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I think these congestion patterns are telling us that a) the markets have
not figured out where they are going or b) the status quo is just fine. God
forbid the status quo, those of us who trade for a living will go broke if
we are forced to trade chop-chop. I watch and trade a lot of different
futures markets and I think the markets may be providing some clues.
Energy and agriculturals have been rallying for months and the metals have
recently joined the fray. Copper, lumber and oil markets have always had a
decent inverse correlation to bonds and eliminating the equity sell-off
induced drop, bonds yields have moved up nearly .75% since the stock market
bottomed. Lumber (attached) appears to have completed a full correction and
tacked on another impulse rally signaling a strong building season ahead.
Oil looks strong and even a 50% retracement means significant costs must be
absorbed. I've got a lot of technical support around 118 and even more above
116 so a big bond sell-off is probably not in store. Overdue retracements in
some of these markets might even spark a bond rally. It was only a year or
two ago that bonds sat in a trading range for over six months before finally
breaking out so a few weeks of congestion is not a big deal.
Equities have been giving the appearance of being ready to tank for months
now, even the recent rally has been more corrective than impulsive as
evidenced by the deep retracements of each impulse. I think the equities are
telling us that they are not ready to go down so they may just keep grinding
upward for another couple of hundred s&p points. I think the recovery of the
s&p and NASDAQ into the close speaks to some resiliency. Yes, equities are
historically overvalued and when the inevitable does happen, treasuries
should be the major beneficiary. (I've already shifted into and out of long
term bond positions once on signs of a major top which did not materialize.)
I think the currencies are more problematic to understand. High US yields, a
strong economy and a relatively strong military (when compared to other
nations, not to its former state) are supporting the US dollar. A quick look
at a monthly yen chart says the yen is in a bear market but could we be
seeing a base? DM has been in a grinding bear market and BP appears to have
topped out. I don't have enough history to evaluate EC so DM will have to
do. However there are valid arguments that the US dollar is sitting on an
unsustainable bubble of imports, debt, and overvalued equity assets. While
the bubble has been managed skillfully, nothing was done to prick it gently
when the opportunities were present and no government on earth has ever been
able to perpetuate a bubble ad infinitum. Everyone on earth wants to own US
dollars and numerous countries are considering dollarizing. History tells us
to be leery of anything which is over-popular. Could a severe tumble in US
equities tumble the economy and the dollar? I think it could and other
currencies might well be the beneficiary of diversification, not to mention
outright panic selling.
Earl
-----Original Message-----
From: BOTTrader@xxxxxxx <BOTTrader@xxxxxxx>
To: eadamy@xxxxxxxxxx <eadamy@xxxxxxxxxx>; realtraders@xxxxxxxxxxxxxx
<realtraders@xxxxxxxxxxxxxx>
Date: Friday, April 30, 1999 4:01 PM
Subject: Re: Graph Triangles, etc.
>Earl.....If bonds tank, they'll also likely take the US stock indexes with
>them !! IMHO the regulatory framework has alot vested in maintaining the
>recent bottom in bonds.... particularly the bottom in Japan & Europe
>bonds.... this in turn should support the US bond. Further, if the
recent
>low in US doesn't hold, there is additional HUGE technical support directly
>underneath in the 118-119+ area.... both uptrending and horizontal support
>levels abound. On the other hand, I see no basis for a strong bond rally
>from this point, other than that's the trend right now. Since markets
don't
>like to sit in narrow ranges for long, there's likely to be growing
>uneasiness in bonds. Look at today, one day after the great positive
>employment cost index, we get a huge down day....
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