December S&Ps Rally as Inflation Worries Subside
| PREVIOUS POSITIONS | ||||
|---|---|---|---|---|
| Market |
Long/Short |
Enter | size=2 color=000000>Exit | size=2 color=000000>P/L (per contract) |
| Dec. 99 T-bonds | Long | 111-25 | 111 | -$781.25 |
| Dec. 99 S&Ps | Short | 1298 | 1275 | $3500 |
| Dec. 99 Swiss franc | Long | .6795 | .6690 | -$1312.50 |
CURRENT POSITIONS (AS OF 10/29/99) |
|||||
|---|---|---|---|---|---|
| Market | Date | Long/Short | Enter | Stop | size=2 color=000000>Target |
| Dec. 99 T-bonds | 10/29/99 | Short | 113-15 | 114-19 | 112-15 |
| Sep. 99 S&Ps | 10/29/99 | Short | 1378 | 1400 | 1362 |
| Dec. 99 Swiss franc | – | Flat | – | – | – |
Note: All price levels are approximate.
T-bond futures
| With all of this enthusiasm, however, we expect bonds to pull back a bit |
Further, the Purchasing Management Association Index, which measures buying activity by companies, came in on the low side as well. All of this has caused a huge rally in bonds, including massive short covering. The economic perception has shifted to a more favorable inflation outlook.
With all of this enthusiasm, however, we expect bonds to pull back a bit; we think the market has gotten ahead of itself. We went short at the 113 15/32 area with stops in at the 114 19/32 level and a profit target around 112 15/32.
Stock index futures
The December S&Ps [SPZ9>SPZ9] have made an amazing rally in the last two days as inflation worries have subsided somewhat. Corporate earnings in general were good, and now that some tame inflation data has come in, money is moving back to the market at an amazing pace.
The inflation news is good news, especially the Employment Cost element, which is the biggest inflationary problem. However, there are still inflation pressures remaining in the economy and we think the market will settle somewhere in this area for a while.
Right now, we think the market is over-done to the upside, and we established a short position at the 1378 area with stops at the 1400 level. Our profit target is at the 1362 level.
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| Figure 2. December S&P futures (SPZ9), 5-minute bar. Source: Quote.com.
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Currency futures
| Many funds have taken losses in this market recently and have moved to the sidelines |
The December Swiss franc [SFZ9>SFZ9] was slightly up today. It was surprising that it was not weaker, as the U.S. stock and bond markets posted strong rallies (and this, despite expectations of a rate increase by the European Central Bank). Most of the funds have taken losses in this market recently and many have moved to the sidelines. Stay tuned.
Next update: Monday, November 1, 1999.
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