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In our last update we mentioned that if yields on 5-year treasury notes can climb above 5%, and remain there, it could signal a change in investor psychology. The major indices clearing some technical resistance wouldn't hurt either.

Dow Jones and S&P 500 Daily Charts

The Dow found support at 10,400, and tried to mount a rally yesterday. It's no surprise that rally met resistance at 10,600. 10,600 was the level that had been supporting the industrials last week, and is technically made up of the 200-dma, 38.2% retracement level, and now last weeks cluster of lows. The stochastic says the index is oversold, but as long as seller remain in the picture, it could stay there.

The Dow stocks attracting the most selling today are some cyclical stocks like Boeing and Caterpillar, and yesterday's big story Microsoft, down $0.86. The GE/Honeywell soap opera has GE atop the top gainers list, as well as some big cap technology like Intel and IBM.

In the 10:30 we mentioned that the S&P 500 bullish percent data is in bear alert status, which basically means be on your toes if you are long. I would say that holds true until the S&P 500 is able to clear 1240, which would complete a small double bottom pattern. A few closes above the 50-dma and breaking the downtrend the stochastic oscillator is currently in would also help to confirm any rallies.

So in conclusion, bond yields, bullish percent data, and clearing technical resistance all need to work together to mount any kind of sustainable rally.

Jeffrey Canavan
Assistant Analyst

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