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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: J.T. who wrote (30090)	12/15/1999 5:33:00 PM
From: FJV	Read Replies (1) \| Respond to of 50167

Musings of a Lurker: First, I concur with all of you who regularly post that Iqbal Latif has an uncanny sense of how markets move, as well as the key components we must watch in order to determine the ebbs and flows of price movement. I am in awe. Thanks Ike. JT, your observations about BKX are right on the money IMHO. My own work indicates today's close of just over 766 is a very ominous sign for the market. Your support level of 768.50 was slightly lower than mine, but no matter, it sliced through both of our support levels like a hot knife through butter, especially in the last hour of trading. The last five weeks has seen a real blood bath in the banking sector, and there are some troubling fundamentals which seem to justify the price movement. Bond traders are quite an astute bunch. They realize that AG has been pumping liquidity into these markets in the form of system repos and coupon passes at unprecedented levels. The rationale seems clear that Greenspan wants to accomplish two things. First, make sure there is sufficient cash for member banks to withstand any Y2K related drain. Secondly, knowing that the stock market has been liquidity driven, he wants to assure that there will be no panic in the form of a sharp sell-off over the next few weeks. All this liquidity will, at least temporarily, forestall a sharp decline significant enough to cause any real change in investor psychology. The result of all this liquidity is to make bond traders very nervous. They understand the adverse effects to the dollar that such strategies create. The economy is much too strong to be able to withstand such a huge infusion of capital without creating inflationary fears in the bond market. Thus today's sell-off in the long bond and the resultant weakness in the banking sector of the stock market portends a real dilemma for the Fed. In equity markets this powerful, only two forces are really strong enough to seriously derail the uptrend. One is higher interest rates and the other is the evaporation of liquidity. Unfortunately for AG, if he continues to prime the pump, the bond market will respond negatively, thus increasing rates. If he removes the punch bowl, the party in the equity markets will end - badly. What to do, What to do? So on a day in which the Dow, SPX, NDX and Comp were all up, some thorny divergences have emerged: -IBM gapped down at open below 108 today and never recovered. Ike knows that 108 is key support for IBM. -Perennial bell weather GE lost 3% today, the equivalent of well over 300 points in the Dow. -The XBD, Broker/dealer index broke below 425 today. In conjunction with the breakdown of the BKX, this is an ominous sign. -TXN lost another 1.6% today. Along with the breakdown of IBM and GE, this is being obscured in the indices as a result of the technical breakouts of MSFT and INTC to the upside. We all know, however, that as formidable as these two are, they cannot carry the Dow or the SPX by themselves for very long. -The XMT, Merrill Lynch large cap index, is in the doldrums, down nearly 19% from its highs in April. The XMT had been a good proxy for the SPX - until recently. -BRK.B closed today at 1759, which is 35% below its 52 week high. More importantly, it has tested and failed the 1800 level again today. The sign posts seem clear. The excess liquidity continuing to bolster this very narrow uptrend belies some of the troubling underpinnings everywhere I look. To all of you regular contributors to this thread, and especially to you Ike, thank you so much for your insight and wisdom. I have learned much and have been inspired to dig further into market movements. Of course, all of the above is JHMO, and very humble at that. Regards, Franco