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Market Updates

Stock market showing some ignorance\?

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It is too soon to tell with just 90-minutes having passed in this morning's trading, but the stock market looks like it may be showing some "ignorance" as it relates to what bond market participants are doing.

Usually, under difficult economic and geopolitical conditions, the stock markets witness sharp selling, coupled with strong buying in U.S. Treasuries. That's what I was kind of expecting this morning.

However, what's taking place, at least partially, is that stocks are seeing some selling, but Treasuries are basically flat and little changed. One "reason" cited for lack of Treasury bond bullishness is concern about the U.S. Government budget and potential deficit. However, a quick check of the June U.S.$ Dollar futures (dx02m) shows the U.S. Dollar showing some strength this morning against the major foreign currencies.

Another sector I'm keeping a close eye on is the Gold/Silver Index (XAU.X) 81.95 -2.12%. Earlier this morning, we noted in the market monitor that this index was showing just marginal gains, and those gains have been erased and now turn lower. This is also an index that "usually" exhibits bullishness from stock traders as the sector is thought to be a "hedge" against negative economic, currency and geopolitical events. While some market participants are selling broader market equities, they're also selling some gold stocks. This is a bit of a DIVERGENCE than what I would have thought would take place under any scenario that today's negative broader market action shows.

Current action really looks to be "all Intel" related and really a blow to the MARKET's psychology and perhaps some equity bulls are voting on a more emotional basis right now. However, as we've noted before, when emotions come into play, markets can trade wild.

Earlier this morning, I showed just one sector in positive territory, and that was the Gold/Silver Index (XAU.X), which has now turned negative.

Here's a quick look at a screen capture from my q-charts trading station.

U.S. Market Watch

It's difficult to "judge" a market with just 90-minutes of trading passed, but while some of the broader market averages (near the top) are under some selling pressure, the selling may not necessarily "make sense" as it relates to what we're seeing between Treasuries (at the bottom of the chart) and Gold/Silver.

The economically and consumer sensitive Retail HOLDRS (AMEX:RTH) $92.25 +0.19% are showing marginal gains. While this action is most likely short-covering from the recent 2-week decline in the sector, one has to wonder under current market conditions why a bear would be looking to cover. Unless of course the RTH hit his/her target and the trader's discipline instructed the trader to lock in some gains at their target.

This too is important for bearish traders to understand and implement. As mentioned this morning, if a bearish trade does perform to your original plan and a target is achieved, try and lock in some gains and pay yourself for the risk taken when the trade was originally place. PAY YOURSELF for your hard work!

Jeff Bailey
Senior Market Technician
Option Investor

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