The week ahead

Please note, that next week I will be on vacation so there will be no publication.
Next week's big piece of news will come on friday with Non farm payroll data for July.... Also not to be forgotten, we have PCE, ISM non manufacturing and ISM prices paid. These data will shed a bit of light on the state of the economy.

Did you know ?
NFP data is one of the biggest market movers but did you ever stopped and looked at the magnitude of the error margin on the released data? Among market participants, the consensus is about 70k... So this in fact means that when the number comes out at +70k it could actually be, in an extreme case, 0 or +140k! Pretty different no ?

The Big View: Are we going higher ? Maybe

We have now invalidated the Elliott wave theory when the fourth wave reached the bottom of the first wave so this means we are in the bottoming out scenario that started around 106-21. The question is, do we have more room to the upside now that we already have advanced by 3 points ? Before answering yes definitively, we have to navigate around the 109-25/110-01 area which has been a major congestion/rejection area for the past year and a half as shown...

By the way, we've bounced against it twice in the last two days and if option activity is of any help to predict the future, there was a lot of put buying and call selling today..... Longs might want to trim a bit there positions or at the very least tighten their stops.

T-Bond trading comment (July 27, 2007)

After yesterday's panic, today promised to be an interesting day and it was even if we closed up a paltry 2/32. We started off the day with some aggressive bidding trying to take out yesterday's high and we succeeded as we went up to 110-10 while the S&P500 futures were puking, but as soon as 110-10 was reached, sellers came in and the fall was as abrupt as the climd had been. At 8h30, we were firmly in a down move when the GDP data came out with a strong 3.4% that reinforced the bears in their activity. At that point, the market seemed keen to take out the resistance at 109-16 and really retrace yesterday's move. In any case, we bounced strongly on the 109-16 support and went higher on heavy volume..... From that point on, the T-Bond market had no more will of its own and simply followed the equities.

T-Bond trading comment (July 26, 2007)

Well where to start ?

This was a heavy day so lets be methodic. For North Americans, the day kicked off with news that Absolute Capital, a small hedge fund in Australia, was having serious problems in subprime investments and that WestLB had lost approximately 334 mln USD in trading.... On top of that, there were rumours that Asian banks where having problems with mortgage backed loans. All of that spurred a safe-haven buying around 5 this morning and went on until 8h45. At that point, credit spreads were getting roiled as well as stocks futures but still the market gave us a little respite even with bad durable good orders. After our 8h50 pop-up, a heavy offer came in at 109-16 and contained the market except for a little splip-up on the home data (again weaker than expected....) for almost two hours...

Afterwards, all the shorts started to throw in the towel as the equity markets was getting hammered and credit markets were going higher and higher.... Around 11h00, we heard another rumour that Lehman Brothers was in deep trouble with a bridge loan... But nothing more after..... The day continued on heavy trading as people continued to buy in conjunction with the equities going lower. The haemorrhage was stopped around 3h00. This coincided with a remark by Paulson on the subprime, trying to reassure the market.... Interesting to see what happens tomorrow as we have the GDP.... If the GDP gets out as expected the market might retrace back as it did last february after the Chineese meltdown day...

The funny thing with today is that during the normally most active part of the day, 8h00 to 11h00, the market stayed almost flat.... But still players who only played during that time have had nice opportunities. From my count, we had at least 3 very clear opportunities and 1 less clear but always the market went the right side... On a longer term, I think that the bottoming out scenario was the good one. We are now almost 2.5 bucks up...

T-Bond trading comment (July 25, 2007)

Well, days go by and they start to all look alike. Again we tried new lows on the open, we failed and went higher afterwards ! Our bottoming out theory starts too look pretty sexy...

We started off the day with a little buying opportunity for scalpers just before the opening dive. Afterwards, we had a least two good opportunities to enter long in the market during the first uptrend of the day at 8h57 and 9h36. At 10h00, housing sales came out again weaker than expected but unexpectedly the market went down sharply. So long for the ones who bought on the news.... Rumour had it that there was some profit taking on longs as well as initiation of 5-30 steepners.... This down move was stopped by equity markets that were puking on the housing data. This continued for about half an hour before stabilizing and a big bid entered at 108-24 which thereafter served as a support.

In the afternoon, we had the 2 year auction (nothing special, no impact) and the Beige Book (again nothing special, no real big impact). Tomorrow we have durable good orders and a 5 years auction.

T-Bond trading comment (July 24, 2007)

It was an interesting day today, with nice opportunties for scalpers and contrarians. Like yesterday, we started right off the opening by attempting to run down our new support at 108-05 on the T-bond and 106-03 on the note... As seen in the graphic we failed.... Afterwards, market operators just thought that, "hey if we can't go down, let's go up", but again we failed on yesterday's high. So it looked like we were in for another rangebound day.

On the bright side, the market offered us nice opportunities from which we could profit early in the morning. After lunch, the low was again tested and it failed again with some nice support on the bid. But this time in addition to having a technical support, we also had the equity market that was showing serious weaknesses. After that we grinded higher in perfect correlation with the down movement in equities and broke out of the range.... This little equity crisis, supported volume throughout the day, which enabled short term players to stay in the market longer than usual.

Also worth of noting is that the tip auction went quite well today showing strong interest.

T-Bond trading comment (July 23, 2007)

Are we entering the summer days, where nothing moves and everybody waits the close to hit the beach ? In all cases, the daily movement and the volume were dismal today. Granted, no economic news were due today...

After friday's run-up in prices we could have expected today to be a giveback day and it did look like that until 9h30 AM. At that point we were down almost a quarter of a point and looking good to lose a bit more but that was discounting the fact that we were, at that moment sitting, on the old resistance (108-05) that we broke friday morning. This old resistance/new support was well defended with bids sitting there all day long in Notes and Bonds and nobody really wanting to hit the bid. Only 9 traded in the T-Bond and 64 in the T-Note.

For scalpers, there were several good opportunities today. First when we started down at the opening at 8h20. After initially retracing, the market resumed its early trend. Another good point was when we hit the old resistance at 108-05. Finally, around 10h07 we had a false break to the downside that gave a nice spot to enter long in the market. Afterward, the market started to die out, but first it again tried to take out the new support unsuccessfully.

The Big View: For the naysayers

After last week's Big View message, several market players came back toward me saying that I was wrong and we were simply doing a leg 4 in a bearish configuration. Yes the fourth leg has been on for quite a while, but if we go back to our Elliott Theory book we see that if your second leg is very clear, then you could have a fourth leg pretty complicated full of false
breaks... Make your opinion!

Please note, that there will be no comment tomorrow as I will be on holiday!


Next week's economic data will be skewed toward the end of the week.
Wednesday: Beige Book
Thursday: Durable Good Orders
Friday: GDP

T-Bond trading comment (July 19, 2007)

Today was a repeat of what we have seen lately... Yesterday we went up so today we went down, thus making very hard for longer term trend followers to keep positions unless you have pretty deep pocket or don't risk too much on each trade. However one thing remains, the 21 days moving average still holds as a support and we like that because it supports our view of a possible bottoming out. On the other hand, as long as we do not break the 108-05 resistance, tested three times already, we will not enter in any significant recovery.

Like yesterday, we had a relatively clear signal day for very short term traders. There were few signals but they were good ! On the other hand, longer intra-day trend followers will have found it a bit harder as the signals were a bit less good. Several trends developped without clear starting signals. Claims data was a tad stronger than anticipated, but leading indicators and the Philly Fed were both disappointing which helped the market reverse the downtrend. Yesterday, it was 107-24 that was the resistance, today it was 107-23 that was only broke after the Minutes of the FED were released and even there it was not super convincing as we are again under that level after the close. Also worth of noting is the fact that today's volume was pretty low.

T-Bond trading comment (July 18, 2007)

Finally ! We have a normal day (ie: nice opportunities in the morning and nothing really interesting in the afternoon). Scalpers had at least 4 nice breakouts with one bad just after the CPI numbers when we lifted everything up to 107-24 where there was some aggressive selling. Talking about that, 107-24 was really a good marker today with some heavy offering lingering there all morning long. It finally took the Lehman rumour to boost past that mark, even Bernanke was not enough to pass over it. Trend traders should also have had a decent day, with a first downtrend initiated with the CPI number and after that a very clear uptrend with Bernanke and Lehman.

Looking at a bigger picture, we may notice that the 21 day moving average is doing the job as a nice support for the past few days. The question is will it continue and will we see a rally ? Stay tuned...

Tomorrow we are having the last economic numbers of the week, with the claims, the leading indicators and the Phily Fed. Not much expected here. Also Bernanke will re-do today's speech. What will be interesting will be the Q&A.

T-Bond trading comment (July 17, 2007)

Today looked like a deja-vu for several market participant as the market failed to develop a trend in the early morning but trended nicely in the second part of the morning. Like yesterday, operators looking for only 1 or 2 ticks will have had a good run even if there was a dry-patch between 9h15 and 10h15. For longer trend traders, well if you were still there after 10h AM good for you...

The much awaited PPI number was a bit of a flop in term of market impact but yielded interesting results when studied in details... Quick question, what are the central banks of several countries worrying about ? Food prices ! What went down in the inflation number ? Food prices ! Granted they are still up 6.3% yoy but still. On another subject, the NAHB index fell to its lowest in 16 years. When looking at this number, we have to keep in mind that this is a survey and that after several terrific years they are bound to find it hard... Mood swings... And obviously, the market seems to have taken it like that.

Tomorrow, we will await CPI numbers and housing numbers before turning all ears to listen to Mr. Bernanke's take on the state of the economy.

The Big View: Are we bottoming out ?

As seen in the previous daily chart, we could be bottoming out of the hole.
But beware, trying to play this game could be expensive as the market has showed a lot of volatility lately and several players got stopped out with fairly big losses. This chart becomes interesting when you couple it to seasonal patterns on the T-Bond.

If you look at the past 7 years of daily data, you will notice that usually around the end of June we start an opposite trend to the one we did during the first 6 months of the year. Now the big question is: What did the market do during the first six months in 2007 ? I will let you guess...

T-Bond trading comment (July 16, 2007)

Another hard day for trend followers where the early players ( pre-11 AM) got killed trying to find a trend. Even with the drop in prices paid we saw in the Empire Manufacturing (down to 34.5 from 42.5), we did not see the market start to trend before the end of the morning. The market did a triple bottom before booming higher on fear of subprime meltdown, possible miscalculation in the number of jobs lost in contruction, etc... On the other hand, people who were only there to nibble the market by 1 or 2 ticks by trade, should have done okay today.

Tomorrow, we are starting the inflation dance with PPI numbers. The markets expects lower PPI numbers but stable Core PPI. Also we will have TIC flows as well as Industrial Production and Capacity Utilization. To top off the day, at 1 PM the NAHB is coming out. Will we print a new multi-year low ? Expectation are for a +27. Not seen since February 1991...

Eco new for Monday July 16, 2007

The only news on the tape monday, will be the Empire Manufacturing Index.
The market is looking for a solid +18 after a surprisingly strong +25.8 the preceding month.

The big news, this week will be the inflation numbers due wednesday. This is what the Fed is looking at.

T-Bond trading comment (jul 13, 2007)

Today was a nice day. Not full of false breaks like yesterday. We started the day on a positive foot and jumped higher on disastrous retail sales....
So it looked like our spell to the downside was finished and we were going to gain back the land we lost during the two preceding days. But after maybe 25 minutes of higher prices, the market started to prepare himself for consumer optimism at 10H00. The UoM got out quite strongly and after puking a bit, we saw the usual post economic news pullback before retreating to pre-opening prices. This little ride was fun since it was very steep with very mild retracement. At 10h47 and 10h59 we formed a nice double bottom and after that we saw a nice bottomig out with the three moving averages crossing at the same time. This is usually a pretty strong signal that the market is going to trend. Afterwards, the volume just started to die out as it always does and so did trade opportunities. In conclusion, this was a fair day with quite nice opportunities.