Financial Futures Insight

 

 

_{face=Arial>Bonds}
face=”arial, helvetica”>The March bond contract [USH0>USH0]face=”arial, helvetica”> spent Monday drifting lower ahead of the Fed’s meeting
tomorrow. No one wants to take any significant positions ahead of the report
although the market expects the Fed to do nothing. The market will be looking
for any bias statements from the Fed however indicating which way they are
leaning on their policy. If any comments are made that indicate that they are
unusually concerned about inflation we could get another selloff. However, if
they make comments that some of the inflationary pressures are easing we could
see a relief rally as well. With this type of situation, I do not want to make
any trades as I don’t think it is wise to rely on statements to make my
positions work .

We had an inside day today and this is
indicative of the light volume and unwillingness of traders to take positions
ahead of the meeting. However, we did close at the lower end of the range which
signifies that the market is still more bearish than bullish at this level. All
of the overbought/oversold oscillator indicators (RSI, etc.) are oversold but
be careful, they usually stay that way for a long time during downmoves like
these.

color=#008000>Currencies
March euro futures
[ECH0>ECH0] had a modest short-
covering rally ahead of tomorrow’s Fed meeting. The market is still heavily
short and I suspect that traders will tighten up their stops ahead of tomorrow’s
meeting. The strategy that works best with pre- Fed days is to either have very
close stops or very wide ones. Since I have a longer term view on this trade I
chose the latter. The last strategy is to simply get out ahead of such meetings
which I favor if I do not already have a profit cushion.

color=#008000>Stocks
The March S&P 500 futures contract
[SPH0>SPH0] is currently down at
1437 (2:00 p.m. ET). We are still trying to cover below at 1419. I see today’s
market down on profit taking being fueled by weaker bonds. The Nasdaq is still
up on the day which I see as bullish. This being the case I will keep a close
eye on this position and maybe cover the position at a higher price. The Nasdaq
being so relatively strong has cut my expectations on this short position. There
are still a lot of investors who feel comfortable taking bigger risk in
technology stocks and this cannot be ignored by the bears.

The technicals look short- term
overbought (rsi, bollinger bands) and the market looks like it tested the upper
end of its recent trading range (1450 to 1410). The moving averages look a little
more bullish with the market trading above its 10- day moving average. That’s
why the S&P’s are so elusive.

 

Next update: Wednesday, December
22, 1999.