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

To: Crimson Ghost who wrote (37456)	1/14/2000 12:06:00 PM
From: Crimson Ghost	Read Replies (1) \| Respond to of 99985

Latest from Don Hayes: MORNING MARKET COMMENTS by Don Hays January 14, 2000 This January is not despoiling its reputation as creating all kinds of cross currents in the market. As noted in our Wednesday missive, the action in the market looked ripe for bursting the bubble in its turnaround on Tuesday. It seemed to be setting up for a sharp decline, waiting on a catalyst. Was it going to be a negative PPI, or weak Intel earnings, or a Greenspan blockbuster? But none of those occurred, actually just the opposite, so the market is back to the same old grind. When you look at 100's of charts you see that despite all these huge crosscurrents for the last 21 months (since April 1998) the bulk of the stocks have been in a sideways pattern. We believe the median portfolio in the public's hands has been virtually flat since that April 1998 top, as shown by the arithmetically averaged Value-Line index. That index is only 2.5% above those levels. Even as I look through the entire chart book, it is hard to explain why with all this good news that most stocks have performed so badly over the last two years. Spend a few minutes in this exercise yourself, and you will have a hard time seeing the bull-market the headlines are screaming about. But there certainly is another side to the story, and that is in some of the technology and biogenetic arena. These stories are shown in the NASDAQ bubble that is spurting asymptotically. It now has a price/earnings ratio close to 200. That is something else, that no one can explain based upon any historical example. And the public investor obviously loves it. The bullish sentiment as registered by American Association of Individual Investors just soared to 75%, with only 13% bearish. This is so far above the normal high water mark of 60-62% that it is mind-boggling. The beginning year optimism is boiling. Our expectations have been comparing this January to the one in 1973 that came on the heels of a 1971-72 that pushed a small band of large-cap, big-name "perpetual" one-decision growth stocks to astronomical valuation levels. We still believe a similar state awaits this market. The Smart Money Index that I mentioned in Wednesday's comments continues to tell us something about this nature of this bull market. That index subtracts the action of the first 30 minutes of every day, and adds the performance gains made in the last one hour. Signals are given by massive non-confirmations between its chart and the Dow Industrials, et. al. The logic of the index is that its author believes that emotional buying occurs by those uninformed that get hyped up by morning news or comments, and the calm professional buying occurs later in the day taking advantage of those uninformed buyers. So it subtracts the emotional buying, adds the smart buying and keeps a cumulative total. This index gave tremendous warning in 1987, 1990, and 1998. Today it is crashing once again, in direct non-confirmation to the action of the large-cap dominated indices. Wally Hert, who brought this Smart Money Index to my attention notes that the 1998 plunge began 81 days prior to the July NYSE top. In this year's signal, the plunge in the SMI began on October 27, 1999. If the January 3, 2000 period was the top in the NASDAQ the days lapsed would be 68. The exact equivalent to that 1998 example would bring a top on January 17, 2000. Even though these past examples give some clue, they almost never exactly duplicate previous time scales. But the bottom line is that as all the news is PERFECT, and investor sentiment is soaring, it is very difficult to be negative. It can't get much better than this. That is what tops are made of.

To: Crimson Ghost who wrote (37456)	1/14/2000 12:08:00 PM
From: pater tenebrarum	Read Replies (1) \| Respond to of 99985

George, the Rydex bond ratio has in the meantime gone to 3,28 which is a new record high. exactly the opposite of the Rydex ratio on stocks, which is at a record low. basically this argues for selling stocks and buying bonds... hb

To: Crimson Ghost who wrote (37456)	1/14/2000 5:47:00 PM
From: Les H	Respond to of 99985

TALK FROM THE TRENCHES: US TSYS OFF AS SOME SELL INTO UPTRADE By Isobel Kennedy NEW YORK (Mkt News) U.S. Treasuries got hit down to new session lows midday Friday after popping higher on the market friendly CPI release earlier in the session. Sources reported fast money and swap accounts selling into the uptrade earlier Friday. Also weighing on prices was rate lock selling which is a harbinger of more new issue supply in sister market products. Then by early Friday afternoon, new longs that had been established in the morning were dumping out those positions ahead of the long weekend. A selloff in German bunds and higher oil and commodity prices also hurt the market. One sector that is holding in, however, is off-the-run long bonds. Players report ongoing buy interest in the sector following Thursday's Treasury announcement of a buyback program. On Thursday, Treasury said it would buy back up to $30 billion in outstanding paper from the market during the course of 2000. The market expects the buybacks would be concentrated in 10-year and 30-year paper. In addition, Friday morning Treasury said it would call an outstanding issue that carries an 8.25% coupon and is due May 2005. That issue has a first call date of May 2000 and will be called on that date. The issue currently has $4.2 billion outstanding and of that $2.7 billion is held by private investors. Back to Greenspan. As is usual, his speech and the subsequent question and answer period had something for everyone. His remarks were termed bearish by some, bullish by others and still others called it balanced. Net to net, the market sees Greenspan's speech suggesting the gradualist approach to monetary policy. Most concur that a rate hike at the next meeting would probably be only 25 basis points and not the 50 bps that some were getting worked up over. Of course, the question of what the Fed does with the policy bias is always another thing to think about. Regarding the committee he appointed to discuss the bias and the FOMC announcement policy, Greenspan said the question of what to make public and when is not as simple as he thought. Nonetheless, he said the report on the bias announcement will be made public before the Feb 1-2 FOMC meeting. Perhaps his most unusual comment was that he thinks the consumer price index is not as reliable a gauge of inflation as the personal consumption expenditure deflator that is put out by the Commerce Department's Bureau of Economic Analysis. Here is a comparison of PCE price deflator to the CPI, reflected in changes by quarters: 1Q99 CPI +1.5%, PCE deflator +1.4%; 2Q CPI +2.9%/PCE deflator +2.2%; 3Q CPI +4.2%/PCE deflator +1.9%. For 4Q, CPI was +2.2% and PCE deflator data is not yet available. Bottom line: although PCE deflator is derived from CPI data, the two do not always match due to different weights for buying and due to differences in judgement calls on items like autos and housing. By the way, "the Lord giveth and taketh away" so to speak. So is the case with Uncle Al. He's obsessed with inflation so the street waits and waits for the important CPI data. Then going into the release, he discounts the importance of the numbers. Then the numbers come in much better than street expectations but the gains are capped because they ain't important any more! Sure, just when they show the 1.9% year over year core rate at a 34-year low. Go figure! What about inflation in Europe? With the ECB estimating that price increases will average 1.5% in 2000 there can be "no talk" of inflation in Germany, Bundesbank president and ECB Governing Board member Ernst Welteke said in remarks prepared for a speech Friday. "Thus the most important condition is being met (by the euro): it is stable," Welteke said in an address in Munich marking the start of the last print run of deutschemark notes. Maybe, maybe not! This is the latest on more wage problems in Germany: Germany's vast public sector union OeTV may demand a pay packet worth at least 4.5% in forthcoming wage contract talks, according to a newspaper interview. When formulating its 2000 wage claim, the OeTV will seek compensation for national economic productivity growth, estimated at "around 3%," and a consumer inflation rate of "around 1.5%," union chairman Herbert Mai told Friday's regional daily Saarbruecker Zeitung. Worries about oil prices linger in the background of fixed income players minds. Rilwanu Lukman, secretary-general of OPEC, is reportedly in Vienna in discussions with Venezuelan Oil Minister Ali Rodriguez about output quotas. Later Friday, representatives of Nigeria, Iran, and Kuwait will convene a meeting of OPEC's Ministerial Monitoring Committee, which oversees production levels. Interesting remark: Chief Executive of the Hong Kong Monetary Authority Joseph Yam warns despite an apparent recent decline in the volatility of emerging markets, there are still potential dangers ahead that could destabilize the calm. Emerging markets have been left "very much to fend for themselves," he said. "Competition for credit business is keen worldwide, and there is some risk that the lessons of 1998 will be quickly forgotten." Over in Japan, Finance Minister Kiichi Miyazawa said G-7 finance ministers and central bank governors will discuss the yen at their upcoming meeting in Tokyo, but it is still unclear whether the final communique will specifically mention the currency. In their last communique they said a higher yen against the dollar was not preferable for a sustained Japanese recovery. He also said the communique would not mention the euro. G-7 meeting is on Jan 21-22 in Tokyo. The BOJ meets Monday, which is a holiday for the U.S. markets. No one seems to think there will be a change from the zero rate policy at that meeting. Some think more clues about what the board members are thinking will come in the minutes of the Nov 26 BOJ meeting which will be released next Thursday. On that same day, Japan will hold its next 10Y auction. --Rob Ramos and Joe Plocek contributed 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.

To: Crimson Ghost who wrote (37456)	1/14/2000 5:51:00 PM
From: Les H	Respond to of 99985

US BOND OUTLOOK: STATIC IN QUIET WEEK, BUT BEAR MKT LIVES By Ellen Taylor NEW YORK (MktNews) - If bond traders are lucky Treasury prices will remain fairly stable next week, a shortened week with little slated to affect price action either way, strategists said. On Monday, the bond market will be closed in honor of Martin Luther King Jr.'s birthday. For the balance of the week, the economic calendar offers unspectacular data, like the Federal Reserve's Beige Book on Wednesday and the November trade balance and Philadelphia Fed report on Thursday. Other data will include December housing starts and building permits, weekly jobless claims data and BTM Schroders and LJR Redbook weekly store sales reports. "The November trade balance will help fine tune estimates for GDP last quarter and the report from the Philadelphia Fed should show more moderate growth," said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi. "But there won't be much next week to move the markets." Despite the rollicking week just passed in which traders obsessed over the timing and number of future Federal Reserve rate hikes, traders will continue putting on the classic bear-market trade -- selling on upticks and covering shorts when prices hit lows again, they said. "This week traders felt Greenspan would signal that the Fed was about to tighten by 50 basis points on Feb. 2" in his Thursday night speech, said Rupkey. "And the market just went into a freefall on those fears." But once Greenspan's speech was out of the way, and after getting a bond-friendly CPI report, bond prices rallied about 1/2 point in the first hour. Then traders seemed to wake up to the fact that, yes, it is still a bear market. They sold at the highs after the stock market hit new highs, while a strong University of Michigan consumer sentiment index indicated "the consumer is still happy, so the Fed will be unhappy," as Rupkey said. After getting three key reports this week in producer and consumer prices and retail sales, as well as the anxiously awaited speech by Greenspan Thursday, next week will seem deadly dull in contrast, analysts said. There are basically only two reports that will be of any importance and neither are expected to push prices to new highs, they said. That's the Fed's Beige Book and the U.S. international trade balance for November. "The Beige Book should again show strong economic growth and low inflation," said Gemma Wright, senior interest-rate strategist at Aubrey G. Lanston. "So Treasury prices are likely to remain in a static range. If we can hold the lows in the markets, then we will see spreads tighten as there might be some nibbling at spread products and the market will drift higher," Wright said. One bright spot for the government bond market is that the plethora of corporate and agency supplies that sapped Treasury demand over the past week will greatly subside next week, Wright pointed out. The Inter-American Development Bank and the World Bank each plan to come with $2 billion deals, both currently set to mature in 10 years but there is talk that World Bank will shorten up to five years to avoid competing with the flood of 10-year debt that was sold this week. Argentina plans to borrow $1 billion in a 10-year issue while Brazil sold $750 million in a Euro-denominated bond and may borrow more on a U.S. dollar basis next week, Wright said. There are no new agency supplies expected beyond the weekly bill auctions, she said. Next week's respite will be short-lived because the following week will fuel another wild ride for bonds. Greenspan speaks on Jan 25 and 26 in a week that will also see the release of an important inflation measure, the employment cost index. Fourth-quarter GDP will also be released. "You could see the market begin to get cold feet by Friday because those three events the next week present a fearsome combination," said Rupkey. Looking forward, Wright said March Treasury-bond futures trading is likely to be bracketed by 89 to 91 as the market searches for validation of the heavy bearish burden it's built into prices months before any rate hikes have been enacted. In future data, "we will see if there was any slowing in growth in the first quarter in future data and get the 25 basis points in February, then wait and see," Wright said. There are the usual number of Fed presidents and governors making the talk circuit next week and Treasury Secretary Lawrence Summers will be on newswires next week as he makes speeches in India and Jakarta en route to the G-7 meeting next weekend in Tokyo. Battle-scarred bond traders, for their part, were more cynical about the likely direction of price action next week. They point to the bullish stampede in stocks, oil price gains, competing supplies, and the Fed's tightening mission as overwhelming negatives and good reasons to remain in hiding. "It should be a quiet week with the Monday holiday, but I wouldn't be surprised if corporate America came stampeding back" to borrow money at the lower interest rates that will probably only last for three more weeks until the Fed's Feb. 1-2 FOMC, said a trader. "Then someone will come in and rate lock $500 million in some issue. The market seems okay here, but we're not out of the woods," he said.