To: Les H who wrote (17851 ) 6/18/1999 9:36:00 PM From: pater tenebrarum Read Replies (1) | Respond to
Les, yes, it was partly a short covering rally; but i am certain that buyers waiting on the sidelines were jumping in on the CPI data as well. as Bobby has pointed out, bullish sentiment on the long bond had gotten very low. what's more, when the september bond futures contract plunged through the 116 level, the writers of puts were forced to sell the contract to hedge their exposure, magnifying the downmove - often, when such forced selling enters the market a turn is imminent. the important 114 strike has held. i was very concerned when long term support levels (resistance for the TYX) were initially breached, but since there was no follow-through, i consider them as having held. with regard to resistance levels that are looming now, i would actually expect a retest of sorts of the lows before they can be successfully attacked. don't forget that the bond seemed to discount more than one Fed tightening, and while the jury on that is still out, the CPI makes it a lot less certain and even two tightenings would leave some room for a rally. yes, banks would raise their prime rates. in fact there's a small bank in the south that has a habit of pre-empting moves by the FOMC, i don't recall it's name now. i agree that it is still a bit early to assert that the bear market in bonds has ended, but even a standard sized retracement (1/3-1/2) of the decline could give a big boost to stocks. i also believe that the bull market in stocks will eventually stumble due to the Fed tightening, but not right away. history suggests that a mania can easily continue for a while after one 25bp. hike.
