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Futures are mixed

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Stock futures are mixed this morning and lately the futures markets have had little impact on how the markets finish the trading session. Nonetheless, they do give us some indication of what to look for early in the session. Currently we're seeing NASDAQ futures post gains of 11 points, S&P futures are down 2 points and Dow futures are lower by 25 points. Fair value for the S&P 500 today is $8.22. Computers are set for program buying at $10.02 and set for selling at $6.92. Fair value for the NASDAQ-100 today is $17.50.

Bond YIELDS lower

During yesterday's trading session, we did see a slight reversal in bond yields to the upside and it was the 5-year YIELD (FVX.X) to first reverse course higher and indicate that there was some selling taking place in the shorter-end of the bond market. Once that happened we did see that stocks jumped higher, but by the bond market's close, YIELDS had drifted marginally lower (buying in bonds) and stocks pulled back into their close. Traders should understand that the bond market opens at 08:30 EST and closes at 03:00 EST. What a bullish stock trader needs to see in my mind is a 5-year YIELD above or near the 4.7% YIELD level for things to show continued bullishness for stocks. Bulls need to see market participants release their hold on the safety of the treasury bond market and have the money packed away their flow into stocks. Right now we're not seeing this and stocks seem range bound. Based on my observations of bonds verses stocks, I think the rally we've been seeing in stocks is strictly short- covering by bears and they won't continue to cover if there is little fear of money coming out of the bond market and bidding up stocks.

Bullish percent updates

Yesterday's action in the bullish percent charts is interesting and does indicate that there is some internal strength starting to show up in the NASDAQ-100 bullish percent ($BPNDX) from stockcharts.com. Yesterday's action now has this index in "bull alert" status with 35% of the stocks back on a point and figure buy signal. In late April and early May, this indicator reached a very overbought level of 82% and had recently declined to the oversold level of 26%. The current reading does indicate that a trader can be adding some bullish positions to his/her portfolio, but caution is advised. I think the strategy to implement is to only be adding stocks with favorable supply/demand characteristics where we can see that overhead supply or resistance is far away.

I would be much more bullish than I currently am if I were to see bond YIELDS kick higher. The Fed meets next week and we might very well see the market try and anticipate what the Fed is going to do by bidding up stocks. However, I feel that institutions are the most heavily involved participant in the bond market and right now they don't seem willing to get rid of their bonds.

I'd continue to try and nip away at some stocks that are breaking out of some basis as those stocks at least indicate that demand is overcoming supply and that's where I'd want to be in any type of market environment. Should a stock that broke out of a base see selling with the broader market, there is then the chance that those who were accumulating the stock in the base will be back again and commit money to the stock on the pullback. It's the stocks that are in downward trends and setting new 52-week lows that have lacked buyers and if the broader market were to see selling, there is little support for those stocks and they are usually the ones that get hit hardest to the downside.

Jeff Bailey
Senior Market Technician

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