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-----Original Message-----
From: Mervin Yeung [mailto:tinyeung@xxxxxxxx]
Sent: Saturday, June 17, 2000 4:34 PM
Subject: ex00m17
Sky Blue Express (Sat. June 17, 2000)
Hi Sky Blue Fans,
Since June 4, 2000, I have remained "neutral" on US stock indices
because more information were needed at the time. Apparently, US
stock
indices agree. US stock indices have been flat since June 5, 2000,
un-sure which way to move next. Friday's drop in Dow Jones Ind. Avg.
was quite sharp. However, now I decide to turn bullish on US stock
indices for the next few weeks. Because US Dollar Index has not
turned
upwards yet, this "bullish" forecast on US stock indices is quite
tentative.
I didn't write anything in the last week because of my health
condition. My damaged wrist has kept me from the keyboard. I decided
to (actually, I had to) give my wrist a rest.
The major development in the last 2 weeks was European Central Bank
(ECB) decision to raise interest rates. The European central bank
raised interest rates by a higher-than-expected 0.50% to 4.25% on June
8, 2000. Quite complicated here. Case (1): Increase in cost of
borrowing in Europe reduces capital outflow from Europe to the US -->
bullish for Euro & bearish for US stock indices. Case (2): Even if
cost
of borrowing has increased in Europe, capital outflow can remain
unchanged if capital is still available to be borrowed AND if the
expected return of "investing" in the US stock indices remains higher
than the cost of borrowing. Nothing changes in this scenario. Case
(3): Aggregate demand for US exports in Europe declines because high
interest rates cool consumption in Europe. If demand for US goods and
services slows, US economy will slow and the Fed doesn't have to raise
rates that soon --> bullish for US stock indices & bearish for Euro.
The above are just 3 major factors that have to be considered. If you
want the whole picture, you can put all the factors in and create a
big,
nasty, complex flow chart. Which scenario and which factor will be
dominant? Well, if you have a Master Degree in Operation Research,
you
can try to analyze it.
Since May 10, 2000, I have been bullish on Yen. June 2000 Japanese
Yen
contract went up 179 ticks on June 6, 2000. The following day, Bank
of
Japan's officials threatened to intervene if yen kept going up. Most
traders in forex market are highly leveraged. Bank of Japan (BoJ) has
intervened YEN/USD cross for more than 20 times since mid June, 1999.
That threat, of course, was real. So, yen bulls simply had to
"lighten
up" their positions. Hence, Yen retraced but it remains strong
because
it didn't sink sharply following the threats from BoJ. (Look at
YEN/USD
cross, I really think that if BoJ wants to intervene, now is a great
opportunity. (either actual intervention or "talk down yen") But I
don't know what are in BoJ officials' minds. )
US Dollar Index's recent lowest low was on June 8, 2000. I remember I
expected US Dollar Index's weakness to end "soon" on June 4, 2000.
Thus, June 8's lowest low still holds up very well. However, due to
Yen's strength in YEN/USD cross and more importantly, the effect (an
uncertainty) of ECB's raise on interest rates, now I think US Dollar
Index shall weaken further. There will be an end to US Dollar Index
current weakness, but the timing will be delayed.
Euro's situation is now very complicated. If you can apply Operation
Research to solve the puzzle described above, then we can use
fundamental analysis. In the meantime, without clear fundamental
conclusion, trading on technicals will be more reasonable. Euro's
recent highest high was on June 8, 2000. So, my previous forecast was
fine. Nevertheless, now I simply have to refrain from making
fundamental forecasts on Euro unless I can decide which scenario from
the above 3 cases is the most likely one.
I have been bearish on US T-Bond since June 6, 2000. Nothing changes
here despite that T-Bond still refuses to come down.
*Free charts on commodities and futures are available at: (I often
mention these charts in Sky Blue Express.)
http://www.fyii.net/chart.htm
http://www.britefutures.com/home.asp
*If you don't want to receive e-mails like this, please e-mail me so
that I can update my mailing list.
*If you like this E-mail HOTLINE (Sky Blue Express), please tell those
who may be interested.
*If you haven't read our Sky Blue Monthly, please go to:
http://skybluemonthly.freeservers.com/sbm/sbm.htm
*If you want to incorporate my ideas (from Sky Blue Monthly and/or Sky
Blue Express) in your studies or your works, please acknowledge it and
please inform your readers the source of the original ideas. Thank
you!
All of the above are for general information only, not for trading
purpose.
Mervin Yeung
Editor/Publisher
Sky Blue Monthly & Sky Blue Express
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