BOND BOUNCE STABILIZES MARKET LATE IN DAY -- FINANCIALS HOLD SUPPORT
BOND PRICES ARE OVERSOLD... Bonds bounced a bit today, which means that yields fell a bit. Chart 1 shows that the 10-year T-note yield is overbought (which means that bond prices are oversold). The daily RSI line has moved back under 70 for the first time in three weeks, which suggests a shift in short-term in yields to the downside. That helps explain today's bounce in the bond market. Chart 2 is a weekly bar chart and shows that the 10-year T-note yield has reached a down trendline extending back to the start of 2000. That potential chart barrier may also explain today's downturn in bond yields. That came at a good time for stocks which were falling earlier in the day -- especially financial stocks.
Chart 1
Chart 2
BANK INDEX REVERSES EARLY LOSS... The plunge in bond prices has taken a toll on rate-sensitive financial stocks. Earlier today, the Bank Index was threatening its early July low near 850 (after breaking its 50-day line on Friday). By day's end, however, the BKX experienced a minor turnaround. That helped save the day for the rest of the market, which also went from earlier losses to small gains.
Chart 3
S&P 500 HOLDS ABOVE SUPPORT... The S&P 500 came within four points of its July 7 intra-day low at 962 before bouncing in afternoon trading. That's the good news. The bad news is that market comeback came on very light volume. Downside volume exceeded upside volume, and there were more big board losers than winners. In other words, not an overly impressive rebound. What it did accomplish, however, was to keep the stock market locked in its current trading range. While lower rates helped stocks today, they weakened the dollar which gave a boost to gold and gold stocks. Gold gained $3.10.
Chart 4
Chart 5
MONEY MANAGEMENT UPDATE... The technical indicators used at MurphyMorris Money Managment reflect a sideways condition. Our trend-capturing measures, which have been up, are being tested. At such times, preservation of capital becomes very important. We don't like to give back what we've already earned. We cut our long positions during July. Our current fund positions are in neutral. We'll raise cash positions if things deteriorate more; or we'll add money back if the uptrend resumes. As always, we follow the dictates of the market.
