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Marginal bullish bias, but bulls need selling in Treasuries

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The markets look to be getting some bullish bias, but right now I'd still have to say that its bears doing the bulk of buying. Once again we're seeing the weaker NASDAQ Composite (COMPX) 1,390 +1.55% and NASDAQ-100 Index (NDX.X) 1,012 +1.4% show larger gains than the S&P 500 Index (SPX.X) 929 +0.19% and the Dow Industrials (INDU) 8,752 -0.56% is still having some trouble holding a gain. The lack of leadership from the stronger Dow Industrials hints that the gains found from the tech-heavier NASDAQ indexes have shorts doing some buying.

Treasuries are seeing some modest selling, but probably not enough at this point to get equity bulls overly enthusiastic. Yields are higher in the 5, 10 and 30-year, with the 10-year YIELD ($TNX.X) up a smidge at 4.622%. Just enough to have bears sticking some bids in on stocks that may be a little overextended and showing some renewed signs of life from oversold levels.

Shares of NVIDIA Corporation (NASDAQ:NVDA) $20.23 +1.5% did trade the $21.00 level we wanted to monitor and that may have some bulls long the stock and bears looking to cover prior positions. While the point and figure charts are great for the institutional view of things, traders may be doing some work with their retracement brackets to identify potential levels of support/resistance with their point and figure charts.

NVIDIA Corp. Chart - Daily Interval

I'm using a similar retracement on NVIDIA (NVDA) that I used when profiling the stock as bearish back near $28. This retracement seems to represent some levels that market makers may have been trading.

Just like the point/figure chart shows today with a trade at $21, the retracement also shows that an "upside" alert may have been given to a market maker in the stock at $20.75. This may have him/her checking inventory levels in the stock. If they've been on the right side of things, they've been short the stock, perhaps doing some covering in the $16.05-$20.75 as they get a short inventory squared up.

At the same time, the market makers in the stock have a good feel for order flow (buy and sell orders), which is something you and I don't have. However, we can begin to think that if the stock is able to close above $20.75, then the market makers may be starting to see more of a "buy side" bias to the stock and a market maker carrying bearish inventory would then assess risk up to the $25.45 level.

At the same time, the market maker keeps an eye on Treasury YIELDS to try and get a sense if the phone might be ringing in the future from a client that sold some Treasuries to perhaps put some money to work in NVIDIA with the thinking that a measly 4.6% YIELD in the 10-year might be better placed in NVIDIA at $20.25 with some upside to $25.45, which would represent a 25% gain.

This is an ongoing process that every investor begins to weigh with the information and scenarios they've put together for the markets.

At no time does an institutional investor or market maker put all their capital in one stock or on one side of the market. No, institutional investors are all about risk/reward, measuring it, and then monitoring it going forward on the dynamic that unfold.

Trader that use the point and figure charts along with bar charts get the feel that they're looking at the "big picture" from the point and figure charts, then starting to "fine tune" things with their bar charts.

Traders can go a step further by looking at their bar charts on 60-minute intervals. Leaving prior technical analysis work in place, but on a shorter-time interval.

NVIDIA Corporation Chart - 60-minute interval

I think shares of NVIDIA (NVDA) are trading rather well today despite the lower than expected consumer confidence reading of 86.5. There was good volume at the open and the pullback from $21.08 has been on light volume. Swing-traders that like to use the 60-minute chart interval may be looking for entry points at the rounding higher 50-pd MA, or looking for it to serve as support on any more near-term weakness. If some volume comes into the stock on an upward move and the stock get much above $21.08, then bears get a little more nervous than they perhaps are right now. If an upward move is correlated against a higher Treasury YIELD, then all the better. Very, very early in the game here, but may be helpful in looking at other trades you're contemplating.

Jeff Bailey
Senior Market Technician
Option Investor

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