It's Treasuries' Turn in the Spotlight
You wouldn't know it just by looking at the results for major stock proxies, but Wednesday was a big day on Wall Street. Big, in the sense of the Treasury market's rally and big as it pertains to the amount of angst among equity traders as to the sustainability of the recent advance. Alternatively, there was a lot of pain among short-sellers because of more big gains for some small-cap names.
The biggest action was in the Treasury market, where the price of the benchmark 10-year note rose 28/32 to 100 29/32, its yield falling to 3.52%, its lowest level since 1958. The price of the 30-year bond rose 1 28/32 to 113 21/32, its yield falling to 4.51%.
Elsewhere, the dollar recovered from its recent weakness, especially vs. the euro, while crude futures rose 2.4% to $29.19 per barrel and gold futures gained 0.6% to $352 per ounce.
The latest rally in long-dated Treasuries was sparked, in part, by reports in
The Washington Post
that Treasury Undersecretary Peter Fisher has withdrawn his name for consideration as president of the New York Fed.
"It is believed that as long as Pete 'The fixer' Fisher remains in his current position at the Treasury, the 30-year will not be reinstated," commented Bianco Research. "It was Pete's decision to eliminate the 30-year bond
on Halloween day 2001 and his reputation and credibility are tied to it. Recently he said rumors of the return of the 30-year 'aren't worth spit'."
Treasuries were also buoyed by a weaker-than-expected April retail sales report. Rather than rise 0.4%, as expected, retail sales fell 0.1% last month. Excluding autos, retail sales fell 0.9% vs. expectations for a rise of 0.2%.
"Someone forgot to tell the U.S. consumer that the war is over," quipped David Rosenberg, chief North American economist at Merrill Lynch. The data suggest his below-consensus forecast of 1.8% second-quarter GDP growth has "considerable downside risk," he said.
The economist also noted import prices fell 2.7% in April, the largest monthly decline ever, and 0.9% excluding energy.
"The folks who think that a weaker dollar is a great way to reflate the U.S. economy may not be taking into account the extent of disinflation overseas and the prospect that foreign producers simply aren't willing to sacrifice market share by posting prices," Rosenberg wrote. "
Wednesday's numbers are good news for Treasuries and bring us that much closer to a Fed easing."
The lackluster retail sales data, along with disappointing results late Tuesday from
Applied Materials
(AMAT) - Get Report
, weighed on major stock proxies, but they finished with only modest losses.
The
Dow Jones Industrial Average
closed down 0.4% to 8647.82, the
S&P 500
fell 0.3% to 939.28 and the
Nasdaq Composite
slid 0.3% to 1534.91.
At under 1.4 billion shares on the Big Board and 1.5 billion shares over-the-counter, volume was muted and market breadth was essentially even in both. The market internals, along with the final tallies, reflect a still-bullish tone of trading or, at least, a lack of prevailing bearishness.
Small Moves, Big Signals
However, those looking for something to worry about -- and their ranks seem to be swelling -- noted the stock market bucked its recent trend of overcoming early declines and, instead, failed to sustain its early advance. Shortly after the open, the
Dow
traded as high as 8728.41, the
S&P
as high as 947.29 while the
Comp
reached its apex of 1549.90.
Those gains quickly faded and intraday the Dow traded as low as 8608.31, the S&P as low as 935.24 and the Comp as low as 1526.10 before each rallied modestly in the final hour.
Closing off the session lows is a positive sign. But both the Dow and Comp produced what technicians call "upside reversal days," according to Fari Hamzei, president of Hamzei Analytics, a Los Angeles-based firm specializing in quantitative analysis.
Such sessions are characterized by a higher high and a lower low than the previous session and suggest "momentum is slowing tremendously, especially when you've had a steady run-up" previously, Hamzei explained. "It's probably a short-term cautionary sign." (On Tuesday, the Dow traded as high as 8723.29 and as low as 8647.60 while the Comp's high was 1548.59 and low 1529.56.)
Because of this indicator and "extreme overbought" levels, Hamzei has closed out a long position in the
Dow Diamonds
(DIA) - Get Report
and is shorting Nasdaq futures.
As an aside, those shorting so-called speculative names continued to suffer Wednesday, be they focused on big-cap Internet names such as
eBay
(EBAY) - Get Report
or smaller plays such as
Fuel Cell Energy
(FCEL) - Get Report
. The latter was one of at least 20 over-the-counter stocks trading under $10 to rise at least 20% Tuesday.
Hamzei's call is a short-term trading one only, and he stressed "the move up
from the mid-March lows is intact even though we've slowed." However, if major averages break below the lower end of their rising trend lines "then I'd say the whole run-up is done," he said.
Those levels are 929 for the S&P, 1513 for the Comp and 1133 for the Nasdaq 100, which fell 0.7% to 1148.10 Wednesday. "If
they're broken, longer-term players who play weekly charts are going to take action,
i.e., take profits or put out shorts," Hamzei said.
With less specificity, John Bollinger, president of BollingerBands.com in Manhattan Beach, Calif., offered a similarly cautious view.
"I don't feel doom and gloom but it's a vulnerable place and
traders ought to be careful," Bollinger said. He too noted the market's technically overbought condition and said the CBOE Market Volatility Index has fallen to "worrisome levels," although the VIX did rise 3.3% to 22.76 Wednesday.
Bollinger expects the market will suffer "a little consolidation/pullback into options expiration" on Friday and "then probably renew the strength."
While that would suggest any further downside should be viewed as a buying opportunity, the veteran technician is neither terribly bullish nor bearish.
"You have a situation where a lot of people are talking about the birth of a new bull market," he said. "I don't buy it for a minute but am considering their case carefully. If they are correct, then one would expect this market to get very overbought and not pay any attention to that condition, as it has in the past."
The past two days suggest the market is paying attention to the overbought condition. Whether it does anything more about it remains to be seen.
Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to
Aaron L. Task.