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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: MulhollandDrive who wrote (3779)	4/20/2001 9:04:37 AM
From: John Pitera	Respond to of 33421

One thing to consider is that the Valuation model that the Fed, and many others use is moving back to overvalued once again. It looks at the 10 year note yield relative to the earnings yield of the S&P 500, with the move in yield on the 10 Year note from 4.75 to 5.25 since the March 22 low, and the rally in equities. The bonds are really selling off like crazy the last several weeks and one thing to consider the models that look at the differential between the 10 year note and the SPX earnings yield have surely moved up into the overvalued area already. I bet that Don Hay's will even be talking about that shortly. The yield on the 10 Year note from 4.75 to 5.25 since the March 22 low, and the SPX has moved 15% or so. the daily stochastics have reversed to the sell side on both the bond and 10 year note futures... stocks always have heavier sledding to do when the credit market is in sell mode. John ------------- Recommendations >June 10Yr Note: Daily stochastics reversed to a sell. Weeklies down (K=56; D=68). Market downdraft in recent sessions overdone in our view, though in the big scheme we continue to view the market as in a topping process. Had been looking for an eventual advance in yields toward 5.40-5.50% yield or into the 102-00 to 103-00 region basis the nearest futures, but having said that the move this past week seems a bit premature. Near term we'd expect a recovery in prices as yields slip back toward 4.80-5.00% region and prices move back toward 106-00 to 107-00 area basis nearest futures at which point we'd move to a neutral-negative trading bias again. Low yield in this run was 4.687% hit March 22, 2001. The 1999 yield low 4.61% on January 14, 1999. The 1998 yield low around 4.10% hit Oct 5, 1998. >June 30Yr Bond: Daily stochastics reversed to a sell. Weeklies down (K=39; D=55). LT positive outlook still supported by softer growth, muted inflation pressures and anticipated continuation of paying down long term debt and reduced issuance. Nonetheless, scope for significantly lower yields likely to be muted. Low yield on this run 5.217% hit March 22, 2001. The 1999 yield low 5.06% on Jan 14, 1999. The 1998 yield low around 4.69% hit Oct 5, 1998.