Watch The Bond Auctions Wed and Thurs – The Market Will React!

Yesterday, the market started out on a very weak note. Selling from Friday's Unemployment Report spilled over into Monday's trading. There wasn't much in the way of economic news to influence the market. The early momentum was established and it looked like we would have a negative day. Late in the afternoon, buyers step in and the market finished in a positive territory. This price action signals that buyers are still waiting in the wing. There isn't much news this week and we have fallen into a choppy, light trading pattern. Tomorrow, there will be a 10-year Treasury note auction and Thursday there will be a long bond auction. I believe those auctions will be the "drivers" this week. Interest rates are creeping higher and that will increase the cost of bailout/stimulus programs and it will stifle any rebound in the housing market. Tomorrow afternoon, we will also get the Beige Book. It will reveal regional economic activity and it will influence trading. Thursday morning, retail sales will be released with initial jobless claims. I'm expecting retail sales to be weaker than expected and initial claims could show improvement. The market has shown a great deal of resilience and it has been able to weather poor economic data. Now we will see if rising interest rates can dampen spirits enough to force the SPY back below 93. If that price level is breached, we are likely to see a quick decline. My trading plan is the same today as it was yesterday. If I see a close below SPY 93, I will start scaling into put positions. If I would have shorted yesterday's decline, I would have been fooled again by the late day reversal. I need to see selling into the close and a confirmed breakdown before I commit capital to short positions. If the market is able to get through the week above SPY 93, I will consider selling out of the money put spreads on commodity stocks. The dollar will resume its decline and these stocks will hold up well on a relative basis. I expect a quiet market that favors a small pullback today.

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