FINANCIAL SPDR TRIES TO BOUNCE OFF BREAKOUT POINT -- MARKET INDEXES TEST INITIAL SUPPORT AT 20-DAY AVERAGES -- BOND YIELDS CONTINUE TO CLIMB WHICH MAY BE SUPPORTING DOLLAR
FINANCIALS HOLDING SUPPORT... Financial stocks are leading a rally attempt on Monday. And it's coming at a good time for that sector. Chart 1 shows the Financials Sector SPDR (XLF) bouncing off chart support along its recent breakout point near 15.00. One of the rules of charting is that a market should find support along the breakout point. The volume pattern shows heavy volume on last week's upside breakout and lighter volume during the pullback. That's also encouraging.
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Chart 1
STOCK INDEXES TEST 20-DAY AVERAGES... The 20-day moving average has acted as market support since the beginning of September. Charts 2 and 3 shows the S&P 500 and Nasdaq Composite testing that initial support line. That's an important test that will help determine the market's short-term direction. A decisive close below the 20-day line would signal a deeper correction to the lower Bollinger band and/or the 50-day moving average.
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Chart 2
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Chart 3
BOND YIELDS CLIMB... Bond yields continue to climb in the face of QE2. The biggest jump is occurring in the 30-Year T-Bond yield which has cleared its 200-day average (Chart 4). The 10-Year T-Note Yield is hitting a three-month high today (Chart 5). Even the five-year yield is backing up (Chart 6). The jump in bond yields is helping support the dollar. If rising yields are hinting at economic strength, that should be supportive to stocks even in the face of a bouncing dollar.
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Chart 4
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Chart 5
