Option Investor
Market Updates

Financials weighed lower

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Despite some encouraging economic data that showed May leading indicators rising 1.0%, which was better than economists' forecast for a 0.7% gain, the major indexes have dipped into the red with financials exhibiting weakness for a second straight session and looks to have stalled modest gains after the leading indicators report was released.

Here's a quick look at my U.S. Market Watch screen I keep an eye on throughout the day. I'm making some comments in the far right column as it relates to things I discussed in last night's Index Trader Wrap, that for today at least, unfold on the negative side toward equities.

U.S. Market Watch -


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While both the 10-year YIELD ($TNX.X) and 30-year YIELD ($TYX.X) are off their lowest price levels of the session, YIELDS are higher and this seems to have had a negative impact on both the Dow Jones Home Construction (DJUSHB) and PHLX Housing Sector Index ($HGX.X) as the thought of higher bond YIELDS in the 10 and 30-year maturities, which mortgage rates are tied to may be bringing in some profit taking in both of these "housing-related" sectors after an impressive rise the last couple of months. In last night's Index Trader wrap, we discussed this relationship and with both housing sectors looking rather extended, I would strongly suggest that bulls in this sector look to guard profits.

Both the S&P 500 (SPX.X) and narrower S&P 100 Index (OEX.X) failed to show much life this morning, and early signs this morning from the financial sectors, which we also discussed in last night Index Wrap, lagged any type of potential move higher after this morning's May leading indicator report.

In essence, some of the things we discussed in last night's Index Wrap certainly seem to be in play today.

I'm also drawing attention to the Biotechnology Index (BTK.X) and my previously profiled bullish trade in Human Genome Sciences (NASDAQ:HGSI) $12.55 -6.77%, which continues to unravel after giving a double bottom sell signal yesterday at $14.00, which had me stopping out of that trade at $13.95. My focus here is for bulls to stay true with their stops! While not all stocks will continue to decline at such a rapid pace as we're seeing unfold in HGSI, I'm using this observation to hopefully relate to traders that at these higher levels of bullish %, declines can be quick a rather fierce.

I've had several e-mail regarding the rising VIX and VXN in today's session. While the rise does show volatility gains, I'm not certain that just ahead of option expiration we can read a lot into this. However, as expiration passes into next week, both of these indicators of option volatility can be monitored much more closely, with more bearish hints coming from some type of continued, but "sharp" move higher.

While I point to both the NDX/QQQ with the remarks "following" as it relates to both "following" the SPX/OEX lower, in last night's Index Wrap we also noted the deterioration we've started to see in the NASDAQ-100 Bullish % ($BPNDX). While the NDX/QQQ actual index price action looks to be "following" the trade in the SPX/OEX, the NASDAQ-100 Bullish % ($BPNDX), which is higher than the S&P 100 Bullish % ($BPOEX), begins to actually "lead" some internal weakening as bullish risk looks to be starting to be removed. Again.... I would at least use the action in HGSI to understand how "quickly" risk can be removed.

Jeff Bailey

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