Option Investor
Market Updates

5-year YIELD alert!

Printer friendly version

Subscribers should be alert that the 5-year YIELD ($FVX.X) has broken to new lows and have just recently violated the March 22nd low YIELD of 4.353%. This should have equity traders attention at current levels. We continue to monitor the bond market for the first sign of a turnaround for stocks, but this action should continue to have traders acting rather defensive in their accounts.

5-year YIELD chart - last 11 months

I consider the 5-year Treasury Yield ($FVX.X) as the "safest" of the three major bond YIELDS we keep an eye on. The "safety" comes from the shorter time maturity related to the 10-year ($TNX.X) and 30-year ($TYX.X). Today's recent violation of the March 22nd gives hint that the MARKET is more defensive today than they were on March 22nd.

On March 22nd, the NASDAQ Composite traded a session low of 1,794. Current trading levels for the NASDAQ Composite (COMPX) are at 1,836. Even though the 5-year YIELD did turn higher after March 22nd, the NASDAQ Composite did follow through for approximately 9 sessions to a low of 1,619. With mutual fund inflows and historic lows, I am now leaning toward a potential retest of lows for many of the major market averages with stocks that have been weak to suffer the greatest harm.

I will stress! Traders had better be keeping an eye on these bond YIELDS as they will most likely give first hint to a potential market recovery. Many indicators are approaching oversold levels and at some point a snap back rally should occur. Traders can be shorting stocks, but I'd concentrate on stock like MMM that have been in a base of consolidation, where a breakdown can give you the "umph" to the downside that you're looking for, while a rally can still find sellers close by and help keep the trade under control should we be near a bottom. Traders that attempt to short/put stocks that are "oversold" and far from a level of resistance can suffer a snapback rally.

Just as stock selection has been critical on the bullish side, I'd also say that at current levels, stock selection is critical on the bearish side.

Jeff Bailey
Senior Market Technician

Intraday Update Archives