MARKET INDEXES ARE RISING ABOVE 50-DAY AVERAGES -- THE DOW TRANSPORTS ARE OVER THEIR 200-DAY LINE -- BOND PRICES DROP AS STOCK PRICES RISE

DOW TRANSPORTS CLEARS 200-DAY LINE... I've been including the Dow Transports in those market groups that have been showing good relative strength of late. Today is no exception. With the market getting off to a strong start this week, the Dow Transports are one of the day's strongest groups. Chart 1 shows the $TRAN trading back over its 200-day moving average for the first time since last summer. Most other market indexes are just climbing over their 50-day line.

Chart 1

50-DAY LINES BEING BROKEN ... The next three charts show the Dow Industrials, the S&P 500, and the Nasdaq Composite trading over their 50-day averages at mid-day. A close over those initial resistance lines would be another sign of market strength. Among the day's biggest percentage gainers are small caps, homebuilders, and financials. Brokerage stocks are especially strong with Bear Stearns up more than 100%.

Chart 2

Chart 3

Chart 4

BOND YIELDS ARE BOUNCING OFF SUPPORT... Last Tuesday I suggested that bond yields would start rising with stocks. For two reasons. One is that the 10-Year T-Note Yield was testing chart support at its January low where a bounce was likely (Chart 5). Another reason is that bond and stock prices have been trending in opposite directions. As a result, a stock bounce would probably cause bond profit-taking. When bond yields rise (as in Chart 5), bond prices fall (Chart 6). The dollar is also bouncing again today, partly the result of rising U.S. bond yields.

Chart 5

Chart 6