Trade Balance Report A Sign of Economic Pickup

  • October 20, 1999
  • Manuel Ochoa








PREVIOUS POSITIONS
Market

Long/Short

Enter
 size=2 color=000000>Exit size=2 color=000000>P/L (per contract)
Dec. 99 T-bonds Long 113-10 113-17 $218.75
Dec. 99 S&Ps Long 1340 1350 $2500
Dec. 99 Swiss franc Short .6900 .6860 $500






CURRENT POSITIONS (AS OF 10/20/99)
Market Date Long/Short Enter Stop size=2 color=000000>Target
Dec. 99 T-bonds 10/13/99 Long 111-25 110-20 112-16
Sep. 99 S&Ps 10/20/99 Short 1298 1321 1275
Dec. 99 Swiss franc 10/20/99 Long .6795 .6690 .6875



Note: All price levels are approximate.

T-bond futures

Today’s Trade Balance report just another sign that economic activity is picking up
The December futures [USZ9>USZ9] gained slightly today on light volume. The only report of interest today was the trade report, which stated that U.S. exports rose 3.2% in August. This is just another sign that economic activity is picking up and a harbinger of future inflation. However. it was still positive that bonds held up today, which could lead to a rally in the next couple of sessions.

Stock index futures

The Microsoft Factor was the catalyst for the rally today
The December S&P [SPZ9>SPZ9] had a strong day today with the combined help of Microsoft’s better-than-expected earnings and an oversold condition.

There is a good probability the rally is just temporary, however, as we still believe the market is in a downtrend, as well as the fact that the VIX index is coming down too fast from its high of 35.65 three sessions ago. We established a short position at the 1298 area with stops in around 1321 and a profit target at the 1275 level.



Figure 2. December S&P futures (SPZ9), 5-minute bar. Source: Quote.com.

Currency futures

The December Swiss franc [SFZ9>SFZ9] and Euro [ECZ9>ECZ9] sold off today on a stronger U.S. stock market and the German business sentiment index, which came in unchanged at 95.4. The market was expecting another increase, and we thus got a sell-off, as this takes the pressure off the European Central Bank to raise interest rates.

Then came the U.S. stock market rally, which drove capital back into the stock market from Europe and thus put even more pressure on the currencies. There was heavy stop-loss selling as longs were liquidated today. These conditions provided us with a good opportunity to go long the franc at the .6795 area with stops in around .6690 and a profit target at the .6875 level.



Figure 1. December Swiss franc futures (SFZ9), 5-minute bar. Source: Quote.com.

Next update: Friday, October 22, 1999.

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