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Mixed reaction to economic data

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This morning's strong durable goods number and weak employment data is getting mixed results from the markets. The "mixed" results I'm talking about are that of the bond market and that of the stock market.

Bond YIELDS are lower across the board and that has us knowing there is buying in bonds. Where and how that buying in bonds is taking place is important. A quick look at my bond monitor of YIELD and the staggering of maturity gives hint that there's more interest from the bond market in the shorter maturities.

Bond YIELDS at 10:30 EST

I sure wish q-charts had the YIELD symbol for the 2-year, but you can see how the "Net % change in YIELD is very smooth with the least amount of change coming from the long-end and 30-year (the riskier Treasury bond) and how we see a greater rate of "Net %" change as we step forward to the shorter-term 13-week YIELD. For longer-term equity bulls, I feel this is a positive. The reason I think this way, is that money that goes into the 13-week today, will mature "expire" in the next 13-weeks and have to be reinvested. We never know where it will be reinvested. That money could go into stocks or it could go back into bonds (Treasury, Corporate, Junk). While a snapshot at one point in the day isn't a definitive prediction of the future, the observation made over time is what makes up the entire analysis.

Even though we're seeing some buying in bonds today, the bulk of the buying is going into the shorter-end and not the longer-term end. In my book, that's good for equities longer-term! Today's action sure looks to me like the bond market is getting a boost from the jobless claims, which showed a rise in first time unemployment data.

Market Watch of Averages/Indexes

Several subscribers have asked for a list of market average and sector index symbols. They also wonder how we keep a pulse on everything that is going on and moving on a daily basis. Here's my "market monitor" setup. As you can see, equities are responding favorably today to the durable goods orders and almost "ignoring" the jobless claims data.

Sector strength comes from the Airline Index (XAL.X) +3.7% as the durable goods numbers showed there was a nice "pop" in the non- defense aircraft orders, which rose 49.3% to $5.4 billion. This is a surprise to some as most are still thinking, "America is afraid to fly." What's also interesting is that the XAL.X has jumped about 28% in the last 11 sessions. I think the MARKET got wind of today's strong non-defense aircraft orders a couple of weeks ago. The stronger-than-expected orders from the non-defense aircraft sector hints that airlines are looking for some type of economic growth going forward.

On November 9th, in the 03:00 Update, I highlighted a "forget me trade" in a straddle on Continental Airlines (NYSE:CAL) and the Feb $15 call/put (CALFD) and (CALRC) to take advantage of a potential move that we thought might be getting ready to take place. There's still a lot of time left in that trade and right now, the bulls/calls look to have the upper hand.

Jeff Bailey
Senior Market Technician
Option Investor

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