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

To: Les H who wrote (31472)	10/26/1999 1:02:00 PM
From: Doo	Respond to of 99985

Thank you kindly.

To: Les H who wrote (31472)	10/26/1999 5:43:00 PM
From: Les H	Read Replies (2) \| Respond to of 99985

TALK FROM THE TRENCHES: POSSIBLE POP AHEAD? WHEN? HOW LONG? By Isobel Kennedy NEW YORK (MktNews) - After talking nothing but doom and gloom for days now, it seems some players are trying to find a few rays of sunshine out there. Those players think the market is due for some type of a pop. But whether it occurs, when it occurs, and how long it lasts are big questions. Some sources say the historicals indicate the market may be approaching a bottom. From the end of 1993 to late 1994 the long bond contract plunged 21%, in what some have labelled the worst bond market of the last 50 years. From late 1998 to Monday, the bond contract has corrected 18%, technicians say. And they say current RSIs are in very oversold territory, comparable to levels seen in last leg of 1994 bear market. Total return for the long bond in 1994 was -12.30%. As of last Thursday, the year-to-date return on the long bond in 1999 was -14.37%. So if there is no year-end rally, 1999 will surpass 1994 as the worst market in modern history. Maybe that is why some short covering lifted prices on Monday, players say. And why there was talk that central banks and real money accounts, like insurance companies, were gingerly putting a toe or two back into U.S. Treasuries Tuesday morning. But the buying was short lived and the more negative players are still voicing hesitation. They say the lack of retail sponsorship and the market's inability to sustain any meaningful bounces lead them to think the market may need one more push to the downside before it makes a solid turnaround. Admittedly, the recent back up in rates has done little to push retail off the sidelines. And there are some that believe it will take a long bond at 6.50%, or even 6.75%, before real money is lured back into the market. But at that point, some analysts say, you could get a lot of asset allocation out of stocks into the U.S. Treasury market. If there is a market bounce, when could it come? Some say it will be after Thursday's release of Q3 gross domestic product and the employment cost index, that is if both the numbers come in near consensus. But others say it will not happen until Mr. Greenspan's Thursday night speech is out of the way. Then there are those who feel the market won't budge until after the European Central Bank and the Bank of England have their monetary meetings on November 4. And some say nothing will happen until November 16, when the Fed meets again. Many traders are hoping for a bounce after the the November refunding is over. Treasury will announce the size of the five- and ten-year auctions next week, and the sales will take place the following week. How long a bounce might last is another question. Would it just amount to a brief relief rally before the market heads further south? Or could it be the beginning of a nice rally lasting through year end? Some analysts say that November is usually a positive time for U.S. Treasuries, and others are still expecting Y2K fears to cause flight-to-quality buying. In the meantime, traders must bid the two-year tomorrow. Some traders say they will only bid to cover shorts and not to go long because the sale precedes the important Thursday data. On the other hand, others say there will be interest in buying twos versus selling fives and tens as a setup for the November refunding. Regarding the curve, 2s/30s are at +39 versus +39.7 at 3PM on Monday. It had been at +41 this morning when sources said the curve had a bias to flatten ahead of the two year auction. Now, strategists see further flattening limited to +38. Before next week's refunding announcement, strategists say the curve could steepen out to +43. But after the sales of fives and tens actually takes place, supply could weigh on the back end and the curve could steepen further. Looking at the scenario for interest rate hikes in Europe is proving to be interesting, analysts say. After making it through the month of October without any official rate hikes, all the "ducks" are lined up for "another game of chicken" in November, one commented. It seems that players over in Europe think that nobody wants to be the first to raise rates, but when one does, all the rest will most likely follow suit. The markets will get the decisions from the European Central Bank and the Bank of England on November 4. If either of those raises rates, other rate hikes could follow. Analysts say the following hikes are possible in the month of November: ECB (+50.), BOE (+25.), U.S. (+25.), Denmark (+50.), Sweden (+25.), Switzerland (+50.), and Canada (+25.). Here are some historic data risks for this week's economic releases: Analysts have underestimated 3Q real growth in each of the last 3 years by an average of 0.6 percentage point. They have underestimated September durable goods orders in 5 of the last 6 years by an average of 1.8 percentage points. Analysts have overestimated 3Q ECI in each of the last 3 years by an average of 0.2. Update on Japan: At Bank of Japan's monetary meeting tomorrow, they may release more information on their plans to buy bills directly from the government; Finance Minister Miyazawa said Tuesday the stimulus package is to be bigger than expected and they may cover premiums on elderly care insurance with more bond issuance; EPA's Sakaiya said Tuesday he can't say whether the economy grew in the July-September period. Heads up on oil: Weekly U.S. industry inventory report is due out after market close today. 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. economeister.com