Traders' Library

Bernanke uncertain about recovery

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July 21st, 2010

 

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The markets have been nice and choppy.  For most this means there has been more money lost than made. 

 

Fed Chair Ben Bernanke spooked the market by verbally expressing his concern over an uncertain outlook.  Investors immediately hit the sell button and with massive sell stop orders working below, the indices had little chance of avoiding the slide.  Also, rumors circulating the CME floor suggest that once of the catalysts to the move was a standing 600 lot stop order in the large S&P futures pit that, once elected, triggered an impressive down-draft.

 

Specifically, Bernanke stated that the U.S. economy faces "unusually uncertain" prospects but mentioned that the Fed hadn't used all of its resources and would be ready to take further steps to bolster growth if needed.  Overall the testimony was less than optimistic but it was also less than surprising.  There weren't any startlingly new revelations. 

 

From a technical standpoint, the market is highly mixed.  We have been noting 1066ish as the pivot in the S&P (ie. the make or break area) but it has also been acting as a magnet and this makes it tough to pick a direction.  In yesterday's newsletter we mentioned that we couldn't be bullish 30 handles from the day's lows and that playing the other side would be a better play, but we didn't expect the fall-out that occurred.  Going into tomorrow, we are uncertain of the intermediate -term direction but seasonal tendencies suggest that the markets could go lower before moving higher and the S&P failed at its down-trend line.  That said, the session closed near the lows and this usually paves the way for back and fill trade overnight.  In other words, if you want to be a bear...don't chase the market lower; selling on rallies might be the play but a "normal" bounce could see prices as high as 1075ish in the S&P.

 

Risk trade....OFF!

 

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July 21st, 2010

 

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 Investors clamored to Treasuries as many of them are rethinking the "risk trade".  Money is clearly moving toward safe havens such as the U.S. dollar and the U.S. backed fixed income products...particularly short-term instruments.

 

Most of the day's buying came on the heels of testimony by Bernanke that suggests a largely uncertain economic outlook and low inflation (a bit short of deflation) and given the proposed budget cuts supply concerns have been put on the back burner.  Even if large auctions continued Bernanke reassured the markets that foreign demand for Treasuries remains strong. 

 

All in all, Bernake's statements weren't necessarily shocking nor were they new. Nonetheless, the day's events were overall bullish for bonds and notes.  Therefore we feel as though we could finally reach our upside target in the September bond futures of the mid 129's to 130ish and just over 124 in the 10-year note.  Like we said yesterday: "Nobody has a crystal ball, but the environment is ripe for a bull trap.  It seems somewhat likely that Treasuries could see some sort of spike high as buy stops are elected but we doubt that any large gains would be sustainable." 

 

If you have been patiently waiting to play this market from the downside, the mentioned areas should be a good place to start. 

Chinese Yuan news causes gap higher open in futures

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June 21st, 2010

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Stock index futures gapped higher on the Sunday night open on news of the China un-pegging the Yuan.  The flexibility of the currency was seen as a positive for U.S. equities in that a stronger Yuan means higher prices for Chinese exports and, indirectly, more competitive pricing for the rest of the world's goods. 

 

The Chinese government has been under pressure for some time to allow its currency to appreciate and finally gave into the pressure.  In the past, manipulations to keep their currency low has acted as a barrier to competition and enabled the country to produce and distribute some of the most affordable products on the planet....quality is another issue. 

 

Although this is a  breakthrough, don't expect the Yuan to be fairly valued anytime soon.  The Chinese government has pledged to limit the daily trading range at .5%.  In other words, the change has more of a symbolic impact than actual and with the G20 meeting coming up it likely has a little more to do with brown-nosing than anything.  Nonetheless, it is a step in the right direction. 

We have a feeling that the current rally might have run its course for now.  The U.S. dollar appears to be on the verge of a rally and this should put pressure on stocks.  Also, well respected analysts such as Mark Gongloff of the Wall Street Journal and Meredith Whitney have cast some pessimism on the markets. 

 

We had been waiting to see the S&P in the mid to high 1120's, the Russell at 675 and the NASDAQ at 1930.  Thanks to China, these prices were finally seen in Monday's session and we tend to be near-term bearish from here. 

 

That doesn't mean you should sell the farm and short the S&P, but it does mean that you will likely be best off implementing a strategy of selling into rallies (this might be selling calls, buying puts, selling futures, or any combination of the three). 

Awaiting the Fed

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June 21st, 2010

 

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As is typically the case, the financial markets suffered from light volume ahead of the FOMC announcement.  The two day meeting will begin tomorrow but the interest rate decision will be announced on Wednesday afternoon.  Until then, the Treasury markets will look to housing data, equities and currencies for guidance.

 

Mid-week, we will receive the results of the U.S. Treasury auction of 2, 5 and 7 year notes.  The market will be hit with $40 billion in 2-year notes, $38 billion in 5-year notes and $30 billion in 7-year notes. 

 

Traders aren't expecting any dramatics from the Fed this time around...or for quite some time for that matter.  Not only is it doubtful that rates will be changed, they will also likely be reluctant to adjust the wording of the policy statement. 

 

Currency trade could play a large role in the near-term direction of bonds and notes.  If the Euro rally runs out of steam here (U.S. Dollar strengthens), as it seems to be, this could put a floor under Treasuries. 

 

Be careful not to get too bearish Treasuries.  Although there are many arguments for lower bonds and higher yields, there seem to be more that favor the upside.  Included are, strong seasonal tendencies, a potentially higher Dollar/lower equity environment and boatloads of uncertainty. 

 

Unfortunately, there doesn't seem to be any good plays here.  Despite the lack of volatility, option premium is still expensive (left over from last month's volatility) but there isn't enough premium to comfortable be an option seller in this environment.  In the meantime, Look for resistance in the 30-year bond near the mid 126's and support near 122. 

 

Yesterday's late sellers were today's early buyers

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June 15th, 2010

 

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Monday's horrendous close had the bulls nervous and the bears salivating, but despite a lack of positive news or obvious catalyst Tuesday belonged to the bulls. 

 

I recently read an internet blog that shared the same pessimistic reality that I have spoken about in this newsletter from time to time.  It stated that based on the open interest of calls and puts in the SPY (the ETFy version of the S&P 500 index) the S&P would need to be a little above 1100 at expiration to cause the most pain to the most speculators and this is what the blogger expects to happen.

 

Unfortunately, I agree; I believe the markets have a tendency to cause the most amount of pain to the most people.  Don't forget that beating the market is a tough game...greedy investors chased Madoff and his 12 to 13% annual track record straight into prison, so expecting "easy" money is unrealistic.  I am not saying that profitable and lucrative trading isn't possible, but it is my job to point out that as a trader it is important to be able to accept the good with the bad.  That said, although our conclusions were made via different analysis relative to this blogger, the outcome is the same. 

 

We have been looking for the S&P to trade into the 1120's and maybe as high as 1130.  Today's test of the 200-day moving average (near 1108) puts us well on our way.  However, President Obama will be addressing the country tonight and he has been called by some un-named CME floor traders "Mr. Sell Signal".  Therefore, if you have caught this up-move don't get greedy holding out for 1130...look to tighten stops and take some risk off of the table.  Assuming we break 1108, the next resistance will be 1117 and then again near 1127.  There are likely many buy stops above and this should translate into an extension of the rally but he bulls shouldn't get comfortable.

 

If you are trading the NASDAQ, resistance lies near 1905 and again near 1930. 

Resistance in the Russell continues to be 661 but we think that 675 will be seen sooner rather than later.

 

Quality bid fades in Treasury Futures

 

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June 14th, 2010

 

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Investors took a small stride toward risky assets on Tuesday in the face of firm equities and despite signs of interest from foreign banks and hedge funds in holding Treasuries. 

 

Once again, we are left with little fundamental news to discuss but we are looking forward to the remainder of the week.  Once the data begins to trickle out, Treasuries might finally pick a direction.  Nonetheless, we did hear about the Empire Manufacturing index which came in at a slight miss.  Also, the net long-term TIC Flows described an inflow of $83 billion in U.S. securities.  It is far less than the previous inflow of $140 billion but given the higher dollar and lower yields, the numbers seem positive. 

 

Strength in the Euro has also played a part in the recent Treasury market reversal.  Not too long ago, and even at this weekend's Trader's Expo in Pasadena California, most vocal analysts/commentators/traders were bearish the Euro.  The term "parody" seemed to be used very casually and, accordingly, the bearish Euro trade became very crowded.  There were simply too many bears...if everyone already thinks that the market is going down, there is nobody left to sell and that is exactly what we are seeing in the Euro. 

 

There are likely several more shorts to squeeze and stops to run in the Euro.  Therefore, I expect that this move will continue to the 126 area.  If my currency analysis holds true, this should be a common factor in enabling bonds and notes to continue to slide in the near term. 

 

We are still looking for the September t-bond futures to see prices near 121 and the note to trade just under 119. 

 

 

Session ends just how it started

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June 7th, 2010

 

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The Sunday night futures open got off on the wrong footing, and despite a valid attempt to recover lost ground, the major indices eventually settled near the overnight lows.  

 

It was comments from a Hungarian Economic Minister downplaying their debt crises enabled the Euro (and thus the U.S. stock market) to temporarily thwart the bearish tone.  Specifically, the minister claims that it is "blatant that Hungary is not Greece". 

 

Analysts such as Abby Joseph Cohen of Goldman Sachs, claim that the worst is behind us.  The U.S. recovery is slow and the job market is disappointing, but it is on track to beat other developed economies.  She also noted that the potential damage cause by Greece, and even Hungary, are already accounted for in current prices. 

 

We can't help but side with Abby on this one.  It seems as though all of the bad news is out...an incredible oil gusher in the Gulf, a sovereign debt crisis and a bleak employment market.  The last that I had checked, current equity valuations put the PE ratio of the S&P near 12 to 13; based on historical standards, this is attractive. 

 

Nonetheless, the big picture doesn't always determine the near-term.  The market is trading on emotion and fumes.  Last month saw some of the most significant mutual fund redemptions since February and March of last year (near the market lows) and there is no guarantee that the liquidation is over. 

 

Chasing the market lower is a risky trade, we like the idea of being bulls on a bigger dip.  We were originally looking for about 1040, but it seems like we could see 1030 again...but this should act as solid support.  If you are trading the NASDAQ, this would be equivalent to about 1750.  Our support in the Russell is coming in near 613, but it looks like 606 might be a more realistic "stopping point". 

Nerves could push Treasuries higher

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June 7th, 2010

 

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Treasury traders have been relatively consistent in their reaction to a lower Euro and struggling equities.  Despite a nearly unchanged pit session close, the long bond ended electronic trade near 125. 

 

In previous newsletters we have mentioned our outlook for the long bond to possibly see 125 and that we would  be bearish from above this level.  Although we still liked the idea of being bears at what we believe to be frothy pricing, we feel as though this rally has a little more momentum in it. 

 

A sharp rally in gold prices suggests that the flight to quality buyers haven't extended themselves quite yet.  We are revising our upside target in the September 30 year bond to 126ish, and prefer to hold out for prices in the mid 126's before being active bears.  Similarly, the note could easily see the high 121's. 

 

There was little economic news to chew on Monday and Tuesday will be similarly quiet, but things start to pick up by mid week.  Bernanke will be testifying on Wednesday and we will hear about the Fed's latest analysis on economic activity via the Beige Book. 

 

The lack of economic data will leave equities in control and as long as stocks continue to struggle, the negative correlation should keep a floor under Treasury pricing.

What a week in Treasuries!

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May 10th, 2010

 

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The U.S. dollar might not have the strongest fundamental backing, but it is the best of the worst when it comes to representing stability.  Accordingly, despite criticism of the Fed's monetary policy and quantitative easing, when the going gets tough, money flows into the U.S.  Treasury bonds and notes were a direct beneficiary of capital inflows from overseas during the height of last week's panic. 

 

Suddenly the meager yields offered by U.S. fixed income products seemed attractive given the perception of little default risk.  On the other side of the coin, many argue that the domestic balance sheet isn't dramatically better than that of Greece.  Nonetheless, panicked market participants needed somewhere "safe" to park cash and Treasuries were the preference. 

 

An emergency IMF meeting and an EU rescue package brought cooler heads to the markets to trigger a treacherous decent from the Thursday/Friday highs.  However, the volatility might not be "dead".  The Treasury will be auctioning 3  and 10 year notes along with 30 year bonds this week, Bernanke will be speaking, the economic calendar is healthy and the stock market visibly shaken. 

 

We would be lying if we told you that we could confidently speculate on what might happen tomorrow.  However, we are leaning lower overall but respect the prospects of a last gasp rally that could bring the June bond as high as 122ish  before a larger roll-over can happen. 

 

I have been a broker for over six years now and have had the pleasure (and pain) of witnessing a lot of incredible things; but the end of last week was among the most challenged market conditions.  I've seen larger moves in bonds in a single trading session, but I have never seen the fear that was displayed in this move.  The bids and asks disappeared on the electronic options and when they came back, they were enormously wide.  This made it nearly impossible to trade options via electronic execution.  However, on Friday we were able to get what we felt to  be fair execution in the open outcry pit.  For those without access to open outcry (trading with some discount brokers who only offer electronic products), it might have been a very expensive lesson!  Any money saved in commission would have paled in comparison to the cost of trying to exit (or enter) a bond option online.

Treasuries consolidate ahead of FOMC

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April 26th, 2010

 

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As is often the case, it appears as though traders spent the day squaring positions ahead of the FOMC meeting.  The Fed will meet tomorrow but we won't hear the results of the interest rate decision until Wednesday afternoon. 

 

Most analysts aren't expecting the Fed to take any action to change monetary policy but there is some speculation of rate hikes later in the year, so traders will pay close attention to the commentary. 

 

This week's auctions began today with a 5-year TIPS offering, but the real news will come in the next few sessions with the issuance of $44 billion in 2-year notes, $42 billion in 5-year notes and $32 billion in 7-years.  The TIPS went off with ok demand from domestic investors but low demand from overseas investors;  this put the market back on the defensive.  The Treasury complex noticeably weakened following the auction. 

 

We continue to see support in the 30-year bond near 116 but the 10-year note reached our downside target in overnight trade (within a few ticks anyway).  This leaves our charts, and our opinion, a bit mixed.  We are taking a relatively neutral stance in the near-term as direction will be highly dependent on the FOMC, stocks and auctions...and this could be a difficult week to predict price.

 

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Investors are Awaiting the Fed

 

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April 26th, 2010

 

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The U.S. equity markets were on hold today in anticipation of a two day Fed meeting taking place on Tuesday and Wednesday.  While the Greek saga continues, both the European and domestic markets seem to have moved on. 

 

The Greek government is seeking to utilize a rescue package from 15 EU countries and the IMF and the markets are treating this as a victory.  However, many are wondering "who" will be next.  There could be a handful of other nations that will be in similar need.

 

Coming into the session, the odds were in favor of the bulls.  After all, Monday's have been great days statistically for the markets and the market is in an up-trend.  Also, a considerable amount of price support was gained from a blockbuster earnings report by Caterpillar.  The equipment maker is considered a bellwether of economic activity due to its global operations and positioning to  benefit from economic expansion.  However, technical factors took its toll on pricing as the major indices remain dramatically overbought and in need of corrective action. 

 

As has been the case, many analysts are antagonists of this rally...or at least the size and breadth of it.  Peter Cardillo of Avalon Partners Inc believes that "perhaps defying logic a this point, and nevertheless moving up."  He added, "We will be headed for some sort of a pullback, which could happen at any time...for the moment, the enthusiasm continues."

 

We are sticking with Friday's numbers:

 

We are adjusting our next resistance in the S&P a bit higher to 1218, this makes a similar level in the NASDAQ at 2063 and 743 in the Russell.

 

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No auctions, no news, no action

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April 13th, 2010

 

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Treasuries enjoyed a healthy bid in early trade, but the strength faded along with trading volume.  Traders are looking forward to a pickup in economic data, corporate earnings reports and Bernanke's economic outlook congressional testimony. 

 

There are some rumors/speculation that Bernanke will retract some of the policy wording to hint at small rate hikes in the future.  However, according to the latest minutes of the discount rate meeting, most regional bank directors saw the current policy as "appropriate".  The same directors noted that business conditions are "fairly week" but acknowledged a "modest recovery". 

 

We are looking for the Treasury rally to continue overall.  Our target in the 10-year note will be 117'20ish and in the June 30-year bond futures we are looking for the mid 118's.

 

The new homeowner ATM and Greece aiding rally

 

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April 12th, 2010

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Stocks gapped up on the open of electronic trade on Sunday afternoon on word of a detailed backstop for the potential Greek debt default.  However, the markets have spent the previous weeks pricing in a less than catastrophic outcome to the Greece drama. 

With much of the uncertainty across the pond sorted out, but by no means completely resolved, traders are looking forward to the upcoming earnings season.  Alcoa is set to kick off the season after the bell but the bulk of the reports won't start rolling out until later in the week.  As we have mentioned in the past, the markets seem to have accounted for a great earnings season and this sets the bar high in terms of market expectations.  Even numbers that beat analyst projections might not be enough to keep the bulls in control. 

News, data and markets are all the same in that they go through cycles of positive and negative.  We have just experienced a relentless string of optimistic news but the laws of expansion and contraction suggest that the tides could soon be turning. 

Also, stock market bulls are pointing toward improvements in retail sales as a sign that the economic recovery is robust.  However, I have run across several studies that suggest that many strategic mortgage defaults are spending their mortgage money frivolously (tanning, nails, clothes).  Assuming mortgages ranging from $1,000 to $2,000 or more it is easy to see how consumer spending could look much better in light of this phenomenon.  However, the velocity of money isn't being increased it is just being reallocated from paying debt to "discretionary spending".  Some are calling this the new homeowner ATM. 

Our resistance areas coming in were 1165, 1995 and 707 in the S&P, NASDAQ and Russell respectively.  For the most part, they managed to hold (give or take a few points) but there is substantial event risk looming and the near-term direction is just as unpredictable as this rally.  The next resistance will be 1203, 2007 and 707.  Let's see what tomorrow brings!

 

Bonds and notes higher on Greek news

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April 12th, 2010

 

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News of a "confirmed" contingency plan for Greece seems to have fixed income products on a global basis on the rise.  Apparently, it seems as though default risk which was previously seen as minimal is now non-existent.  Accordingly, even historically low yields appear attractive to some.  Also, there is some chatter of skepticism in the Treasury arena in regards to the finality of the bailout agreement.   

 

This week is "auction free" and that leaves economic data and corporate earnings data as the market leaders.  The calendar is packed; on Wednesday alone we will hear about consumer price pressures, retail sales, the Fed Beige Book.

 

The day's rally was stopped dead in its tracks near the pivot areas of 116'10ish in both bonds and notes.  This leaves the market technically neutral and makes speculation tough from such levels but despite the chart, this market feels like it wants to go higher.  We prefer to patiently way for better prices to be long...if it turns out that we missed the boat on the upside, we like being bears closer to 119 in the 30 year and 118 in the 10 year.  After all, we are in a seasonally weak time of year for Treasuries.

 

In the meantime, if the bears come back to bonds and notes support should be found in the June 30-year bond near 113'20 and in the note at 114'24.  If these areas are seen again in the near-term we will likely be bulls.

 

Quarter/week starts with a bang in equities

 

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April 5th, 2010

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Mutual fund Monday was the theme following Good Friday's employment numbers.  Despite historical stats suggesting that today was bearish for equities, the major indices moved relentlessly higher on light, but decisive, volume.  What is being called a "melt up" has been magnified by panicked buyers, both those caught with losing short positions and those rushing in after sitting out much of the rally.

 

Investors have been bombarded with solid economic news.  The government claims that the U.S. economy added 162,000 jobs, the Institute of Supply Management  reported an increase in its services index and the National Association of Realtors said that its seasonally adjusted index of sales agreements rose 8.2% in February from January. 

 

The markets can't go up forever but sometimes they sure make it feel as though they can and this happens to be one of those times.  Danny Riley, one of our floor brokers on the CME floor said it best "The higher they go, the more pregnant they become." 

 

At some point, investors will begin paying attention to crude oil and its propensity to cripple growth at current or higher levels.  Up until now, higher energy prices has worked in favor of stocks as traders assume that higher crude equates to higher demand and thus a stronger economy.  Nonetheless, this point of view might begin to falter going forward. 

Employment report pressures bonds and notes

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April 5th, 2010

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Treasury trade suffered at the hands of a respectable Good Friday employment report.  According to the government, the economy gained 162,000 jobs last month to post the best reading about three years.  Unfortunately, the markets weren't given an ample opportunity to react to the news on Friday. 

 

Unlike last week, this week offers little economic guidance and this could leave the upcoming auctions in the driver's seat for Treasuries.  Tomorrow, the Treasury will auction $40 billion in 3-year notes and on Wednesday they will issue $21 billion in reopened 10-years, then on Thursday it will be $13 billion in 30-year bonds.  The previous round of shaky demand, leave the market vulnerable to a bit of panic if things don't go off well, but we doubt that it will last.  After all, the market's expectations for this weeks' auctions are modest at best so we believe the surprise risk is to the upside. 

 

We aren't sure why the tremendous rally in crude hasn't attracted more attention, but light sweet crude oil traded on the NYMEX is now trading at prices that haven't been seen since the fall of 2008.  At some point, this could begin to crush the recovery and could put a floor under bonds and notes. 

 

The 10-year note reached the 4% yield level for the first time since June of last year, some are calling for a run to the mid 4% area.  The futures look week to us, and therefore we are looking for moderately lower prices.  However, the lower prices go the more the odds favor a technical bounce.  We will be bullish the 30-year bond just under 114 (revised a bit lower from last week) and we begin to like the upside in the 10-year note in the mid 114's. 

 

Better than expected jobs report slams Treasuries

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March 5th, 2010

According to Warren Buffet, risk comes from not knowing what you are doing.  Unfortunately, I have had a front row seat to the carnage that can occur in misguided speculation.  Before you put your hard earned money on the line, join me on March 18th for a behind the scenes look at what really impacts a commodity trader's bottom line to discuss topics from "A Trader's First Book on Commodities": http://www.nyif.com/courses/crcn_1104.html

The employment report wasn't great, but it certainly wasn't horrible either.  Investors took it as a signal to move money back into stocks...and this pulled the carpet from underneath the Treasury market.

The unemployment rate remained steady at 9.7% (sadly this is seen as a good thing) but the U.S. economy is said to have lost 36,000 jobs last month.  This isn't an improvement over last month's numbers, nor did it even match ADP's estimates...but it wasn't the negative 100,000 that some of the larger banks and analysts were whispering. 

In Wednesday's newsletter, we were calling for a rally in the June bond futures to the mid 118's but it seems as though 118'02 was all that the market had in it.  We had a feeling that the market was toppy, but overestimated the size of the short squeeze in the long bond.  On the other hand, our mid to high 117's objective in the notes seemed to hold true.  The market is now at a major crossroads and these leaves us uncomfortable trying to make any bold predictions.  Instead, we prefer to wait to see what Monday brings. 

In the meantime, we see support at 116'16 in the 30-year bond and again at 114'20 should stocks continue to climb higher (which we aren't counting on).  Note traders should look for support at 116'25 and then again at 115'21. 

 

Double top for stocks or double trouble?

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March 5th, 2010

 

According to Warren Buffet, risk comes from not knowing what you are doing.  Unfortunately, I have had a front row seat to the carnage that can occur in misguided speculation.  Before you put your hard earned money on the line, join me on March 18th for a behind the scenes look at what really impacts a commodity trader's bottom line and to discuss topics from "A Trader's First Book on Commodities" : http://www.nyif.com/courses/crcn_1104.html

 

Double top for stocks or double trouble?

 

The drawback of writing a newsletter with relatively strong opinions in market direction is the substantial risk of being wrong...or in this case just early (we think).  Unfortunately, our crystal ball was a bit cloudy earlier this week.  We were right about the rally, but didn't anticipate it moving quite this far.

 

Our 1125 objective in the S&P has come and gone and while we still feel like the market will see a reversal sooner rather than later, we cannot overlook the possibility of a retest of the January highs.  This would put the S&P just under 1150...or even moderately higher.  The Russell on the other hand, has already surpassed its recent highs and is now trading in territory not seen since late 2008. 

 

There are very valid arguments for the bear camp that are being overlooked (or over run) by this rally, but sometimes fundamentals simply don't matter.  The market is panicked...shorts are panicking and being squeezed out and the last of the sidelined cash is panicking to get in.

 

The employment numbers weren't positive, but their implications were.  They jobs picture is bad enough to prevent Fed rate hikes but it isn't bad enough for investors to recall the possibility of a double dip recession.  Nonetheless, some analysts are vocalizing the opposite.  "Eight months into the much-touted recovery, the economy should be adding jobs not just losing jobs at a slower pace," noted Peter Morici, an economist for the University of Maryland. 

 

There is some resistance in the S&P near 1138 but 1148 seems very possible target before a reversal can occur.  The NASDAQ is facing resistance near 1900, and in the Russell this equates to about 669.

 

No news, no auction, no change in Treasuries

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March 2nd, 2010

 

See Carley's latest book, "A Trader's First Book on Commodities" reviewed in the March issue SFO Magazine!! Buy it at TradersLibrary.com!

No news, no auction, no change in Treasuries

It was a painfully slow news day for financial market traders.  Accordingly, aside from moderate selling across the Treasury complex in early trade, interest rate futures were drawn toward the unchanged mark. 

 

Volatile, yet unproductive, trade in the U.S. dollar index offered little guidance to traders but a resilient stock rally seemed to keep Treasury buying at bay.  However, European interest rate products refuse to break down and this seems to be keeping a floor under bonds and notes. 

 

We are looking forward to tomorrow's ADP data.  Although they don't have an accurate track record at predicting the government's numbers, they have improved and the markets are beginning to react to the news.  The Fed's Beige Book could also spice up the session. 

 

Nothing has changed:

The market feels slightly toppy in the near-term, but we think that prices will move higher before a reversal occurs.  We are still looking for 118'18 in the June 30-year bond and for the mid-to-high 117's in the June T-note futures. 

Equity index rally near-term toppy?

*All rights reserved.  Reproduction or distribution of this newsletter without prior consent is strictly prohibited.

 

March 2nd, 2010

 

See Carley's latest book, "A Trader's First Book on Commodities" reviewed in the March issue SFO Magazine...Buy it at TradersLibrary.com!

 

Equity index rally near-term toppy?

 

Stocks have staged an impressive comeback from last Thursday's lows, but there is reason to doubt the possibility for substantial gains in the near-term. 

 

Gains in recent sessions have been largely posted on merger and acquisition news.  This is nice, but we likely aren't going to see a repeat of the 2007 rally in which fresh M&A news was a daily occurrence.  Economic data has been mixed, at best, and investors might simply run out of reasons to buy at lofty levels. 

 

Also, there is some evidence that a majority of mutual fund managers have already put sidelined cash to work and might be running out of ammo.  According to our executing brokers on the CME floor, mutual fund cash is sitting at a mere 3.6% of assets.  In the past, asset ratios below 5% have been a precursor to large declines (2000 high and the 2007 high are good examples).

 

We have been looking for a move to the 1125ish area in the March S&P, and we have nearly reached this level it today's trade.  Similarly, our targets of 647 and 1850 in the Russell and NASDAQ, respectively, have been met (or slightly exceeded).  We can't help but begin looking lower from here.  If we are right, the S&P could slide back to the 1092 area before finding support, and the Russell 616.

 

Again...We prefer a sell on rallies strategy, but chasing the market lower has been dangerous so be sure to get good entry prices.