WATCHING THE 10-YR YIELD FOR CLUES ON STOCKS -- TLT BOUNCES OFF GOLDEN CROSS (AGAIN) -- MINING AND RELATED STOCKS HOLD STRONG -- AA CHALLENGES RESISTANCE AS BHP BOUNCES -- APPAREL RETAILERS INDEX BREAKS SHORT-TERM SUPPORT

WATCHING THE 10-YR YIELD FOR CLUES ON STOCKS... Programming note: We are having some technical issues and cannot produce a video at the moment. The 10-YR Treasury Yield ($TNX) continues to muddle along and trade above the October low. Chartists should watch Treasury yields because they are positively correlated with stock market movements. Most recently, notice how yields moved sharply lower in January, as did stocks. Overall, I think the bigger trend is up for Treasury yields, which implies an overall downtrend for Treasury bonds. Chart 1 shows $TNX surging to 2.8% in early July and then consolidating the last seven months. Notice how the yield fluctuated around the 2.8% level. Technically, a higher high did form at yearend and the yield remains above the late October low. Despite an upward bias overall, I am watching the consolidation lows quite closely because the pattern looks like a rising flag and a break below these lows would signal a continuation of the January decline. Such a break would target a move to the 2.4% area and be quite negative for stocks.

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Chart 1

The indicator window shows the Aroon brothers peaking in early March and falling in parallel fashion. The spread between the indicators is also narrow. This is what happens during a consolidation. The next one to surge above 70 will trigger the next signal, similar to the early November signal.

IEF TESTS THE BULL FLAG... Chart 2 shows the 7-10 YR T-Bond ETF (IEF) with a mirror image of the 10-YR Treasury Yield. IEF broke above the falling 200-day moving average and then moved into a consolidation, which looks like a flag. The ETF is now near the lower boundary and support is set at 101. A move below this level would negate the flag and suggest that interest rates are moving higher, which would be positive for stocks. Conversely, a surge off support, say above 102, would provide the first sign that IEF could break flag resistance and continue higher. Such developments would be bearish for stocks.

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Chart 2

TLT BOUNCES OFF GOLDEN CROSS (AGAIN)... An even more interesting picture is emerging in the 20+ YR T-Bond ETF (TLT). Chart 3 shows TLT bouncing off the golden cross and challenging flag resistance on Monday. The ETF fell back on Tuesday, but remains close to a flag breakout. A move above the February-March highs would signal a continuation of the January advance and target a move to the 115-116 area.

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Chart 3

MINING AND RELATED STOCKS HOLD STRONG... Led by strength in steel, the Metals & Miners SPDR (XME) continues to challenge resistance in the 42.5-43 area. Chart 4 shows XME within a rising price channel over the last nine months. Prices are currently in the middle of this channel and a break above 43 would signal a continuation of the uptrend. Channel support is set at 40.

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Chart 4

AA CHALLENGES RESISTANCE AS BHP BOUNCES ... Two stocks caught my attention within XME. Chart 5 shows aluminum giant Alcoa (AA) consolidating near the January highs. The big trend is clearly up with the new high in mid January. The stock was quite overbought when above 12 and worked off this overbought condition over the last two months. A sort of ascending triangle is taking shape and this is a bullish continuation pattern. A breakout would signal a continuation higher. The March lows and October trend line zone mark support.

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Chart 5

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Chart 6

Chart 6 shows natural resources conglomerate BHP Billiton (BHP) breaking wedge resistance with a surge in February and falling back to the breakout area in March. After firming in the 64 area, the stock broke above first resistance at 66 with a surge the last few days. Even though the surge occurred on low volume, the breakout should be considered bullish until proven otherwise. Note that Caterpillar (CAT) and Joy Global (JOY) are also making moves this week.

APPAREL RETAILERS INDEX BREAKS SHORT-TERM SUPPORT... The DJ US Retail Apparel Index ($DJUSRA) came under selling pressure again today and broke below its early March lows. Chart 7 shows the index surging from 660 to 740 with a massive rebound in February. Strength in this group played a big part in the rebound of the Retail SPDR (XRT). As with XRT, however, the index stopped short of its prior highs and turned lower the last few days. The index broke below first support at 730 and this implies that a lower high is forming. Downtrends start with lower highs so chartists should watch this short-term break down closely. The indicator window shows the price relative breaking down in January and recovering somewhat in February. After a flattening near the support break, the price relative looks poised to continue lower from here.

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Chart 7

RALPH LAUREN TURNS BACK AT KEY RETRACEMENT ZONE... Even though Polo Ralph Lauren (RL) is not exactly an apparel retailer, it does supply the major retailers and has a direct connection with apparel sales. Chart 8 shows RL breaking down in January and then retracing 50-62% with a bounce in February. Note that I am ignoring the long filled candlestick in early February. The retracement amount is typical for counter-trend rally or corrective bounce. After stalling for a few weeks, the stock broke support with a sharp decline today and this signals a continuation of the January decline. MACD confirmed the downturn with a move below its signal line and dip into into negative territory.

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Chart 8

CISCO BUCKS THE SELLING WITH A BOUNCE OFF SUPPORT... Cisco Systems (CSCO) is holding up well on Tuesday and shows promising patterns on the weekly and daily charts. Chart 9 shows Cisco within a long-term uptrend on the weekly chart. After hitting a new high in July, the stock corrected with a falling channel in the second half of 2013 and returned to broken resistance. CSCO then broke the channel trend line with a surge in December-January and consolidated the last two months. This breakout looks bullish and it is holding for the most part.

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Chart 9

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Chart 10

Chart 10 shows daily candlesticks with a lot of support in the 21.25 area. CSCO broke resistance in this area with the December surge and successfully tested the breakout in early February. Another test is underway in mid March as the stock bounced last week. The red area marks a resistance zone extending back to late February. A break above this zone would signal a successful test and argue for a continuation of the Dec-Jan advance.

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