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Strategies & Market Trends : January Effect 2003 -- Ignore unavailable to you. Want to Upgrade?

To: Londo who wrote (124)	2/3/2003 5:03:00 AM
From: RockyBalboa	Read Replies (2) \| Respond to of 666

Thanks, L. After the first infliction on Jan 27 I turned to the idea to short it in earnest. It took longer than I expected and there was even the danger of a blowoff when it started its second half hearted run to some 1.090 later the week (taking out a high of a 1.0917 in thin trade). Now it's not too late to increase on the short side, me thinks. CTAs are scaling back due to volatility and the break of the short term support and this may add to the selling for some time now. Back to the drawing board, I try to envision the next scenario: It could undo a bigger part of its gains (which amounted to 10c since Dec 1st), especially with the U.S. going into war or otherwise trumping up. The first results come up with a target somewhere between 1.05 and 1.055 (the best case being spikes down to the levels). Fundamentally, the scenario for a weak USD in the longer term has not changed. Some call for EUR prices between 1.14 and 1.25. This means that, once the counter trend is stopped and the selling done, the EUR could try for another round of gains (but much of this scenario needs heavy support through the reflation efforts of the U.S. fed).

To: Londo who wrote (124)	2/3/2003 6:36:11 AM
From: RockyBalboa	Respond to of 666

Regarding correlations - this is something I watch intraday when I look for the buck in equity-driven reversals etc. The recent good correlations between stocks and bonds, accompanied by the pair seem to break up a bit. The pair and the Nasdaq has been correlated very well in the past (the correlation with the S&P is good) but the relation between stocks and bonds begins to loosen up a bit, rendering it less useful as an indicator for teh latter. I have no estimate how much of European Bond profit taking attributes to the exodus in Euros but there is some. The yields have quickly converged and put the forward rates at par with the U.S. despite the persistent money market differential. Right now, the Euro Bund is retreating (w/w for the first time in weeks) and this move is quite in line with the retracement in the pair. This can explain a muted - slightly declining development in U.S. yields as the relative value types unwind their pair trades in yields. I need to implement Gold and the Japanese Yen into the mindset (I'm not sure about the relevance of Gold - it appears to one of the results).