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5-year YIELD action may have stocks furthering gains

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Last week's suspicious selling in the shorter-term 5-year YIELD ($FVX.X) near the 3.3% level, which was right at this bond's bearish vertical count for YIELD, had us thinking there might have been some type of asset allocation shift taking place in the markets as bond traders might be looking to make a shift from the safety and lower YIELD of this bond, and taking on more "risk" in equities that have been beaten to a pulp in recent months.

Today's YIELD trade above last Thursday's relative high YIELD for the 5-year of 3.517% hints that sellers in the 5-year maturity may be getting a little more aggressive with their selling near- term. This could bode well for equities in the coming sessions.

5-year YIELD Chart - Daily Interval

Strong selling in the shorter-term 5-year YIELD ($FVX.X) early this morning bode well for stocks and was seen in the stock futures. The recent break above Wednesday's high of 3.517% (day after we thought there might have been some institutional asset allocation programs triggered) should bode well for equities.

I'd continue to monitor the short end of the bond market here. This is deemed "less risky" and the willingness of the MARKET to sell hints that investors may be willing to take on some "higher risk" in equities, after they have moved lower in recent months.

Both the 10-year ($TNX.X) 4.5% and 30-year ($TYX.X) 5.37% are seeing good selling today, so I don't believe that money coming out of the 5-year is rolling to the higher YIELDING longer-term maturities.

Wal-Mart gives double top

Shares of discount retailer Wal-Mart (NYSE:WMT) $49.32 +2.36% was a stock I thought might find institutional buying and today's trade at $49 was enough to get this stock back on a "buy signal" on its point and figure chart.

Stock looks good for 1/2 bullish position here, with trailing stop on underlying at $46. Traders will monitor any pullbacks to $47.43 for support (80.9% retracement). OptionInvestor.com subscribers that took my bullish trade from $45.01 in the market monitor on Thursday can look to hold the shares here, but I'll be looking to sell a covered call on a rally near the 61.8% retracement level of $51.29 as that may become near-term resistance.

A trader holding 1/2 bullish position that may have just 1/2 bullish position from $45.01, but not holding 100 shares and would perhaps like to sell a covered call on the stock on a potentially rally near $51.29, could average up at current levels, bring position to 100 shares and then be able to sell the covered call should the stock continue to move higher.

Jeff Bailey
Senior Market Technician
Option Investor

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