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Stock futures in the green

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Stock futures are higher this morning with S&P futures up 6 points, NASDAQ futures are jumping by 30 points and Dow futures are up 30 points. Fair value for the S&P 500 today is $6.52. That price will not change during the day. Computers are set for buying at $8.11 and set for program selling at $5.13. Fair value for the NASDAQ-100 today is $13.80.

Fiber stocks might see some short covering at open

Yesterday after the closing bell, shares of Corning (NYSE:GLS) warned on earnings and that had some fiber optic stocks showing losses in after-market trading. This morning we're seeing some recovery in shares of Corning and other stocks with a fiber theme. Last night, shares of JDS Uniphase (NASDAQ:JDSU) was trading at the $11.50 level, but this morning the stock is trading at the $12.09 level and we'd expect some short-covering to be taking place with bad news in the group. Both GLW and JDSU are getting close to some bearish price objectives from their point and figure charts, but we would continue to avoid this group from the bullish side near-term.

Continue to watch bonds

We would continue to keep a close eye on the bond market. The NASDAQ-100 bullish percent ($BPNDX) is nearing oversold levels once again and stands at 34% bullish as this group of stocks found a net loss of 1 stock to a point/figure sell signal yesterday. The bullish percent for the S&P 500 index ($BPSPX) finished with 52.4% of the stocks in this market showing buy signals on their point/figure charts and is in the middle part of its overbought/oversold field position. The slower moving and broader bullish percent of the NYSE Composite ($BPNYA) is showing that the defensive team is on the field with 35.7% of the stocks in this market currently on a point/figure buy signal. This indicator reached a low of 30% in April before reversing higher.

The reason we want to keep an eye on bonds is fairly simple. We've established the 5.8% YIELD level as a level to be watching for the 30-year Treasury ($TYX.X) as it is considered the "riskiest" of Treasury YIELDS. The "risk" comes from the 30-year maturity and we all know that the length of time invested at a current YIELD of 5.714% per year for the next 30-years is the risk one runs when buying this bond. This should be the first bond to unwind and show a higher YIELD if the MARKET begins feeling there are better risk/reward opportunities in stocks.

With stocks having shed some risk (as indicated by the bullish percent charts) it becomes important to see if the MARKET feels risk levels are low enough in stocks to warrant giving up on bonds (selling them, driving YIELD higher) to then buy stocks.

Yesterday I thought shares of Microsoft (NASDAQ:MSFT) might be a stock that bullish traders would gravitate toward as the stock was trading right above a support level at $65 and offered a favorable risk/reward trade. I'd continue to look for stocks that appear to have similar supply/demand characteristics that are trading near support levels, that are in upward trends or are breaking out of basis. These should be the types of stocks where money was committed back in April and that have a better chance of further commitment on the recent market pullback. However, we want to see selling in bonds so that there is cash available to buy these stocks.

Jeff Bailey
Senior Market Technician

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