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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: JG who wrote (23103)	8/15/1999 8:59:00 PM
From: clochard	Respond to of 99985

Bond prices will be held up by either fear or lack of fear.

To: JG who wrote (23103)	8/15/1999 9:21:00 PM
From: pater tenebrarum	Read Replies (2) \| Respond to of 99985

JG, i would agree that bonds look good under all the proposed scenarios - however, there is a lot of agreement on that point as the latest Rydex bond ratio shows. the big fly in the ointment are foreign money flows, for the first time in 20 years foreigners have been net sellers of t-bonds. to be bullish on bonds you have to either assume that domestic demand will more than make up for this or that foreign funds will return to the bond market. a big sell-off in equities would certainly be supportive for bonds, but barring that, the fundamental picture keeps deteriorating imo. while inflation has yet to show up in PPI and CPI, it is already a very real phenomenon in terms of money supply expansion in recent years. another problem is the ballooning trade deficit; it pressures the dollar, which in turn leads to more selling of bonds by foreign accounts. should Japan continue to recover, Japanese institutions will keep on repatriating funds. should the Yen continue to strengthen, the unwinding of Yen carry trade positions will also put pressure on bonds. the governments proposed reduction of issuance in light of the budget surplus is a big positive of course - if the surplus projections turn out to be true; they are based on the assumption that "Goldilocks" is here to stay, complete with eternally rising stock prices, no inflation and the willingness of foreign capital to bankroll the burgeoning current account deficit. a strong positive for bonds can be espied in Market Vanes bullish consensus data, which show a very low percentage of bond bulls, approximately 23%. however, the above mentioned Rydex ratio may be a better reflection of actual bond sentiment, as it shows the actual proportion of funds committed to either the short or long side on the bond. there is an interesting theory by Jim Bianco, who argues that bond prices will continue to go lower as long as stock prices stay high or go higher, as the stock market (in his opinion) has become the primary force driving the real economy via the wealth effect. in view of all this, your best bet remains a correction in stocks - foreign inflows into U.S. equities have proceeded at a record clip this year, and should the stock market tank, some of this money will almost certainly be shifted into bonds. so the question is: will the stock market tank? at some point it surely will, but i am far from certain that we have reached that point already. long term bull markets usually extend much further than most people expect, and since no rational argument is left to justify the markets valuation ever since past traditional 'high marks' in p/e's, price to book, dividend yields, etc. have been surpassed, we are reduced to look at the market mania from a purely psychological, or TA point of view. in the recent correction, important 'lines in the sand' or support levels, have held up to now,leaving the primary trend (=up) intact. at the same time, an increase in bearishness has put a floor under prices - arguing for yet another leg up. possibly, recent lows will be tested once more and only if that test fails will an argument for a larger decline be sound. certainly a 1/2 point rate hike would deal the market a major blow - which is why we won't get one. and a 1/4 point hike will be taken in stride - there is no telling how high rates have to climb over time to stop the market from continuing higher. another possibility that has to be kept in mind is an as-of-yet unforeseeable exogenous event such as a major hedge fund collapse or the like, which could bring stocks down and produce the flight to quality you alluded to. decisionpoint.com regards, hb

To: JG who wrote (23103)	8/15/1999 9:36:00 PM
From: Lucretius	Read Replies (1) \| Respond to of 99985

i've seen stuff like this so many times that I have to say something: <<<In either case, bonds look good under any of these scenarios - All down hard scenes will have bonds go up because of flight to safety - If analysis is way off and market goes sky high - that means dollar/interest rate good - bonds still go up. >>> if the currency that the stock or bond trash is denominated in falls, then the stocks AND bonds fall, unless one of them has already priced in the currency move. IN this case, if the dollar tanks, stocks and bonds will be smashed, although bonds not the extent that stocks will be... and gold will be the "flight to safety" as it has been for thousands of years when paper assets come under pressure. Bonds are not a "can't lose" investment as many appear to think they are....

To: JG who wrote (23103)	8/16/1999 2:20:00 AM
From: Lee Lichterman III	Read Replies (1) \| Respond to of 99985

I am far from strong bullish but I see numerous hints that we could be starting a new leg up here. There were a multitude of stocks and sector indexes that backed off from resistance levels or 200 DMAs but if these fall and we move through these levels after the CPI report, I see us possibly going as high as 11600 DOW. Call me nuts as I still would rather see another down leg to my original OEX target of 645 on heavy volume but we could just rally from here. Note that back around the 6th of Aug I switched some forks on to show the bullish alternate scenario and so far they are doing well. I only wish this wasn't option expiration week since the skewing makes reading the market so much more difficult. It seems every week we have something getting in the way of a clear read. Next month will be futures rollover so that will get interesting as well and although it will soon be earnings warning season and September is historically a bearish month, I have many indications that we could possibly be starting a new uptrend here. There is a lot of damage that needs to be repaired. Note MSFT fell out of a long term bullish fork and is lagging thus far. Numerous other normally leader stocks are lagging but they are also showing bullish consolidation patterns for the most part. I will be watching bank stocks and telecom the closest since they hinted at the down turn before it happened. If these sectors can take the lead, I will start going heavier to the long side and might even hold a few positions over night. <g> I am on leave this week so I will be around. Congrats LG and DOn on making the hot list once again. Unfortunately I was so busy this weekend I have no trading plan as of yet so I may just have to watch Monday morning and hope something jumps out at me. EDIT - Just saw the pst about Bonds. I have the TYX or Bond rate dropping to 5.9% at my middle tine. From there I will have to see what is going on as to if it will drop to the lower tine or bounce back up to re-attack the top tine. Good Luck, Lee