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Expect the 10-Year US Treasury Note's Yield to Move Up


Short positions with a stop in place on any close below 3.554% make sense.


Summary of Yesterday's Notable Technical Developments

Bonds rallied Friday to cap a strong week for the asset class. At 3.67%, the yield on the benchmark 10-year Treasury is the lowest since December 21. Still, yield remains above important support; this has me expecting around 4.10% in the intermediate term.

Stocks finished the week on a sour note with the major averages lower by 1% - 1.5% Friday despite better-than-expected earnings from Intel (INTC). Sellers found motivation in the details of JPMorgan's (JPM) earnings report. As seen in the chart below, selling of semiconductors started well before Friday, so the downside momentum was in place before Intel's report. Short-term traders should be watching the five-week uptrend line on the S&P; it comes in at around 1130. A close below that level should take the index to 1120 quickly and set us up for a possible test of the 75-day moving average, which comes in below 1100. Those with long-term horizons should focus on month-end prices for the indexes.

Commodities were down as a group by more than 4% last week (as measured by the PowerShares DB Commodity Index Tracking Fund (DBC)), led lower by the 6% decline in the price of crude oil. Gold held up well, down less than 1% for the week. The damage in commodities occurred despite weak to neutral action in the US Dollar Index. As noted here last week, the correlation between the dollar and commodity prices appears to be changing.

The US Dollar finished higher Friday to pare the week's losses. It bears repeating that both equities and commodities were down last week despite the DXY being lower by as much as 1%. For much of last year, that dollar weakness might have translated into gains of 3% to 6% for risk assets. Perhaps what we saw last week were moves in stocks and commodities that simply went against the masses. There has been a big buildup in bullish sentiment in both equities and commodities recently. When sentiment leans too heavily in one direction like that, countertrend moves inevitably occur.

Philadelphia Semiconductor Index ($SOX) (10-minute bars):

Click to enlarge

This morning: Asian markets were mixed overnight with Hong Kong higher by 1% and Japan and Australia lower by 1%. European markets are uniformly lower -- but, only marginally so -- after being down 0.5% - 1% earlier on the session. Oil weakness continues this morning, while gold hovers around the unchanged level. Watch the dollar again as the DXY is up more than 0.5%.

Market-moving earnings due out today:

  • Citigroup (C) before the bell and CSX Corp. (CSX) and IBM (IBM) after the bell

Citigroup, Inc. (C) (Daily Chart):

Click to enlarge

  • With Citigroup reporting earnings this morning -- a $7.6 billion quarterly loss -- and the importance of the financial sector to the markets and economy, I wanted to offer a quick look at the daily chart.

  • Strictly from a technical perspective, there's not much to like about Citigroup's chart:

    • The long-term downtrend line is still intact and is not in jeopardy of being broken any time soon as it is almost 100% above Friday's close.

    • Citi rallied strongly off of the sub-$1 lows in March, but has floundered since peaking in late August.

    • Any and all uptrend lines have been broken and the most recent uptrend line has served as new resistance.

    • Resistance at that broken uptrend line is about 10% above Friday's close, while the next meaningful support doesn't come in until $2.59 – almost 30% lower than Friday's close.

    • All that being noted, I'd let the stock react to earnings and then use support and resistance levels accordingly.

Market Internals: NYSE
(Figures are rounded)

Key Intermarket Charts

Bonds: The Yield on the 10-Year US Treasury Note ($TNX.X)

Click to enlarge

  • Last week, in Consider Bearish Plays on 10-Year Treasuries, I offered a long-term view of the benchmark 10-year note. Today, a close examination of the daily chart will provide a better indication of where rates may be headed in the short-term.
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No positions in stocks mentioned.

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