Sleepy

by Larry Levin

Just when you think the market can't get any slower - it does. Today was an amazingly slow day as evidenced by the range in the pit: an emaciated 5.50 total points. When the market goes down there is action; when it goes up it is downright sleepy.

I have seen portions of the following article on many sites today so I thought I would send it along to you as well. Below is just a small portion of a large report from analyst Dave Rosenberg.

What's On The Worry List?

* Last week's bond auctions did not go well. It seems that Japan and China did not show much interest. The lack of bids was no better underscored than in the 7-year Treasury note auction where the median yield was 3.29% versus 3.05% a month earlier. April is a cruel month for the U.S. Treasury market, with 10-year yields rising in each of the past 4 Aprils and in 6 of the past 7, and by an average of 25 basis points.

* That, in turn, could spook the equity market since another 25bps of upside pressure could then generate a fund-flow spiral as was the case in the summer of 2007 "" 3.85% (where we are now) ostensibly is a trigger point for selling of mortgage bonds. As rates rise, homeowners are less likely to pay their mortgages early, which extends the life of the mortgage and that in turn encourages mortgage investors to neutralize the duration of their portfolios by selling T-bonds and notes. We have seen this happen before and while it will likely provide a nice buying opportunity given the deflationary headwinds the economy now faces, the prospect of a spasm in the Treasury market is worth considering. Every equity market correction in the past "" 1987, 1994, 1998, 2000, and 2007 "" was preceded by what turned out to be a brief but significant runup in yields. See Stock Rally at Mercy of Rising Rates on page C1 of today's WSJ). And, the more overvalued the equity market is, the more the downside risks if bonds begin to provide greater yield competition in the near-term. Jeffery Hirsch over at the Stock Trader's Almanac is in today's NYT predicting a 20-30% correction ahead (see Stocks Soar, But Many Ask Why on page B1) "" he notes the modest number of stocks hitting new 52-week highs with every new interim peak being reached by the overall market.

* The leading indicators are all pointing to a slowdown, and this could show up in a critical data-release week in mid-April with retail sales on the 14th, industrial production on the 15th, and housing starts, as well as consumer sentiment, on the 16th. The broad money supply measures are contracting again as the Fed is no longer boosting its balance sheet at a time when both the money multiplier and money velocity are showing no signs of turning higher.

* Greece will be put to the test in April when â,¬15 billion of bonds have to be rolled over (through the end of May).

* The Fed ceases to buy mortgage securities on Wednesday and this is happening at a time when mortgage rates have already climbed back above 5% and the housing market is showing signs of rolling over again. See Spike in Treasury Yields Jolts Mortgages on page C2 of today's WSJ. There is also pressure from within the Fed (Plosser the latest) to soon begin to sell securities outright. One thing that is very likely on its way again is another 50bps hike on the discount rate "" has anyone noticed the TED spread beginning to widen ahead of this? The banks, going forward, will not have easy access to the window and will have to rely on each other for funding.

* April 15 looms as a critical day from a geopolitical standpoint. It is the day that the Treasury Department will issue its report concluding whether or not China is a currency manipulator. If it is viewed as such then trade sanctions are likely to ensue and very likely some bilateral tensions. This could be very good news for the bullion market (as well as the Bloomberg News report today stating that gold imports in India are surging right now "" up six-fold from a year ago "" as there are an expected 1 million marriages planned for April and May). Sentiment is so negative on the U.S. Treasury market it's not even funny. Everyone seems to focus strictly on supply without realizing that the only way to predict a price is by forecasting both supply and demand

* Speaking of geopolitical risks, President Obama has allowed U.S. relations with Israel to deteriorate to such an extent, and is handling the Iran nuclear situation with such a kid-gloves approach, that disturbing columns like this are now popping up in newspapers like the NYT (Rift Exposes Larger Split In Views On Mideast "" page A4), the National Post (Iran Preparing to Build Two More Secret Nuclear Sites in Mountains, Experts Say "" page A8), and the WSJ (How the Next Middle East War Could Start "" page A23). Even the prospect is enough to underpin the energy stocks, which are currently priced for $69/bbl on WTI.

Some of the article above is new, some is old hat. What I am particularly interested in, however, is when the Fed "claims" it will end QE, which is a few days. My guess is that if there is any negative reaction at all, the Fed will step right back in and continue buying garbage/overpriced mortgages with your money.




Previous Day's Trading Room Results:

Trade Date: 3/28/10

E-Mini S&P Trades*
(before fees and commissions):


1) VA buy @ 8:56am at 1167.50 = -1.25 & -1.25 (2 lots)

2) 80% sell @ 9:06am at 1167.25 = +.25, -1.25, -1.25 (3 lots)

3) VA buy @ 1:29pm at 1167.00 = +1.00, +1.00, +.75 (3 lots)

2) Algorithm positions (5)

3) "Reading the Tape" positions (3) ...combined Secret's, Algo, & "Reading the Tape" total...-3.00



Sign up as an AvidTrader Member to receive "The Technician" Value Area's each day. The market then has an 80% chance of filling the Value Area. Many traders familiar with the Value Area and the techniques that go along with it use it to help them decide what trades to do each day. Join and see how this technique can help you trade more successfully!