELD not only turned green, but YIELD for this bond actually went higher than Tuesday's YIELD. Right now what this recent action is telling me is that the MARKET might be expecting one or two more rate cuts, but may be starting to sell the longer end of the bond market on the thoughts that Mr. Greenspan may be nearing the end of the interest rate easing cycle. Remember, that much like the stock market, the bond market is forward looking.

Gold and commodities now become key!

Gold and commodity prices now may be a key groups to be monitoring to help traders and investors develop plans for what may lie ahead for the markets future. If commodity prices stay low and do not provide inflation, then this market may very well rebound strong if the Fed's interest rate cuts stimulate the economy. The big threat in the current cycle is for inflation at an alarming rate to occur. Right now we've been watching the Gold/Silver Index (XAU.X) which is a basket of gold stocks and they've been falling. If the market is forward looking then the MARKET doesn't seem to be thinking that inflation will be a problem. We'll continue to monitor things here.

Forget what you believe and trade what you observe

Over the past several months, I've received a ton of e-mail from subscribers telling me that higher bond PRICES and lower bond YIELDS are good for stocks. I read some of John Murphy's book "Technical Analysis of the Futures Markets" and there it is in black and white. Mr. Murphy has shown some charts that do show lower YIELD correlating nicely with a higher stock market. HOWEVER, this has not been the case over the past two or three years. If we had been buying stocks just because YIELDS were falling and bond PRICES were rising, we'd be in big trouble right now with an investment account full of CSCO, JDSU, EMC and other stocks lie these three. Trade the trend and trade what you observe. My observations for months has been that LOWER YIELD is bad for stocks. So far that has treated us well. When it quits working, I'll make a different observation and trade that observation.

Jeff Bailey
Senior Market Technician

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