BOND YIELDS RISE AFTER FED TIGHTENING --YEN SELLING BOOSTS DOLLAR -- NASDAQ REMAINS STALLED -- CRUDE BOUNCES OFF TRENDLINE -- IT MAY BE TIME TO REENTER ENERGY SECTOR

10-YEAR T-NOTE YIELD NEARS UPSIDE BREAKOUT ... On Monday I wrote about the possibility that long-term yields could be starting to rise again. After the Fed today raised short-term rates to 2%, long-term rates moved up as well. With short-term rates rising, a weaker dollar, and rising commodity prices, it was just a matter of time before long-term rates started to see upward pressure. The daily bars in Chart 1 show the 10-year T-note yield finishing right at 4.25%. That puts it on the verge of a new two-month high. That would also put it back over its 200-day moving average. Chart 2 is a point & figure chart of the TNX. The x columns represent rising prices, while the o's show falling prices. An uptrend signal is given when a column of x's moves one box over a previous column of x's. [Normally, that would be called a "buy" signal. In the case of bonds, however, rising yields are actually a "sell" signal since prices fall when yields rise.] The p&f chart shows the last sell signal taking place at 4.16%. Another one took place today at 4.26%. As I suggested earlier in the week, however, rising bond yields should be good for stocks in the early going. Later on, they could become a problem. Today's bounce in yields may have also given the dollar a short-term boost.

Chart 1

Chart 2

FOREIGN CURRENCIES DIP ... The yen fell heavily today on fears of Japanese central bank intervention. The Euro also lost some ground today against the dollar. Earlier today I showed the Euro backing off from the high hit earlier this year. That gave a boost to the dollar and caused some profit-taking in gold and gold shares. Gold stocks are also backing off from early 2004 highs and are in an overbought condition. I view today's dollar bounce -- and gold pullback -- to be temporary corrections to existing trends. My longer term outlook is still bullish for gold and bearish for the dollar.

Chart 3

Chart 4

CANADIAN GOLD MINING ETF... Earlier today I mentioned a Canadian gold-mining ETF. It's called Canadian Gold iUnits and its symbol is XGD.TO (Chart 5). The reason it's risen less than gold-mining indexes here in the states is because it's quoted in Canadian Dollars which have been rising. I don't know how liquid this ETF is and am not necessarily recommending its purchase. I'm simply alerting you to its existence. Two foreign gold-backed ETFs exist in London and Australia. However, access to them may be limited. You can find more information at goldbullion.com. The New York Stock Exchange is also planning to launch a gold-backed ETF.

Chart 5

NASDAQ REMAINS STALLED AND OVERBOUGHT ... I'm showing the Nasdaq Composite chart again as a follow-up to my comment last evening that it was up against chart resistance at its summer high (2055) and in overbought territory. The 14-day RSI is trading over 70 (overbought territory) for the first time since January. All that's telling me is that it's due for some short term profit-taking. Once that's run its course, I expect it to resume its fourth quarter uptrend. Volume did pick up today. However, a lot of that came from Cisco which is one of the Nasdaq's biggest stocks. Chart 7 shows Cisco tumbling on very heavy volume today. That weighed on the Nasdaq market all day. Another thing that weighed on the market was a big bounce in crude oil and rising energy shares.

Chart 6

Chart 7

CRUDE OIL BOUNCES OFF SUPPORT LINE ... Crude oil rose $1.49 today. More importantly, it bounced off a rising support line drawn under its June and September lows (see arrows). At the same time, the RSI and CCI oscillators show it to be in oversold territory. A further bounce wouldn't be surprising. The question is how much of a bounce. My best guess is that crude will probably trade between this week's low at $47 and its recent high at $55 for the balance of this year. That shouldn't unsettle the stock market too much. A move to new highs would. I don't expect that to happen until sometime next year. Not surprisingly, energy stocks bounced today.

Chart 8

Chart 9

Chart 10

NOW'S THE TIME TO NIBBLE IN OIL ... At the start of October, I talked about the likelihood of oil putting in an intermediate term top. At the same time, I suggested taking some profits in the oil patch. I made it clear, however, that my long-term view on energy was still bullish. My suggestion to take some profits was aimed primarily at shorter term traders. For longer term investors, my advice was to buy into the dip. Given the action on the energy charts, I think it's time to start committing some funds back into the energy patch. I would view this as an initial probe -- possibly in the order of a quarter to a third of one's normal commitment. If things improve, you can do more later. Chart 9 shows the Energy Select Sector SPDR bouncing off its 50-day average. Chart 10 shows the Oil Service Holders bouncing off support at its June peak. [In chart work, previous peaks act as support during downside corrections]. The CCI oscillator also shows the oil service group to be oversold (see circles). As I also suggested back in October, I believe that the oil service group provides the best energy value.