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>Date: Tue, 13 Oct 1998 07:11:56 -0500
>To: "BruceB" <bruceb@xxxxxxxxxxxxx>
>From: Stewart Taylor <staylor@xxxxxxx>
>Subject: Re: Bonds down another point
>
>Hi Bruce:
>
>I don't think that the fundamentals support a bear market in bonds (yet)
but I'm not so sure they support a bull market either. But, for me, the
bottom line to my approach and to the advice I sell my institutional
clients... is a technical one.
>
>Don't get me wrong, I always watch the background, but I use the
Intermarket analysis that John Murphy has done such a good job with to
build a fundamental framework, and I causally watch a few selected
fundamental series (money supply, GDP deflater, and Employment Lie are the
three main ones). AND I NEVER: Doubt the tale of the tape. Sometimes
(like the move two weeks ago) I don't participate as strongly as I should,
but I never fight it very hard.
>
>I watch currencies, gold, CRB, XAU, XOI, copper with a particular emphasis
on the Yen and the commodities. Frankly, I thought that the death knell for
the bull market in bonds would be a sign of weakness from the top of the
monthly trading in the Dollar. That deterioration began in mid August (and
the CRB sprang the low and began behaving in a bullish manner).
>
>Over the last 30 days I have been advising my clients (for a variety of
technical and fundamental reasons) that they should use strength to clean
up, shorten durations, set some hedges, move way in on the yield curve and
so forth. Additionally we took profit on all intermediate term trading
positions and got flat in the trading accounts at roughly 129 1/2. Not
sexy, but solid and we managed to avoid the carnage of the last week.
>
>In terms of fundamentals I think that it might be a huge mistake to
underestimate the amount of potential unwinding in the Yen carry. The
buying in this trade over the last few years has been huge. Anyway, I am
going to keep watching my charts and the charts of the related markets.
When I see overt signs of demand, Ill take new longs. In the meantime....
Ill swing trade from both sides and be patient.
>
>Not saying my approach is the only approach or even the best approach, but
it's my approach and Im comfortable with it.
>
>Good Trading,
>Stewart.
>
>
>At 11:46 PM 10/12/98 -0400, you wrote:
>>Stewart, the chart may not look very good right now, but what about the
>>fundamentals? As Robert pointed out, Fed rate cuts will be bullish, but
>>here's two other things to consider. The federal government has gone from
>>running $300+ billion annual deficits to de facto surpluses in just a few
>>years. You can't just look at demand, you have to look at supply as well,
>>and that's an enormous contraction in a short period of time. The other
>>bullish fundamental is the inevitable decline in the inflation premium
>>expectation from bondholders. In an era of disinflation, bond purchasers
>>will accept a smaller spread between real and nominal interest rates, which
>>will result in higher bond prices.
>>
>>Bruce
>>
>>
>>>
>>>When the market is in the beginning of a liquidation phase, oversold means
>>>little and as far as I can tell there are absolutely no signs of
>>>accumulation in the intraday charts. For me to think about fresh longs I
>>>will need to see overtly bullish behaviors (at the least a poor result of
>>>effort or a selling climax.. auto rally formation).
>>>
>>>Look at the sharp declines in open interest. As far as I can tell it is
>>>going to take new buying to put the market higher... the speculative short
>>>base was wiped out on the rally to 135.00.... now longs are scrambling to
>>>get out.
>>>
>>>It might bounce but I think that there will be much better bets.
>>>
>>>At 08:49 PM 10/12/98 -0500, Robert W Cummings wrote:
>>>>
>>>>Bonds have broken 9 points in 5 trading sessions anybody but me thinking
>>>>maybe bonds a little oversold now?
>>>>Is buy yen sell bonds the new way to trade for the next couple of weeks,
>>>>years? I heard today the break in the dollar meant about a point and a
>>half
>>>>discount in interest rates. So if the Feds cuts rate bonds going down on
>>>>that as well, how fast things can change in markets.
>>>>
>>>>Robert
>>>>
>>>>
>>>Stewart Taylor
>>
>>
>>
Stewart Taylor
Taylor Fixed Income Outlook
Voice: 501-219-9774
Fax: 501-228-0963
E-Mail: staylor@xxxxxxx
Web Site: http://www.cei.net/~staylor/
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