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

To: Les H who wrote (31734)	10/28/1999 5:59:00 PM
From: Les H	Read Replies (2) \| Respond to of 99985

TALK FROM TRENCHES: PRICES, AND CONFUSION, ON THE RISE By Isobel Kennedy and Rob Ramos NEW YORK (MktNews) - U.S. Treasuries opened Thursday with a firm tone and then gapped higher on the better-than-expected employment cost index. Selling into that strength caused the market to back off but it is currently grinding back up. While the underlying tone has been better in the last few sessions, many sources say they are still uncertain and proceeding with caution. Should I get in now? Do I sell into the strength? Will there be another purging on the downside where I should get in? Is this just a brief rally before the market continues south? Should I wait to see more numbers? These are normal questions asked by anyone involved in the markets but it is very unusual for Wall Streeters to be so UNSURE of their answers. There appears to be more than the normal "lack of conviction" out there this go around. And today's price action reflects the differences of opinion. Before the ECI, speculative accounts and flippers were said to be short. Day traders were also believed to be short. Professional traders were said to be neutral or possibly a touch long, sources said. After the number, one primary dealer shop said the flow was two way. Trading accounts, hedge funds and spec boys were selling while end users were better buyers. Some of these end users were said to have started recommiting to the market over the past two weeks. There were also rumors that some hedge funds were buying the back end today. One trader said he saw "willing" sellers across the curve into today's strength. European hedge funds that were buying intermediates over the past few sessions were sellers of that paper today. Some players said they were more inclined to buy any dips instead of selling into rallies. But they also felt you should not chase prices on the way up either. Some veteran players, who have been bulls for forever, seem to be beaten down and unimpressed with any of this week's price gains. One said, "It's been a tough month and there are lots of potholes to trade around. Greenspan speaks tonight and Chicago PMI and housing starts are tomorrow. And then there is NAPM on Monday and the ECB meeting and refunding announcement next week." Another bull is also second-guessing himself, looking even farther down the road. "After employment next Friday, you get those triplets of terror - PPI, CPI and retail sales." Boy, this guy may leap frog right past the Nov 16 FOMC meeting to the Dec 21 meeting. One trader, who was a former doctor, put it this way, "This market is like being in ICU (intensive care unit). It could go either way. You either get better or you wake up dead." Yogi Berra would be jealous. Some people are just doing nothing, others say. One source said that people are saying, "Look I have had a good year and I am going to do zero for the rest of the it." And who's had a good year in 1999? -- "anyone who still has a job." Admittedly, 1999 has been horrid and October has been pure torture for most. Prior to today (and it's not over yet folks) prices have not ended higher on consecutive days during this entire month! But maybe the end is near. One salesman said, "Keep in mind, Y2K is still in front of us. Players will either be long or neutral heading into the unknown because no one would want to be short." By the way, there were rumors for the third day in a row that the largest national central bank in Europe was buying cash 10s again. Sources do not discount this talk. A salesman familiar with this type of account said the rumor "has merit". But he does not think the fact that many central banks close their books in October has prompted the buying. He does, however, believe the trade was motivated by the fact that the U.S. Fed may be nearing the end of its tightening cycle. So, does this account have some feeling about what the ECB will do next week as well and what is why they are buying? One source said "you'd have to be pretty cynical to believe they know for sure". But then again, don't people who work in different areas of any bank share the same water cooler? Another source agreed that central banks could be buying. But he said it might be a little early for U.S. domestic accounts to be getting into the market for year-end window dressing. "It's a little premature" for other types of accounts, such as corporations, to start buying." Given the uncertainty over important economic data and monetary policy meetings that lie ahead, most "retail is inclined to avoid getting in now but a central bank has the capability and can afford to carry the positions". And remember, central banks probably don't have bosses to answer to the way U.S. domestic accounts do, said one trader who has obviously been there and done that. 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