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Stocks hold gains despite yesterday's rise

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After a marginally lower open for stocks this morning, we've seen the major averages trade back into the green. The Dow Industrials are edging above their 200-day moving average of $10,139 and we're getting what I feel is bullish confirmation from the 10-year YIELD chart.

Dow Industrials Chart -

The Dow Industrials are holding onto yesterday's gains and acting well at a key level of longer-term resistance. This will most likely have a positive impact on things as long as it continues. Personally, my "view" of the market has improved markedly with yesterday's action. Perhaps I like many thought we could see a nice round of profit taking today, but its just not happening. Continued bullishness in the Dow is going to eat away at investors that have stayed on the sidelines and not dipped their toes in the water. The longer the Dow hangs in here or begins moving above the 200-day moving average, the more chance there is that money comes in from the sidelines or the bond market!

10-year YIELD chart -

The 10-year YIELD ($TNX.X) actually traded with a higher YIELD than it did yesterday. This very short-term observation is that there are still some willing sellers in this bond. Equity bulls have wanted to see DIVERGENCE from past trading near the 200-day moving average and that bullish scenario is still in play for stocks. The recent sharp reversal from our "yield support" level at 4.64% gives hint that the bond market is starting to undergo a change. Should we get some type of kick higher in YIELD, look for that to spark continued bullishness in stocks. A sharp kick higher would be EXTREME DIVERGENCE of what took place in the May- June stock rally and that may be the convincing move from the bond market that the economy and the stock market is truly turning a corner.

Jeff Bailey
Senior Market Technician
Option Investor

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