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Bonds reverse their buying and stock peg highs

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What had started out as a rather lackluster and marginally bearish trading session for stocks and built to a nice rally for the bulls, which has the major indexes their recent month's highs.

For the bulk of the morning, Treasuries has found buying and lower YIELDS, but as stocks held firm in the face of weaker than expected housing start numbers, bond sellers showed up and pressured equity bears cover some positions on thought that maybe stocks do have some upside left.

As I click through my major index bar charts, I don't see any of the major indexes reaching their upper Bollinger Bands, but make no mistake, the indexes are firmly in the upper-end of their Bollinger Band ranges.

For trader, they understand they're still in a fairly tight range, but today's rebound for stocks has the major indexes back above their shorter-term 21-day SMA's, which has the shorter-term bearish trader moving to the sidelines before the close, as risk on today's rally becomes some type of potential "gap higher" morning trade.

Shares of networking giant Cisco Systems (NASDAQ:CSCO) $14.41 +5.41% continues to trade strong, just a week after the company reported earnings that were slightly above consensus, but delivered cautious comments at the then $13.00 level. Despite those cautious comments, the move higher leaves many broader market bears second-guessing just what's in play. Is it that stocks are still perceived as "beaten down" even after some impressive moves off the bottom, or is the MARKET looking past the current sluggish economic numbers and perhaps past any conflict with Iraq, which many feel if it were to come to fruition, would be short in duration.

One technology sector we commented about a few days ago in the Wireless Telecom Sector Index (YLS.X) 54.64 +4.63%, which was the first tech sector to break above its 200-day, continues to hold above that 200-day SMA today, and as ever so slightly pierced Monday's relative highs of $54.78, with a session high trade of $55.07.

Also making a bold move back above its 200-day after a brief visit above this longer-term 200-day moving average on Monday is the CBOE Internet Index (INX.X) 88.28 +5.05%. Here we see the INX.X taking out Monday's high of 87.78 on a slightly more pronounced basis than the YLS.X. Nonetheless, both sector appear to be showing some technical leadership and hints that traders are still rather aggressive with thoughts of further upside. Bear's included.

Some of the above mentioned technical in groups like Wireless and Internet, which are most likely perceived as "lacking fundaments" may spill over to other groups where at least some earnings are found to the bottom line. Semiconductors as depicted by the Semiconductor Index (SOX.X) 334.94 +7.24% continue to build intra-day gains and holds today's top spot on the sector gainers list. Here we may be seeing some traders eyeballing the 200-day SMA up at 413, comparing that to the technical witnessed in both the INX.X and YLS.X and taking some action with thoughts of further upside. Using similar Bollinger Band setting used in the Index Trader Wraps (21-day SMA, 2 std. deviation), the SOX has come close to testing upper Bollinger Band at 338, with an intra- day high of 337.81. Upward trending 21-day SMA at 300 provides the upward momentum to have bearish traders jittery.

Sector weakness is very limited in the late session, with the Airline Index (XAL.X) 38.93 -3.8% the standout to the downside. Industry talk of a trend toward a "discount travel" model has investors worried not only about increased competition form some discount experts like JetBlue (NASDAQ:JBLU) $35.55 -2.78%, but how a switch in business model toward a discounting air fair model would help already troubled group member like UAL Corporation (NYSE:UAL) $3.08 -7.50% and others already straddled with large debt levels.

Volume is rather average on both the NYSE and NASDAQ, with volume just over the 1.2 billion market on the big board, while volume is running just over 1.4 billion on the NASDAQ.

Just as yesterday's broader negativity had breadth weak, the opposite is true today, with breadth running bullish at 2 to 1 on both the NYSE and NASDAQ.

We still see a lagging in the NYSE new highs versus new lows category with just 23 stocks hitting new highs versus a greater 39 stocks at new lows. NASDAQ shows this indicator of breadth even at 43 new highs and 43 new lows.

Quick analysis on these indicators is that today's action may not be finding too many bears willing to short against today's bullishness, and perhaps limiting some supply and having stocks making a greater move higher as market participants look willing to sell light at the offer, and willing to take some chances for higher prices. Again, I can't back this up quantitatively, just a perception of today's action.

Jeff Bailey

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