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Where's The Love, Baby\?

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After a seemingly endless string of dips being aggressively bought by the bulls, today's action has a different feel about it. After another round of less-than-inspiring economic reports this morning, market participants lacked the wherewithal to drive the markets to new highs. That failure saw the DOW pull back from its opening high of 8728 back to just above the 8600 level. The failure to break out over Monday's 8743 high is important, as this was yet another rejection from the descending trendline (just over 8700) that Jim Brown has been featuring in his recent Market Wraps.

The picture wasn't much different over on the NASDAQ, with an early rally attempt rejected from the 1550 level, after the COMPX just barely eclipsed yesterday's intraday high. That rejection was followed by the COMPX falling to the 1526 area, trading below yesterday's low. Looking at the hourly chart, the COMPX appears to be creating what is known as a broadening formation, with higher highs and lower lows. While the outcome of such a formation is unknown, it does point to greater instability in the market. Given the strong rally the market has undergone in the past several weeks, I'd give the nod to this pattern breaking to the downside. However, with the recent pattern of buying all the dips, that breakdown could be short-lived.

What is most interesting about today's session is the lack of interest in buying the morning dip. While there has been a mild lift off the lows with the DOW now trading 8646 and the COMPX trading 1532, there is scant volume behind it, perhaps indicating that market participants are more interested in squaring positions ahead of the orgy of economic reports that commence tomorrow morning than in actually taking positions ahead of that series of unknowns.

A quick scan of volume patterns show just how deadlocked this session is. On the NYSE, advancing volume is barely ahead of declining volume by a ratio of 42:39, while it is even tighter on the NASDAQ, with a ratio of 48:46. As we exit the noon hour, a mere 700 million shares have traded hands at the NYSE, although things are a bit more brisk at the NASDAQ, with just over a billion shares traded so far.

With bond yields deep in the red today (where they have been since the opening bell), we have the Ten-Year Note (TNX.X) trading at 3.567%, just off its low of 3.557%, and just a smidge above the March low of 3.549%. In recent sessions, we've grown accustomed to the equity market not showing its normal inverse relationship to bonds, so it is somewhat encouraging to see that relationship being restored today. Of course, with bond yields so close to that major support bears need to be attuned to the possibility of some profit taking in bonds. Should that occur, it would likely free up some cash that could be applied to buying the latest dip (albeit mild and brief so far) in the stock market.

Until such an event occurs, the markets appear stuck in the mud, waiting for the next catalyst to push the pile higher or lower. Perhaps tomorrow's economic reports will do the trick.

Mark Phillips

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