A Bottom in Five-Year Yield?

I see where one of our RealMoney contributors asked if anyone sees the head-and-shoulders bottom in the major indices. All I could think of is please find me someone who doesn't see it!

It's there. It's been there for weeks now. And maybe it will work, but gosh ... when was the last time such a telegraphed head-and-shoulders pattern worked well?

Here's what I wonder: Does anyone sees the potential head-and-shoulders bottom developing in the yield on the five-year note?

Each night as part of my routine of keeping statistics, I keep track of the closing yield on the five-year, 10-year and 30-year bonds. What fascinates me is that the yield on the five-year actually made its low -- so far -- back on Fed Day at 1.29%. With it currently at 1.45%, which is down from 1.51% late last week, I'd say that the shorter term has had quite a rally.

Then when we step back and look at the chart, we see the potential for a head-and-shoulders bottom. There is a caveat here: The break of the red trend line is not good. I would not want to see it break below yesterday's intraday low, and I would like to see it recapture that high near 1.60% quickly -- as in the next few days.

And yes, I know the neckline is quite slanted, which probably isn't so great either. But notice how getting through 1.60% not only crosses that neckline but also crosses a downtrend line that has been in place since the bonds went wild in early November.

And one more thing I like about the potential head-and-shoulders bottom in the five year note is that unlike the S&P, it's not being talked about in every chat room and in every corner of the financial world.

Away from all of that, we still have the ISE call/put ratio at its highest level since 2006. Some of you might insist that 2006 was a very good year for stocks, and you'd be correct. I looked at five instances where we saw this ratio go over 200% -- there were a few others, but they were all lumped around the same time frame so I did not count them separately -- and in each instance we rallied another day or two and then had a whack.

Now, that was within the context of a bull market. We are obviously not in a bull market right now.

The flip side of the ISE reading is the CBOE. The equity put/call ratio was low (62%), which I continue to find quite bothersome, but the Index put/call ratio was the highest since late November, and the total put/call ratio was the highest since the day before Fed Day.

It is hard for me to imagine that we won't have at least one year-end "'markup day" in the next two days, so I'd look for a rally day, but that ISE reading tells me we'll likely give it back after the first of the year.

Note: Due to a death in the family, I am taking off the remainder of the week. My next column will be Monday, Jan. 5.

I'd like to wish everyone a very happy, healthy and prosperous 2009!

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For more explanation of these indicators, check out The Chartist's primer.

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Know what you own: There are a number of bond-related ETFs that might be of interest to readers of this column, including the SPDR Lehman Short-Term Municipal Bond ETF (SHM - commentary - Cramer's Take), the SPDR Lehman Municipal Bond ETF (TFI - commentary - Cramer's Take), the iShares Lehman10-20 Year Treasury Bond ETF (TLH - commentary - Cramer's Take), the iShares Lehman 20-year Treasury Bond ETF (TLT - commentary - Cramer's Take), the iShares Lehman 7-10 year Treasury Bond ETF (IEF - commentary - Cramer's Take) and the iShares Lehman 1-3 year Treasury Bond ETF (SHY - commentary - Cramer's Take).

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Helene Meisler writes a daily technical analysis column and TheStreet.com Top Stocks. For more information, click here. Meisler trained at several Wall Street firms, including Goldman Sachs and SG Cowen, and has worked with the equity trading department at Cargill. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. She appreciates your feedback; click here to send her an email.