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

To: bobby beara who wrote (30385)	10/18/1999 9:50:00 AM
From: j.o.	Read Replies (1) \| Respond to of 99985

Hi bb - Some notes from our Market Doctor: IndexTrade.com Economic Round-Up for October 18, 1999 Weekly Series Lower Stocks because of Alan Greenspan? ...or how about good old fundamentals. Last week's performance in the US Equity sector was dismal to say the least and Friday's activity entailed the most negative session which ultimately led to an intra-day break of the mighty 10,000 level for the Dow. The talk of the day appeared to center on Fed Chairman Greenspan's remarks regarding concerns over appropriate risk assessment relative to Equity valuation for US lending institutions. Of course there was that ugly report on Producer Prices which exceeded the most extreme forecasts as the index posted a dramatic increase in both the overall rate along with the core (ex food and energy). However, the chatter seemed to focus on good old Alan. After reading Greenspan's speech, it didn't appear to send "red flag" shock wave sell signals the the Equity sector. It's true, one could construe some of his comments as to alluding to "bubble characteristics" but the spirit of the piece involved a statement to lenders to consider appropriate risk valuation methodology in estimating debt exposure. It seems that the problem with the markets now is that there is an extremely nervous reaction to any potential negative information. The bottom line....October 5th's Purchasing Manager's Index seemed to get the ball rolling for higher market interest rates, as the strong figures sent yields on 30 year maturities breaking out of recent ranges. The market was then hit with a strong Retail Sales figure last Thursday which sent yields above 6.25%. Finally, Friday's PPI number provided another 50 pound weight to Bonds as this report was dramatically strong and implied "inflation in the pipeline". Rising interest rates in reaction to growing inflation no-doubt bodes poorly for Stocks. Unfortunately, the problematic picture for Stocks may not be behind us yet. This week brings the more important CPI index, which, given the string of numbers so far and the consistently high level of Crude Oil, could provide more market volatility. Take a look at some earlier Economic Roundup Pieces (September issues). It appears that a stable to revived economic situations in major industrialized nations around the globe, along with consistently higher Oil prices has caused some financial market adjustments. ( Bond Yields, Equities, Currencies). It will be interesting to see the upcoming reports for this week.. CPI and Trade Numbers are integral series to this market adjustment process. FLIGHT TO QUALITY I want to add a quick note on the flight to quality phenomena in the Fixed Income sector. This generally infers an increase demand for US Treasuries during significant losses in US Stocks. I would not classify this as a portfolio reallocation activity from large investors. It is more a balancing act from Bond traders that buy securities with the perception of adding stability to the market place. One of it's origins came from the great sell-off, (mini crash) of 1987, where the monetary authorities provided liquidity to the system in response to the significant losses in Stocks. As a result, Treasury securities in all sectors of the curve appreciated significantly in price. Since then, Fixed Income players are sensitive to drastic sell-off's in Stocks as the "flight to quality" relationship may override longer term higher rate sentiment and drive prices up in the short-term. TheMarketDoctor indextrade.com