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Stocks meander as bond market nears close

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Stocks have been rather range bound today and the major averages are back in the red, though just fractionally. With about 6 minutes left to go in bond market trading, it looks as if the 10- year YIELD is going to close right on/near its 200-day moving average which is at 4.973%. Currently, the 10-year YIELD ($TNX.X) is trading with a YIELD of 4.983%.

The Dow Industrials (INDU) traded just above their 200-day MA today, which is at 10,139, but at current levels of 10,104 looks to be hesitant to put much of a move together without the help of a higher bond YIELD.

The S&P 500 (SPX.X) got close to its 200-day MA which is at 1,175, but today's high of 1,173 and current trading near 1,167 also looks as if equity bulls need more cash to come in from the selling of Treasuries. Right now, I think the 1,175 level is a near-term resistance level for the SPX.

Near-term, I think equity bulls will want to see a sharp move higher in bond YIELDS once again. I say "sharp" as that gives us a feeling of a more concerted effort in selling. To simply "edge" higher gives us the impression that the move lacks conviction.

Perhaps last weeks "edging" lower in bond YIELDS is an example. As bond YIELDS "edged" lower day by day, I felt a "fuse" had been lit for a stock market pullback. But yesterday, that "sharp" jerk back in YIELD really showed us that there was some pressure building. When that pressure was released yesterday, stocks sure seemed to benefit.

I think a sustained higher move in YIELD on the 10-year above the 5% level, coupled with a move above the 1,175 level in the S&P 500 could set the stage for another very bullish trading session. Something to look for and test against in the coming days.

Some signs of overseas recovery

It's been eons since I've looked at a chart of any overseas stocks. Today, I was browsing some of the HOLDRS charts that are listed on the AMEX stock exchange and thought I'd look at our friends across the pond in Europe. The point/figure chart there gives hint that the market's are recovering there and showing some signs of a turnaround. For equity bulls here in the U.S. the more strength you find in overseas markets, the future for stocks here in the U.S. can also become.

Europe 2001 HOLDRS (EKH) - $1 box

I've mentioned before that I like to go back an look at some "older" sell signals and vertical counts to try and see if a stock or index may have achieved some type of bearish or bullish target the MARKET thought might have been achievable at some prior date. A sell signal back in March of this year at the $80 level and resulting column of O's gave hint of $47. While that bearish vertical count in the EKH was "invalidated" by an eventual "buy signal" that long column of O's gave hint that the MARKET wanted out and there was extreme selling with very little rest. You can see the above chart was "littered" with triple- bottom sell signals (very bearish) and they type of relentless selling that occurred after those sell signals wasn't pretty for an investor holding the security long in their account.

But now we're starting to see some bullishness occur in the European HOLDRS (AMEX:EKH). A "low pole warning" was formed in October and the following of a "triple-top" buy signal looks bullish near-term.

The trend (bearish resistance/red +) is still downward trending and has a bull cautious. However, we are seeing some bullish divergence from past trading and something to be monitoring going forward.

While I'm always "skeptical" of a new bull market at hand, I'm seeing hints of bullishness from across the pond. On a global scale that bullishness should be understood, and perhaps traded in the future. I wonder what the European Treasury bond is doing?

Jeff Bailey
Senior Market Technician
Option Investor

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