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Philly Fed much higher than expected

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Today's Philly Fed Index jumped 14.7 in January from a -12.6 in December and -28.5 in October. Economists were looking for a reading of -2.8. This number has brought out some "bond bears" and Treasuries have seen selling across all maturities. This huge jump in Philly Fed is suspect by some as far as a telling indicator for national economic stimulus. The ISM and Philly index do travel in similar trends but Philly Fed more volatile.

Regardless of some saying today's Philly Fed number should be discounted as it can be a volatile number, the bond market is reacting. I will most likely take a 10-year YIELD move above the 5.0% level to find stocks improving on today's gains, but the number has definitely had an impact on the bond market.

10-year YIELD chart - Daily Interval

Bonds have found some selling today and YIELDS are edging higher. We did see a rather sharp move in the last hour of trading after the Philly Fed report. Equity bulls may be breathing a near-term sigh of relief as the 10-year YIELD looks to have found some YIELD support at the 4.8% level and will now look for a YIELD move above the 5% level to perhaps have stocks extending gains.

For the most part, we've seen very little stock market reaction to the Philly Fed numbers as stocks trade off their best levels of the session.

Sector weakness today is still found in the biotechs, as the BTK.X trades down 1.6%. Also weak today is the Airlines Index (XAL.X) -3.4% and Healthcare (RXH.X) -2.4% after a nice little run in recent sessions. Gold and Utility stocks are also seeing some profit taking as both of their indexes (XAU.X) and (UTY.X) trade down better than 1%.

Sectors rebounding somewhat from yesterday's sharp declines are Software (GSO.X) +2.4%, Fiber Optic (FOP.X) and Brokerage (XBD.X) +1.9%. For now we will note that gains found here have yet to reclaim yesterday's losses.

Jeff Bailey
Senior Market Technician
Option Investor

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