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Seesaw action prevails

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It's been up, then down, and now looks to be a rally attempt for stocks as the late afternoon action unfolds. This morning's consumer confidence reading of 94.1 was lower than the expected reading of 97.4 and that found some selling among stocks. However, bonds saw very little buying and didn't seem to react as negatively to the consumer confidence readings.

Some economists felt that while the confidence numbers did edge back, the reading still above 90.0 was still a positive on the economic front. The action between the bond market and stock market was that of disagreement toward today's confidence numbers.

Then later in the morning, we saw a Fox news report that U.S. Special Forces were on the ground in Iraq, bring on selling in stocks and we did see a short-term reaction from the bond market and some buying in bonds that had YIELD jerking lower. Later, the Pentagon denied that U.S. forces were on the ground in Iraq and the bond market reversed course to unchanged levels and at the time of this writing, YIELDS have moved higher (selling in bonds) with the 10-year YIELD at 4.903%.

The 10-year YIELD looks rather range-bound as to stocks. My key levels for the 10-year YIELD are 4.80% (dip below negative for stocks) and 4.98% (move above positive for stocks). The recent intraday swing back higher has stocks recouping some losses.

The Dow Transportation Average (TRAN) 2,808 +1.10% is now one of the sector gainers, just behind the Gold/Silver Index (XAU.X) 66.40 +4.5%. The transports are the index we're monitoring closely as we feel this may be where the MARKET tips its hand toward any conviction toward economic recovery.

Yesterday's existing home sales had investors rather bullish and the transports did participate in the broader-market bullishness. For economic bulls, I do think today's continue strong performance despite the near-term ups and downs during the session is showing some conviction by bulls in the sector. As each day begins to pass, we are starting to see the Dow Transports (TRAN) diverge from downward trend dating back to May of 1999.

There are some moves underway from stocks that have even the bullish of technology investors impressed. In recent weeks/months we talked about some near-term bullish technicals underway and even some thought of why Goodyear Tire (NYSE:GT) $27.55 +4.23% may have been considered as a "boring stock" that had some upside from the $20 levels. Today the stock continues to build on gains. We're thinking that yesterday's news and guiding higher on earnings from General Motors (NYSE:GM) may have something to do with it. Our "fundamental" thoughts months ago were that 0% financing may boost auto sales, but the "safer" way to play the 0% financing was on tires as demand for them could increase.

Goodyear Tire Chart - Daily Interval

Yesterday it was Caterpillar (NYSE:CAT) that raised some eyebrows, but the recent move from Goodyear Tire (NYSE:GT) has been equally impressive. Bears that continue to say "the economy is in the dumps" find recent action in Caterpillar (CAT) and Goodyear Tire (GT) hard to explain.

While I consider myself rather "market neutral" I too have a hard time explaining the bullishness in shares of CAT and GT, but we've pointed out both stocks as bullish plays in the deeper cyclicals. When the deeper cyclicals move higher, one has to at least be open to the concept that the MARKET is believing in some type of economic recovery. The pace that some of these stocks are moving is also alarming to the economic bears as it may signal a rather sharp recovery.

Tomorrow we'll get more economic data from the Durable Goods Orders and New Home Sales.

Jeff Bailey
Senior Market Technician
Option Investor

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