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Sideways into the close

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Treasuries couldn't have closed more "neutral" to hint at tomorrows action than they did at their 03:00 EST Update close, and this has me looking for the major market averages to trade rather sideways into the close.

The benchmark 10-year YIELD did trade right down to the upward trend on my 60-minute interval chart I showed in the 01:00 EST Update, then saw marginal buying at that level (4.45%) to close with a YIELD of 4.46%. However, MACD on this interval chart is still trending lower, so I would hold some bearish positions overnight and see what happens in the morning. The "rate" of buying in Treasuries today hints that some money wants to sit things out near-term, and may have stocks continuing to edge lower tomorrow.

Another rather "neutral" type close is found in the shorter-term 5-year Treasury YIELD ($FVX.X) at 3.458%. This is just a smidge above our old 0% retracement, which marked the low YIELDS found in this bond back in November of last year, before a major unleashing of selling that helped fuel stocks rally into this spring.

As "amazing" as it may seem, shares of WMT traded right at its 50-pd MA on its 60-minute chart, which came in "unison" with the 10-year YIELD action. The stock has since recovered from the $47.30 level (where the 50-pd MA was) to trade at $48.35 here. That about a $1 higher than the correlated YIELD action. This action hints that some bears may be looking to square some positions in the stock and perhaps a little jittery.

While it may be "foolish" to think that these three types of observations are conclusive to any type of broader market action, traders should be making multiple types of observations in various "key" stocks they're either trading or at least monitoring.

One question I'm anticipating is "why do you talk about bullish observations as it relates to WMT?"

One thing I want to look for is any type of DIVERGENCE. You and I now know the REASON for bearishness. Today's GDP and Chicago PMI data are reasons for the MARKET to have been bearish. However, by monitoring some stocks for BULLISHNESS that are perhaps economically sensitive, we can perhaps get a feel for the MARKET'S forward looking view on things.

We now "know" why the broader market averages and stocks have fallen in recent months and why money poured back into Treasuries this spring. We now "know" why the bullish % charts were all overbought above 70% this spring and have recently been pummeled to levels below 30%.

What we don't "know" right now, is why the bullish % charts are starting to show some internal repair as "buy signals" begin to be generated in the point and figure charts.

By directing some observations to an economically sensitive stock at the consumer level like a Wal-Mart (WMT) and monitoring some near-term action in the Treasury markets, I at least get a feeling that the MARKET is writing things off at these lower levels just yet. Even though we were hit with some fairly "lower than expected" economic data this morning.

Jeff Bailey
Senior Market Technician
Option Investor

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