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Consider Bearish Plays on 10-Year Treasuries


Watch for a move in yield from 3.69% to 4.01%.

Summary of Yesterday's Notable Technical Developments

Bonds A rotation away from risk gave bonds a boost; the benchmark 10-year Treasury broke
out of its recent trading range and is yielding 3.72%. Yield support first comes in at 3.69% (see one-month chart below).

Stocks Equity markets were weak Tuesday, as expected. Disappointing corporate news and
early dollar strength had traders fleeing risk assets. Stocks stabilized after 1 p.m. to mitigate the losses. Technology was again weak, with the NASDAQ losing 1.30% on the day.

Commodities Risk was sold in yesterday's session sending oil, gold, and the DBC all lower by 2%. DBC closed at 24.76 -- below its recent breakout point of 25 -- and is now only up 0.5% on the year.

US Dollar
The dollar index again tested support at 76.73 after initially opening higher. Support held yesterday as the DXY rallied off that level to close above 77. That support will be tested for a third consecutive day, as the DXY has been below that key level for much of the early morning.

The yield on the 10-Year US Treasury for the last month (30-minute bars):

Click to enlarge

Market Internals: NYSE
(Figures are rounded)

Critical Market Components (with ETF proxies):

S&P 500 (SPY): Significant resistance remains at 1146 on a monthly closing basis. Support for the S&P comes in at the short-term uptrend line at approximately 1126 - 1128 with longer-term support at the 75-day moving average at 1091.73. The SPY has corresponding support levels of 112.37 and 109.33 and resistance comes in at around 115.08.

NASDAQ (QQQQ): Initial support for the NASDAQ at 2292 was broken Tuesday and major support at the critical monthly level is close by at 2271. Resistance for the NASDAQ comes into play at 2331 (March 2007 lows) and 2339.90 just above that level. The QQQQs have support at 45.00 - 45.75 and resistance in the 48 area.

Dow Jones Industrials (DIA): Support remains at the breakout point of 10,507 with 10,450 providing additional support below that; resistance comes into play at 11,000. For the DIA, resistance comes in at 111; initial support is at 105.

10-Year US Treasury Yield (TLT used here as a proxy for longer-dated bonds): Resistance for rates on the 10-year Treasury continues to be the 3.8% to 3.9% range and initial support is at 3.69%, with 3.6% below that. The extreme levels on the 10-year yield translate to support for TLT at 88.77 and resistance at 90.69.

Commodity ETF (DBC): The DBC now has resistance at 25 with additional resistance at 26.73 to 26.86 (the 50% retracement level of the wave 3 move lower that ended in March of 2009) just above that. Support for DBC is now the 24 level.

US Dollar Index (DXY and UUP): The DXY has important support at 76.73. Resistance comes in at 77.50 and 78.00. The support for UUP, the ETF proxy for a rising dollar is at 22.65, while 23.20 is first resistance.

Semiconductor Index (SOX and SMH): The SOX has weekly closing resistance at 366.52. The first support comes in at the horizontal line at 332.11. The next meaningful resistance comes in at 384.28 (bottom of first wave lower from July 21, 2006). Resistance for the SMH fund comes in at 28.15, while support is at 26.16.
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No positions in stocks mentioned.

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