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Stocks steady despite weaker economic data

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I don't know about you, but I'm scratching my head on some recently established bearish trades. At the same time, I'm rather impressed with the trading of my "key" stock and how it seems to be trading almost to plan. As such, I'm left with a rather "mixed" feeling of observations and this may also be the current market environment at hand as we wait for some type of signal from the markets.

The Dow Industrials currently trade down just 60 points (-0.66%), S&P 500 is lower by 5 points (-0.54%) and the NASDAQ is off 26 (-1.97%)

Weakness is found in the Semiconductor Index (SOX.X) 328 -5.2% after weaker earnings and outlook for KLA-Tencor (NASDAQ:KLAC) $38.96 -3.49%.

Strength is found in the less economically sensitive healthcare areas with the RXH.X +2.78% and HMO Index (HMO.X) +1.96% as the HMO's shrug off yesterday's Florida Judge ruling.

This morning I showed a 5-minute interval chart of the 10-year YIELD to show on a short-term basis that the bond market wasn't necessarily "panicking" with the weaker GDP data. But after this morning's Chicago PMI data, which also came in lower than economists expectations at 51.5% (consensus was 56.8%) the 10- year YIELD found further buying (driving YILED lower) and signaled weakness for stock.

10-year YIELD Chart - 60-minute interval

We can "step back" a little and look at a 60-minute chart of the 10-year YIELD and perhaps get more of a "swing-trader's" view of things. I'm thinking the 10-year YIELD will at least pull back to my short-term upward trend, which ties in nicely with a currently rounding out 50-pd (thin blue) moving average. With that thought in mind (it would take some buying to have YIELD going lower) I'm thinking stocks edge lower right now.

And this is when a trader may bring in one of his/her "key" bullish stocks and make some observations. Last week, we started working up some observations on Wal-Mart (NYSE:WMT) $48.05 -2.19%, which was a stock I profiled as bullish in the OptionInvestor.com market monitor at $45.01 on July 25th. I've left retracement on the 60-minute interval chart and we can perhaps make some observations that indeed, some money that has come out of the 10-year Treasury has found its way into WMT. I can also "key" off the moving averages to monitor for strength/weakness in the hours/days ahead too!

Wal-Mart Chart - 60-minute interval

Wal-Mart (WMT) is one of my "key bullish" stocks that I felt would trade bullish. While today's economic data has been negative, I'm still rather bullish on the stock. Right now, I see NO DIVERGENCE from Treasury YIELD as it relates to the 10- year, so I figure it is simply trading with the market. A trader long at $45.01 may be comfortable here, but protecting the position with an aggressive stop just under retracement at $47.25, while still targeting a trading target into the $51.29-$53.58.

Traders can perhaps do this type of "correlation" with their "key" stocks they've identified. Not only their bullish ones, but their bearish ones too. As long as they "measure up" and trade as planned, the trader has continued conviction in the position and makes for a more confident trader.

Jeff Bailey
Senior Market Technician
Option Investor

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