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It's a "crazy" bid

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Stocks are holding firm this morning and much of the early morning losses have been erased. I've been closely monitoring a recent bearish profile in shares of QLogic (NASDAQ:QLGC) $36.35 +3.06% reverse an earlier -1% decline and has me alerting bears to make sure that bearish exposure is limited at current levels.

Yesterday's action had the Semiconductor Bullish % from Dorsey/Wright and Associates reverse back up into "bull alert" status and early bullish signs in the semiconductor sector should have bears assessing upside risk to potential buy signals. For QLogic (QLGC) $36.35, that would be $40, with bearish trend at $39. I would NOT be looking long the stock, but turning more cautious in bearish positions.

In this morning's 09:00 Update and late last night in the market monitor, I discussed the NYSE Composite and potential bullishness above the 50-day MA.

The logical question of "where the heck is the money going to come from to push it higher?" must be answered.

That's where we'll turn to the bond market and perhaps the 5-year Treasury YIELD ($FVX.X) 3.36%. On the point and figure chart, we see YIELD resistance currently just below the 3.4% level and perhaps good correlation between this YIELD level and the NYSE Composite's 50-day MA.

5-year YIELD Chart - 0.50 box scale

Up until now, my past observations of bullish strength in stocks has largely been thought of as "short covering" by bears. With the NYSE Composite ($NYA.X) 501.76 sitting just under its 50-day MA and setting up very similar to last fall's technicals, the question of where any cash is going to come from in order to push the NYA above its 50-day.

The Treasury bond market is the logical first place for a trader/investor to be looking. I've pulled up a 5-year YIELD Chart ($FVX) and YIELD is higher today at 3.393% and a rather substantial jump at that. However, the p/f chart shows resistance at 34.00 or 3.4%.

Now we have a level in the Treasury market at the 3.4% level which may actually "correlated" against the 50-day MA in the NYSE.

Let's face it. Until the 50-day MA on the NYSE is broken to the upside, then that intermediate-term MA REMAINS resistance and bullish equity caution is still advised. Let's face it. There's 5-year YIELD resistance at 3.4% and until that level is broken, a trader can't begin thinking "BULL EQUITY MARKET" in every stock.

However, this "crazy bid" in equities looks to be real. Step by step we'll look for various levels of potential resistance to be broken and build bullishness from there.

On the move

I did not know that OI had profiled a bullish call play in shares of IBM (NYSE:IBM) $79.00 +3.26%, when I was writing about it last night and posted in this morning's update. I don't write/pick any of the OI call/put plays, but find the similarity in observations in this stock interesting, if not bullish. I expect other market participants also witnessed the spread-triple-top buy signal and put that together with the NYSE Bullish % reversal higher earlier in the week.

Jeff Bailey
Senior Market Technician
Option Investor

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