S&P Market Requires a Melding of both Technical and Fundamental Factors

 

face=Arial, helvetica size=2>Bonds
The March
bond contract [USH0>USH0]  continued to sell off Wednesday after
Tuesday’s CPI report revived inflationary fears. Economists on the Street have
begun to revise upwards their expectations for the next GDP report. This report
measures the total value of goods and services produced by the US economy and is
a good indicator of future inflationary pressures. The intermediate-term trend
has turned bearish, but in the short-term (next two to three days) I see this
market as oversold. I went long at the 92-21 area with stops in at the 91-29
area, profit target at the 94-01 area. 

The Fed meets next week on Tuesday, but
I believe they won’t raise rates. That said, I believe the longer-term trend is
still up. However, the Fed will meet again on Feb. 1 and I do expect them to
tighten then. I’m not alone on this as the Fed funds futures contracts are
pricing in a 95% probability of a 25 basis point hike then as well. I’ll write a
future article that will deal with how to calculate these
probabilities.

color=#008000>Stocks
March S&Ps [SPH0>SPH0]face=”arial, helvetica” size=2> size=2>bounced after Tuesday’s sell-off but not before I covered my shorts. The
Nasdaq dropped 2.3% Tuesday as some of the momentum players took some profits
after the huge move that we had. Even MSFT’s rally Tuesday wasn’t enough to get
the bulls excited. Right now MSFT is up another 9 points and the S&P’s are liking
it. The March contract remains locked in the 1450-1418 range and we’ll continue
to play both sides of this market as long as we trade inside this band. When we
break out of the range, we might go with the breakout depending on the
circumstances, such as whether or not there was a gap, which report came out,
etc. The S&P market is one that requires a melding of both technical and
fundamental factors to get the “edge” over the guys that use just one or the
other. STAY TUNED!

 

Next update: Friday, December 17,
1999.