Option Investor
Market Updates

Stock futures show gains

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Stock futures are higher this morning after yesterday's broader market decline. Currently we're seeing S&P futures trade higher by 4.7 points at 1,134. NASDAQ futures are also showing gains and trade up 12 points at 1,579, while Dow futures are up 45 points at 9,805.

Fair value for the S&P 500 today is $0.52. HL Camp & Company has their computers set for program buying at $1.82 and set for program selling at $0.93. Fair value for the NASDAQ-100 today is $1.75. For more information on fair value and its uses, please visit www.programtrading.com

Bond YIELDS marginally higher

Bond YIELDS didn't react like I thought it might yesterday on concerns of Middle East tensions. While I was out of the office, I did catch glimpse of the bond markets action and was rather surprised. In last weeks trading, we saw bond YIELDS head lower and it sure looked as if money had begun to rotate back into Treasuries. Yesterday's news of Middle East tension had me thinking that market participants would step up their rotation efforts into the Treasury market, but that just didn't happen. This is a good sign longer-term for equity bulls in my book. We'll continue to follow YIELDS on a daily basis to try and get a feel for just where the MARKET's money is flowing.

This morning, we're seeing fractionally higher bond YIELDs in the Treasury market as the YIELD on the 30-year ($TYX.X) rises to 5.269%, the 10-year ($TNX.X) is trading 4.731% and the 5-year ($FVX.X) trades 4.034%. On Friday, the dip in YIELD below the 4.037% YIELD level had me getting more concerned for stocks. Yesterday's close on the 5-year ($FVX.X) stood at 3.998%. Currently, I think it would take a move in YIELD on the 5-year above the 4.187% level to get a meaningful move underway in stocks. Until that time, I think an equity bull should be rather "short-term" oriented with trades and quick to take profits when they get them by using a tight trailing stops that moves higher each trading session.

For equity bears, they're not out of the woods and must also be disciplined with their trading. Yesterday's bond market action is hint to me that the MARKET is beginning to look down the road at the economy and not as eager to gobble up the safety and low YIELDS in the Treasury bond market. Here too, I'd have a more short-term view on trades and not necessarily looking for homeruns. When you get a nice gain of 5% or more going in a stock, then begin moving down that stop to help assure profitability in the trade or remove some risk.

I think a trader that will continue to mix in some bullish and bearish trades into their trading account will fair better that the trader simply trying to play one direction. With the close of each trade, analyze what went right or wrong, then look to build on what you've learned. What did the corresponding sector do during the time of the trade? Did the stock you traded, trade with the sector? Was there a retracement level or moving average that came into play? This is the way to analyze a trade and not simply look at the profit or loss that resulted.

Jeff Bailey
Senior Market Technician
Option Investor

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