Retreat!

  • December 20, 2000
  • Marc Dupee

Bad is going to worse as downgrades of stalwart techs IBM, Hewlett-Packard, and
Cisco are reeling the market in the aftermath of yesterday’s Fed decision not to
cut interest rates. Stock index futures are down sharply and market participants
are fleeing to the “relative” safety of treasuries. Weaker equities
are also battering the buck.

Nasdaq 100 futures
(
NDH1 |
Quote |
Chart |
News |
PowerRating) hit another limit down level, their third in just
over two trading hours (yesterday and today). Naz futures are on the Implosion-5 List.
Like the NDH1, the March S&P futures
(
SPH1 |
Quote |
Chart |
News |
PowerRating) are trading at 52-week
lows. 

The flight to safety is clearly expressing itself in
interest rate futures. T-bonds
(
USH1 |
Quote |
Chart |
News |
PowerRating) and 10-year notes
(
TYH1 |
Quote |
Chart |
News |
PowerRating), both
from the Momentum-5
List, have rallied to new highs on the panic down draft in equities and
index futures. 

The failure of the Fed to lower interest rates and revamp a
sputtering economy has brought the specter of recession and the end to the
longest economic expansion on record into view. A recession is defined as two
quarters of negative growth. Lower retail sales, industrial production easing to
a nine-year low, an up-tick in unemployment, and last quarter’s halving of GDP
growth from the previous quarter, all point to the possibility of a negative
quarter. Monetary policy–lowering interest rates–has a delayed effect, so even
if the Fed lowers rates in January, we will not see economic results for several
months, hinting at the possibility of a recession. The prospect of slower
economic growth in the US, and the European Central Bank’s forecast today of
2.6% to 3.6% GDP growth next year reverses the tables, and makes the euro more
attractive relative tot he dollar. The
euro FX futures
(
ECH1 |
Quote |
Chart |
News |
PowerRating), from the Momentum-5
List, are up sharply, +.0127, or 1.42%, as the dollar index
(
DXH1 |
Quote |
Chart |
News |
PowerRating)
skids 1.11 to 111.93. The
Swiss franc
(
SFH1 |
Quote |
Chart |
News |
PowerRating), also on the M-5 List, are up .0037 to .6015 as
well.

In thinner trading brought on by nuclear volatility and
higher margin requirements that forced players out of the market, natural gas
jolted up another meteoric 7% this morning, accumulating 33% in five days. 

Soymeal
(
SMF1 |
Quote |
Chart |
News |
PowerRating) broke out to a new high, but are
pulling back in a Turtle Soup (same day) reversal. Both soybean meal and January soybeans
(
SF1 |
Quote |
Chart |
News |
PowerRating) are
on the Multiple Days Low
Volatility List, implying they could scale higher and make good on its Momentum-5
reading. 

March sugar
(
SBH1 |
Quote |
Chart |
News |
PowerRating) is up moderately for a fourth consecutive day. However,
the move up appears in fulfillment of the down channel line of the right
shoulder of a head and shoulders top. With patterns defined so well, traditional
technical analysis implies a “measured move” below the neckline
equaling the distance from the head to the neckline (see my Defining
Risk Reward Ratios With Chart Setups In The Futures Markets).  

Cocoa
(
CCH1 |
Quote |
Chart |
News |
PowerRating) is also mildly supported off 30-year
lows and trading at 736 on fund short-covering and speculation about the
possibility of another coup de etat.