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Stocks try to hold morning gains

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It's been a bit of a choppy morning session, but the major market averages have been able to hold onto gains. The US dollar along with the broader market averages have been playing off each other again today. After a morning rally to 107.03 in the US Dollar Index (dx00y) 106.75 +0.17%, some weakness from that level to 106.55 actually found the S&P 100 (OEX.X) 483.78 +0.25% dipping into negative territory.

Gold stocks as depicted by the Gold/Silver Index (XAU.X) 74.89 - 1.8% are trading like "oil and water" with Treasuries YIELD turning higher across the board, as the benchmark 10-year YIELD ($TNX.X) rises to 4.774%.

10-year YIELD Chart - Daily Interval

While stocks have shown some gains this morning, equity bulls that perhaps understand how important it is for the US$ Index (dx00y) to get above the 108.50 retracement level from the chart shown this morning, can perhaps correlate that against the 10- year YIELD chart. Yesterday, after some negative news from WorldCom (NASDAQ:WCOM), the markets did see selling and investors poured money into Treasuries, driving YIELD lower. However, it appears that bond traders are indeed trading our retracement bracket that we've had in place on the 10-year YIELD ($TNX.X). Unless we see a move in YIELD above the 4.801% retracement level, today's rally in stocks still becomes suspect. Look for bears to still be picking away at some stocks that have longer-term bearish price objectives that may have seen a bit of reprieve with this morning's rally.

Equity bulls need to see some upside levels of retracement broken in the US $ and Treasuries to be thinking of holding trades longer-term. At least, these are the types of technicals I'm trading under right now. Very cautious and tentative from the bullish side in equities here.

Jeff Bailey
Senior Market Technician
Option Investor

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