Strong US Stock Market Continues to Increase Demand for Dollars

• December 3, 1999
• Manuel Ochoa

color=#008080>Bonds
The March bond contract [ush0>ush0] rose
Friday on the November jobs report. The jobless rate was unchanged at 4.1% which
was pretty much expected. Average hourly earnings came in at $13.41, up 2 cents.
The bulls liked that increase which was not as high as some had expected. Also,
October factory orders fell 0.2%, which was viewed as a nonthreat to inflation.
These reports caused a big wave of short-covering by the market which fed upon
itself throughout the day. However, the overall trend hasn’t changed amid the
economy’s strength: There are still concerns on inflation. We will be looking to
short this market in the next couple of sessions.

“The probabilities for a pullback (in the S&Ps) warrant a short trade”

Currencies

December Swiss francs [sfz9>sfz9] face=”arial, helvetica” size=2>continue to trend down as the U.S. economy grows
at a faster pace than European economies. The strong U.S. stock market continues
to increase demand for dollars; overseas investors need greenbacks in order to
buy U.S. stocks. The market was marginally higher Friday but we are still
holding our position. We will take profits, however, on the first sign of a
correction as the market is heavily short.

style=”TEXT-TRANSFORM: capitalize”>Stocks
December S&Ps
[spz9>spz9] hit our profit target Friday on the open at 1429. The market
continued to rally, however, on the strength of the bond market. The
probabilities for a pull back here warrant a short trade at these levels and we
established one at the 1438 area. The VIX index has dropped back down to the 21
area which signals a high level of complacency. Stops in at 1460. Profit target
at the 1405 level.

Next update: Monday, December
6, 1999.