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Not seeing it, just not seeing it

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Near-term, I think the bond market is starting to give hint that stock are finally due for some type of meaningful pullback. In recent sessions, stocks have managed to rally back from intra-day pullbacks, but today I just don't see it.

In the first hour of trading, we did see some of the major averages stick their heads into positive territory, but what I see in the 10-year YIELD gives hint that there is now money beginning to rotate back into Treasuries. How long it stays there is a question. I do feel that longer-term the stock market is in recovery mode, but it may now be time for a pullback and profit taking to become a little more pronounced in stocks.

Here's what to look for in the bond market as it relates to the 10-year YIELD.

10-year YIELD Chart -

The YIELD on the 10-year is just fractionally lower than it has been in the past three trading sessions. Yesterday we did see a jerk higher in YIELD that came with stocks, but this morning's rally didn't seem to have the bond market taking a second look. We'll want to monitor this, but that's my near-term observation. Some might say that jerk higher in YIELD yesterday may have been a short-term "bear trap" for bond traders. The bear-trap would be the bond trader that came in and shorted/sold the 5.0% YIELD and now at 4.9% wishes he/she hadn't. Any firming in YIELD on a decline to the 4.62% level with that of stocks, may be the pullback to be looking for some strong stocks that have seen selling on profit taking.

Gap Inc Chart -

Today's downgrade of Gap Inc. (NYSE:GPS) has me doing some work with retracement in the stock. I think the stock is "dead money" until the end of the year. What the Prudential analyst on CNBC this morning gave me some of the backdrop on her views. In the "market monitor" on OptionInvestor.com, I profiled the January $15 puts (GPSMC) near $2.15. Pru thinks the stock has downside risk to $9. Today's break of upward trend and a relative strength chart that is in a column of O's and on a sell signal give hint that this stock is out of favor.

In cartography, the term GPS is for Global Positioning System. It helps you determine what direction you're headed. In Gap Inc.'s case, I think GPS right now is "headed south". Look for this one to get some tax-loss selling into the end of December and targeting the $11 level if not lower by year's end.

Jeff Bailey
Senior Market Technician
Option Investor

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