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MV Weather Report: Bond Clouds Sign of Storm to Come?


Rain or shine, we review the day's biggest stock stories.

The S&P 500 erased most of yesterday's gains today. The culprit: Selling in the Treasury market, which sent the yield on the 10-year note to 3.732%. The pressure led to selling of stock index futures and dragged the market down.

On today's Buzz and Banter, Professor Fil Zucchi offered his thoughts on the bond market:

"It doesn't take a genius to see that we are getting pretty close to price levels in the 30yr. Treasury (US1) where there will be a battle. In that context, it is worth noting a couple of changes in character in today's trading: first, the swoon in Treasuries seems to be causing equities to react; second, the swoon in Treasuries seems to be giving a boost to the dollar. Both these dynamics reinforce a) my conviction in a coming countertrend rally in the dollar; b) my staying out of the way of the long bond; and c) two-sided exposure to equities predicated mostly on being long options.

"Boo also suggested I throw the shorter term treasury maturities on your radar. The 5yr. bond today is down a full point, while the 3-year note is down about half a point in the last 5 trading sessions. This should not freak anybody out... yet...unless the trend continues. The Fed can find redeeming aspects in a very steep yield curve (good for banks for example), but it categorically cannot afford traders to hijack the short maturities: a) it would undo all the economic stimulus of its "money printing efforts"; and b) would blow a major hole into the Treasury's already nonsensical budget-deficit estimates."

I agree with Professor Zucchi: The action in the bond market and the negative impact it had on stocks should be monitored closely. It's funny: Yesterday, investors were buying stocks because of the consumer revival; today, investors are worried that consumption and government intervention may be getting out of hand. I have a feeling we're going nowhere fast.

Technology traded strong today. Apple (AAPL) followed through on yesterday's upgrade with another 1.74% move, and was the most "Buzzed" about stock today. Professor Kostohryz believes the stock is headed to $200, while Professor Kevin Depew offered a different take. Other technology stocks were also strong, including Baidu (BIDU), Research in Motion (RIMM), and Google (GOOG).

Tomorrow, traders will be hit with a barrage of economic data, starting with Initial Jobless Claims and Durable Goods at 8:30 and ending with New Home Sales at 10. Professor Jack Lavery will have those numbers covered in The Lavery Insight.

Today on the Buzz and Banter, Minyan James Kostohryz gave his preview.

"I think there is a possibility for an upside surprise in Durable Goods Orders. Also, I suspect new home sales could see a little boost. It is usually impossible to game these types of monthly numbers with precision. I simply believe that they are more probable than not given my overall economic analysis.

The key is this: if I am correct, these positive data points could propel the market over the resistance at the recent highs around 930. And at that point, the market will break out of it's recent consolidation between 880 and 930 and the complexion of this market changes."

Kostohryz is right: We're in a trading channel. If and when we break out of it, expect the market to go hard one way or the other.

Have a great night, Minyans!
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No positions in stocks mentioned.

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