Falling Energy Prices Give Bonds a Boost

helvetica>CURRENT POSITIONS (AS OF 12/10/99)


size=2 Helvetica>Long/Short




Mar. 99

>12/10/99 >Short >1.0200 1.0300 1.005

Mar. 99

  helvetica>Flat   size=2>  size=2> 

Mar. 99

  helvetica>Flat   size=2>  size=2> 


face=”arial, helvetica”>The March bond contract [USH0>USH0] face=”arial, helvetica”> rallied Friday on the PPI report. The report stated
that prices rose 0.2% November which was expected. Nonetheless, bonds rallied
as the market was relieved and the bulls came back out again. Falling energy
prices also gave bonds a boost Friday as well as the inflation scare has been
particularly focused on rising energy prices. We expect the rally to continue
through Monday at which point we will try to go short at the 95^00. We do note
however that the market has been down 10 months consecutively which is a record
in the last 20 years. The market expects the Fed to do nothing latter this month
but there is a reasonable expectation that they will raise rates when they meet
early next year.

“We will attempt to
sell a rally (in stocks) on Monday, as we see the low-risk trade on the
short side….”

March euro futures [ECH0>ECH0] 
face=”arial, helvetica” size=2> pulled back today as the longer term trend took
over today. The market came under pressure after this mornings PPI report gave
the U.S. bond and stock markets a lift thus making dollars more attractive as
well. The market had been in a corrective mode as many players were taking
profits after the markets recent down move. We suspect that many large funds are
establishing more short positions now. We established a short position at the
1.0200 area. Stops in at the 1.0300 area. Profit target is at the 1.005 area as
we see support coming in near the recent lows. 

Stocksface=”arial, helvetica” size=2>
March S&Ps [SPH0>SPH0] rallied after a
relief from the PPI report gave bulls to come out. The techs continue to lead
the rally and the low 20’s on the VIX index signal that the market doesn’t have
a problem with this. We will attempt to sell a rally on Monday as we see the low
risk trade on the short side in the next couple of sessions and view the
possibility of a sharp correction as very probable in the near future.


Next update: Monday, December 13,