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

To: Les H who wrote (28002)	9/30/1999 11:44:00 AM
From: Stephen M. DeMoss	Read Replies (2) \| Respond to of 99985

Let's say we know the market will correct another 800 points on the dow, Naz will come back another 10% from here and the S&P another 8% or so. What play to the short/put side would be the best. Ie. Puts on the S&P, Short a high flyer like AMZN or YHOO, etc. If you want, you can reveal what bets you have placed short term. I have been following YHOO because it seems to have a pattern of selling of shortly before and after earnings reporting, regardless of blow out earnings (last quarter beat numbers by 4 cents and fell from 190 to 110). I noticed today that large put purchases/sales were made on many of YHOO's strikes including Oct. 160, 165 and 170; also a lot in Nov. I am curious as to what many of you are doing in the event this correction continues or even turns into a bear market. Comments? Thanks in advance! Steve d.

To: Les H who wrote (28002)	9/30/1999 7:25:00 PM
From: Les H	Read Replies (1) \| Respond to of 99985

TALK FROM TRENCHES: US TSY SELLING EXHAUSTED; JAPAN TRAGEDY LIFTS By Isobel Kennedy and Robert Ramos NEW YORK (MktNews) - U.S. Treasuries are higher Thursday after initially dipping on the strong prices paid component of the Chicago Purchasing Managers' report. After being beaten down three days in a row, sources say today's downtrade can be described as a "selling climax". Near-term selling has been exhausted and that has lured in buyers. While Friday's NAPM and next week's Fed meeting are still market concerns, many believe now may be the time to get back into the market. Few expect the Fed to do anything next week and some think they will be on hold for the rest of 1999. Of course, there is also the chance they tighten next week or that they leave rates unchanged but move to a tightening bias. If either occurs, players say it increases the chance they raise rates at the November meeting. Yet sources say the chances of an actual October tightening are very small and the probability of a shift to a tightening bias next week is less than 50%. In the meantime, short covering explains much of today's uptrade. Technicians point out that the monthly stochastics are very oversold and close to levels seen in 1994. Strategists also point out that treasuries are at the low end of the trading range established in June, and buying at current levels has proven to be profitable since mid August. Looking at the numbers, the buyers may be right. Earlier today, the cash long bond was exactly 100 bps cheaper than its January close. Here are the closing bond levels on the last day of the month this year: Jan 5.09%, Feb 5.56%, Mar 5.62%, Apr 5.69%, May 5.85%, June 5.99%, July 6.066%, Aug 6.068%. Even a non-techie can draw a trend line from this info! Out in Chicago, technicians are pointing to an 18-year bull trendline in Dec T-bonds that comes in today at 113-00, offering solid underpinnings to futures. In addition, one dealer's daily sentiment index came in at 7 today, sources say. "That is as low as it gets," one strategist remarks, and explains the morning"s short-covering drive. The tragic nuclear accident now unfolding in Japan is another factor giving the market a lift. One strategist says the attention on Japan's accident is due to the possibility that it is not fully contained. There have been reports that "abnormal reactions" are continuing in the facility. In addition, the accident occurred only 87 miles northeast of Tokyo. It has also been reported that PM Obuchi has called an emergency meeting to focus all of Japan's resources on the crisis. Obuchi's plan to reshuffle his cabinet has evidently been put on hold. Prior to the nuclear situation, Japan watchers were waiting for next week's Tankan report and still speculating on what the BOJ might do on the monetary policy or intervention fronts. The Bank of Japan's quarterly Tankan business confidence survey to be released Monday is likely to show a moderate improvement in sentiment but that won't be enough to force the BOJ's hand on monetary policy or currency intervention, analysts say. They expect the BOJ to stay the course unless the Tankan shows a considerably better or worse result than the market has now factored in. The Street is muttering about press reports of a faction within the Japanese government that is pushing for a hike in the consumption tax to pay for higher pensions, medical and nursing care. Remember, it was the infamous 1997 consumption tax hike that derailed the economy in the first place. There was mixed reaction to articles that Japan's MOF was asking the BOJ to temporarily purchase JGBs held by the Trust Fund Bureau (TFB). It was later denied by the MOF but analysts say it seemed to awaken the market to the possibility that the TFB might be short of funds. Analysts are split on the future of gold prices. Some think it could head to $350-400 an ounce due to lack of supply since European central banks intend to cut back on their sales. Others think the recent price jump is a trap. The rally has no legs because it is only based on short covering, they say. But for the short term, the WSJ's "Heard on the Street" column Thursday cites sources saying gold will rally further because the recent short covering is not over yet. "From what I've seen of the liquidity, it is very unlikely that there has been a high proportion of the short interest covered. There is almost certainly more to come," one source told the Journal. The gold-carry trade that is being unwound now goes as follows, according to the Journal. Gold was sold short and borrowed at a cost of 1-2%. Then the proceeds from the sale were invested in higher yielding assets such as USTs paying around 5%. The trade appeared to be a no brainer until the shorts got squeezed, sources say. Could Russia (who could use the cash!) begin selling some of its gold reserves to take advantage of the higher prices? The Russian central bank has gold holdings valued at almost $4 billion. The Fed is said to be circulating details of its expanded repo collateral program among dealers which will take effect in October. Collateral will fall into three different categories and the Fed will tell dealers which collateral it is buying. Group 1 is treasuries with 101% to 107% margins; Group 2 is agencies, but specifically excludes structured notes, with margins at 101-112%; Group 3 is mortgages, but not CMOs, with margins at 104-105%. Who says Wall Street happiness does not trickle down to Main Street? U.S. Census Bureau reports the rising economy caused poverty to drop again in 1998 and pushed real median household income up for a fourth consecutive year. Gains were spread across race and regions. Stock market euphoria does not extend to Treasury traders and salespeople, however. Treasury debt now represents just 23% of the U.S. debt market compared with 32% in 1992. Treasury's share of the gross new issuance of long-term debt in the U.S. has been reduced to only 18%, down from 40% in 1990. NOTE: Talk From the Trenches is a daily compendium of chatter from Treasury trading rooms offered as a gauge of the mood in the financial markets. It is not hard, verified news.