February Rate Hike Still Anticipated

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_size=2>Bonds
face=”arial, helvetica” size=2>The March bond contract
[USH0>USH0] stopped out our longs on Thursday after putting in
the biggest losing week in 10 months. The market seems to be going down very
easily as the bulls have totally stepped to the side. The market got a little
boost this morning on the Housing Starts report which showed that it fell again
to a six month low. However, this was just an opportunity for the bears to sell
into the rally; they are in firm control as of now and I will look to join them
in the next couple of sessions.

The market is fully expecting a rate hike in early February, and would have
expected one next week were it not for the Y2K issue. As a result, the market is
not waiting around until February for the rate hike, they are selling now. I
will wait for a short covering rally which I suspect will be coming–I will look
to short into it. I see a retest of the 91 0/32 area in the next two weeks.

color=#008000>Currencies
March euro futures
[ECH0>ECH0] continued on its downtrend today as the stronger US
stock market continued to attract capital. However, it is interesting to note
that the US bond market has been very weak but this hasn’t been enough to
reverse the trend. The market did rally on Thursday, but that was very
encouraging when you consider that the US bond market has gotten hit hard. I
still have my short position but will keep a close watch on it if the market
trades down to the 1.00 area.

color=#008000>Stocks
March S&Ps [SPH0>SPH0] is
currently up at 1447 (10:50 PST). The Nasdaq continues to give the rest of the
market the fuel to keep rallying, and we don’t see this pattern changing in the
near future. It looks like the market wants to break out of its recent trading
range and I am tempted to go with it, but I cannot. With the bond market being
so weak, I am instead getting bearish, as a weak bond market and a rallying SP
is a low risk entry point that I like. This is not even to mention what I
consider an overbought Nasdaq. These are the types of factors I like to see when
I make a trade. I went short at the 1446 area, with a stop in at the 1470 area,
and profit target at the 1419 area.

Next update: Monday, December 20, 1999.