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Bond market sees selling

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While stocks see buying today, Treasuries are under some significant selling pressure as money that has eased its way toward the perceived safety of Treasury bonds comes rushing out. This is cash that may be slated for stocks and some of the moves in YIELD we are seeing should be monitored and understood.

So powerful perhaps, that the Dow Jones Home Construction Index (DJUSHB) 379.21 -1.48% is seeing some selling. The reason most likely is that the higher YIELDS from the Treasury market will have an adverse impact on mortgage rates. Many mortgage rates are tied to the 10-year ($TNX.X) and 30-year ($TYX.X) YIELDS.

10-year Treasury YIELD Chart - Daily Interval

I'm not so sure that today's broader market action is simply due to Cisco's (NASDAQ:CSCO) $15.99 +22.24% earnings. The Treasury market is really seeing some selling today and not indicative of just one company's earnings report. Fact is, a lot of cash is coming out of Treasuries today. Yesterday's FOMC announcement to leave rates where they are had little impact.

As I mentioned this morning, I think CSCO's earnings were simply a "catalyst" for bears to lock in some gains as risk was running high. However, the action in the bond market hints that there is some more "conservative" cash coming out of bonds and some of it is most likely slated for stocks.

I'm getting a lot of e-mails from traders looking to short/put the QQQ's, SPX and I think that it is way too soon to be looking short/put these averages on such an aggressive stance.

Once again, think about this weekends market wrap. If you were a market maker that had instituted some risk management and had just gotten back to 80% short/20% long, are you at a level yet where you're neutral 50/50? There's no way a market maker could have gotten back to "neutral" by now.

Tonight's NASDAQ-100 bullish % will be interesting to see. I'd be surprised if it got back above the 30% level.

Jeff Bailey
Senior Market Technician
Option Investor

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