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Canavan's a "homer"

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Yesterday, Jeff Canavan, Eric Utley and I were talking about what stock might be a good boring stock to bring to the attention of subscribers that institutions would be buying. Jeff Canavan's idea of Hershey Foods (NYSE:HSY) was based on the upcoming holiday of Halloween. You know, lots of trick-or-treaters flocking to the streets gathering up some chocolate bars! I brushed his comments off as "he's a homer." For those that don't know, Jeff Canavan is from Pennsylvania.

Then this morning, one of CNBC's guest anchors thought that shares of Hershey Foods (HSY) should become today's "top pick" as he thought a potential war effort in the Middle East might find patriots here in the U.S. sending candy bars to their loved ones that are part of the military. Maybe Jeff Canavan's onto something, so I'm putting Hershey Food's point and figure chart to the test.

Hershey Foods Chart - $1 box

The first thing I notice when I pulled up a point and figure chart was that HSY had just tested for the first time, its bullish support trend. There's some "old sayings" associated with point and figure charts. One is "the first sell signal in the upward trend is often times a buying opportunity." We can test this saying with the first sell signal in the upward trend at $57 back in January. The second saying is "The first test of bullish support is often times most painful for the bears." We're now going to get a chance to test this as HSY just tested the bullish support trend at $60. It's thought by many that "bears like chocolate," but maybe not this time!

Stocks give back gains

This morning in the "hot list" on OptionInvestor.com we were fairly active watching the US$ against major foreign currencies. the US$ is having a good day and it looks like some of the post terrorist fears of currency risk here in the U.S. are starting to subside. This was a concern of ours just after the terrorist attacks and something we wanted to monitor. Suffice it to say, the foundation of the U.S. markets are based on the U.S currency and its strengthening here is most likely a good sign for some confidence in the US$.

With that said, we're now turning our attention to the bond market. We've seen YIELD in the 30-year ($TYX.X) pull back and now bullish equity traders will want to see this YIELD kick back higher and some money to free up from the bond market. What looks to be taking place right now is that some "worries" are starting to subside on the currency and US debt side of things, but the higher YIELD recently found in the 30-year looks to have found buyers at the 5.6% level a couple of days ago, and the buying in the long end has caused this YIELD to now drop to the 5.471% level. When we look at the 5-year ($FVX.X) and 10-year ($TNX.X) we see that these YIELDS are at new lows. This gives hint that the market is still buying the shorter-end with some vigor, even though YIELDS here are at some multi-year lows.

When the market wants to shift from bonds to stocks, then the 30- year YIELD should reverse back higher. Today, we're not seeing that with a 30-year YIELD falling to the 5.471% level. With this observation, bullish equity traders may tend to stick with some boring and more defensive stocks less likely to feel the effects of a slowing economy.

Jeff Bailey
Senior Market Technician

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