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New home sales helps firm stocks

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As if traders and investors didn't get enough economic data before the open, late morning housing data also presented a bit of a mixed picture as new home sales came in much stronger than expected and reached a record 1 million, which was more than the 978,000 level that had been expected by economists.

Existing home sales however showed weakness and fell -11.7% to an annual rate of 5.07 million, which is down from last month's 5.71 million annual rate.

These latest number did find Treasuries selling off fractionally with the benchmark 10-year YIELD ($TNX.X) rising to a session high of 4.451% and settling here at 4.423%. The shorter-term 5-year YIELD ($FVX.X) filled its gap lower from yesterday, with YIELD rising to a session high of 3.517% and trading with a YIELD of 3.484% here.

In the market monitor, John Seckinger made note that corporate bonds were outperforming Treasuries this morning. His observation was "a bit of a surprise" considering the weakness in AOL Time Warner (NYSE:AOL) $9.77 -14.47% and telecom stocks as depicted by the Combined Telecom Index (XTC.X) 92.14 -4% as extensive corporate debt levels are found in that sector of the economy. However, John's comments don't go unnoticed as it perhaps relates to the fixed income markets and perception of risk/reward as it relates to YIELD return. For the fixed income investor, Government debt is perceived as "safest" and then corporate debt as riskier. Remember, bond (government or corporate) are OBLIGATIONS of the issuing entity. Government debt is backed by the full faith and credit of the U.S. Government, while corporate debt is backed by the full faith and credit of the company itself.

John's bond market commentary is an intra-day look at what "fixed income" markets may be saying about perceived risk/reward in debt instruments and perhaps willing to take on a little more risk in the corporate markets for the higher YIELDS found there.

That type of observation may have then carried over a little to the equity markets and the major market averages reached their best levels of the session, but have started to pull back some here.

The Dow Industrials (INDU) 8,163 -0.29%, S&P 500 (SPX.X) 839 -.046% and NASDAQ Composite (COMPX) 1,257 -2.57% are now lower and the NASDAQ Composite and stocks listed there have had a tough time showing much bullishness this morning.

Sector losers have the Semiconductor Index (SOX.X) 320 -9.5% breaking to a new 52-week low and losses are heavy in Atmel (NASDAQ:ATML) $2.71 -20%, Amkor Technology (NASDAQ:AMKR) $4.04 -18.54%, Applied Materials (NASDAQ:AMAT) $14.53 -12.2%, Novellus (NASDAQ:NVLS) $24.03 -11.8% and KLA-Tencor (NASDAQ:KLAC) $37.60 -11.29%.

In the 01:00 Update, I hope to discuss some hedge strategies for bearish traders that are finding some stocks get away from them on the upside. This is a common occurrence when the bullish % charts become so oversold and traders often have built many bearish positions where it becomes difficult to monitor all of their positions. The options market was created specifically for risk management and I hope to give traders some ideas on how they can perhaps mitigate some pressure from a rebounding stock.

This is also a time when a point and figure chart excels over a bar chart when understanding risk/reward in a trade (bullish or bearish) that you may have on.

Jeff Bailey
Senior Market Technician
Option Investor

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