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How ironic

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Just when it looked like bulls might be getting an upper hand on things in some of the more "economically sensitive stocks", equities turned south and red replaces green on many trading screens. How ironic is it that in today's 11:00 update, almost as an afterthought at the bottom of that update we mentioned it was far better for bulls to stick with stocks that had been attracting capital on a longer-term basis than just a couple of trading sessions?

Today's about face in stocks looks to be driven my negativity brought on by a downgrade in shares of Cisco Systems (NASDAQ:CSCO) $14.37 -7.2% as losses worsen in one of past histories most garnished tech favorites.

Adding to weakness in stocks is trader talk that a large asset allocation program was triggered during Alan Greenspan's testimony away from stocks and into Treasuries. Lots of subscriber's were e-mailing me this morning regarding the action in the bond market and the reversal in YIELDS to the downside that may very well have been early alert to such an asset allocation. While stocks traded strong during that time, it surely does look like it may have had some impact on things.

The key level we continue to monitor in the 10-year YIELD ($TNX.X) is the 4.8% level. Since the beginning of January, this has been a floor for YIELD (resistance for price) and any type of extended break below the 4.8% level most likely has a negative impact on stocks.

10-year YIELD Chart - Daily Interval

Don't leave your trading station and don't be complacent with disciplines stops. Once Mr. Greenspan concluded his comments, the market seemed to transform from bull to bear and things have soured markedly.

I didn't hear anything from his remarks that would bring on today's selling, but this market seems to have a mind of its own. Selling has turned rather broad with many of the index/sectors in negative territory.

Sector strength now has been limited to Airlines (XAL.X) +1.21%, Transports (TRAN) +0.69% and Utilities (UTY.X) +0.55%. Weakness is found in Networking (NWX.X) -3.3%, Fiber Optic (FOP.X) -3.5%, Oil Service (OSX.X) -2.3% and Gold/Silver (XAU.X) -2.17%.

Jeff Bailey
Senior Market Technician
Option Investor

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