The broader market averages attempted a comeback in late morning trading, most likely spurred by some short-covering as both the Dow Jones Home Construction Index (DJUSHB) 381.53 +3.35%, Dow Transports (TRAN) 2,769 +1.3% and Forest Paper Products Index (FPP.X) 364 +0.47, all more economically driven, made sharp moves above their 50-day moving averages, but we haven't really seen the Treasury market and the benchmark 10-year YIELD ($TNX.X) respond with any selling, to indicate that the early morning recovery attempt for the broader market was anything other than some short covering.
In the past hour, reports of a suicide bomber detonating explosives at a bus stop in northern Jerusalem, killing at least three people and injuring more than 20 people, had the major averages giving back their earlier rally attempt.
10-year YIELD Chart - Daily Interval
The 10-year YIELD ($TNX.X) had been "pegged" right around our 4.801% YIELD retracement level all morning, but the recent news out of Jerusalem has YIELD in the benchmark bond breaking to new relative lows, thus signaling a still defensive posture by the market.
From here, it would most likely take a 10-year YIELD move above the 4.875% YIELD level to alert traders to any type of asset allocation shift from the safety of bonds back toward stocks by bulls.
While we've seen some rallies in stocks, the lower YIELD action from the Treasuries is what has be believing that the rally's has come from bears covering short positions.
As mentioned earlier today in the 11:00 Update, the Dow Jones Home Construction Index (DJUSHB) broke above its 50-day MA and looks technically bullish. The break higher was in part spurred from a strong earnings report for home builder Lennar (NYSE:LEN) $59.55 +3.92%, but may also be finding some bullish buying and extensive short-covering as the lower YIELDS in both the 10-year ($TNX.X) and 30-year ($TYX.X) will have the impact of lower mortgage rates.
While we can "explain" some scenarios of why the homebuilders are receiving a bullish reception (earnings, lower mortgage rates due to bond YIELDS falling), the move higher in the Dow Transports (TRAN) and ability to break above their 50-day MA is somewhat perplexing.
As mentioned before, this is a sector that usually leads higher during an economic recovery, and as mentioned for several months in our commentary, one of the areas that bullish equity traders should be focusing on.
So far today, the TRAN has rallied to a high of 2,786.54, which is still under our first level of technical resistance that sector bulls would monitor after a break above the 50-day MA.
For "whatever reason" this group of stocks is finding buyers. Obviously, bullishness is found at the expense of many technology sectors, but for a sustained bullish move, a bullish trader would want to see a reversal in Treasury YIELDS (which we just aren't seeing yet).
Bears know what to look for in managing their short/put positions, and I think some of these past observations were actually made by other MARKET participants this morning when the home builders and transports broke above some near-term technical resistance.
What I'm doing with some of my bearish stock positions today, is placing stops just above yesterday's highs and solidifying levels of where technical resistance, if broken to the upside, should have me stopping out of bearish trades.
I'm also keeping a close eye on the Gold/Silver Index (XAU.X) 75.30 -1.42%. Again, while this sector found some buyers at the open, the gains have been erased and now sinks lower. Based on past observations of how a market will come to this sector, today's action is suspicious as rallies continue to find selling. It should be noted however, that the June Gold futures (gc02m) $320.60 +0.43% are holding onto gains and at their session highs.