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Bears find tough going despite weaker economic data

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It's been a rather slow bleed lower this morning as the major market averages have been trading in the red, but the declines have been rather modest and perhaps creating some frustration among bears.

As economic data continue to come in, which shows a rather sharp drop off in economic activity from the first quarter, bears are left scratching their heads by a Dow Industrials (INDU) 8,574 -1.87%, which prior to yesterday's and today's more closely watched economic data, has managed to hold onto roughly 1,000 points of a recent 1,230 rise (from 07/24 low to 07/30 high).

Trader talk still rumbles that some overly short traders are still looking to cover some positions and helping put some firmness under the weaker economic data.

Volume is steady today as both the NYSE and NASDAQ exchanges see volume nearing the 1 billion mark.

Breadth is negative on the NYSE by a 2 to 1 margin, with 19 stocks declining for every 11 showing gains. NASDAQ breadth is little different that the big board as 20 stocks trade lower for every 11 trading higher.

Stocks hitting new lows continues to have the upper hand. There have been 53 stocks trading new lows on the NYSE versus 16 stocks at new 52-week highs, while the NASDAQ shows 115 stocks at new lows versus just 9 stocks hitting new highs.

Key near-term may be YIELD action in the 5-year Treasury YIELD ($FVX.X) 3.375%. A break much below the July 26th YIELD low of 3.38% could have bears currently bidding some stocks to cover positions, pulling those bids should the lower action in the 5-year YIELD hint that investors are becoming further defensive.

5-year YIELD Chart - Daily Interval

It will most likely take a YIELD break in the 5-year YIELD ($FVX.X) below the July 25th YIELD low of 3.338% to have equity bears pulling some bids. Thinking is "why cover here, if market wants to get defensive and rotate some cash back into Treasuries, and I might be able to cover at a lower level."

A quick look at the "Beetle's Balanced Benchmark" unweighted portfolio shows the U.S. Dollar Index (dx00y) reversed this morning's gains after the release of the PMI and Construction Spending numbers. Fixed income investments from the bond market have been attracting the capital, while the % losses increase in the equity portion of the portfolio as "perceived risk" increases from the Dow Diamonds (DIA) to the riskier techs as depicted by the NASDAQ-100 Trust (QQQ).

Beetle's Balanced Benchmark - From 07/31/02 close

Today's action will be depicted by the "Net" (the dollar.cent move of the underlying security) and "Net %" (the percentage gain or loss from prior day's close) along with a quick Profit/Loss Today ($ amount gain or loss from $1,000 invested on 07/31/02).

Jeff Bailey
Senior Market Technician
Option Investor

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