Tuesday, December 05, 2006

Dull Tuesday

We are starting to see more and more talk about the Fed meeting scheduled for next week.  We don’t recall a time when so many disagreed about the direction of interest rates right ahead of an FOMC meeting.  The disagreement appears to be most glaring between the Fed itself and the bond market.  The Fed has repeatedly said in the last few weeks that they are struggling with the idea of whether to Raise rates or not.  Meanwhile the bond market is pricing in a possibility of a rate cut at Next week’s meeting along with some more cuts next year.

We wish to remind you that the Fed will not and can not raise rates next week.  There are some economic data points that could be construed as reasons to raise rates but the biggest reason would be to support the dollar.  We might be inclined to revise our position if the powers that be actually wanted to hold the dollar up, but from our vantage point that just doesn’t seem likely.  

There was some early morning action that tried to confuse the players but after the first hour of trading there wasn’t much going on in prices.  The Dow traded in a narrow 50 point range for the day and about a 30 point range the last three and a half hours.  All in all, it was a pretty dull trading day.  The SP 500 did manage to get to a new relative high and the Dow is only a few points away from a new record high but the market basically rested on Tuesday.

The news items seemed to be off expected enough to cause some movement in stock prices but the market shrugged it all off both good and bad.  The bond market didn’t like the ISM Non-Manufacturing report moving higher than expected; but the reaction wasn’t very bad, just a small, almost imperceptible, move.

As you know we are keying in on the period around the jobs’ report which is Friday.  As mentioned above, the Fed meeting is just a few days behind that report and this period of time could hold the high in the stock market.  The market seems like it wants to make one more move higher before anything dramatic happens on the downside.  The key time for this spike is over the next week.  

As we have said, we are prepared to unload our bonds on Friday if conditions are right.  We were uncomfortable with the little down move experienced on Tuesday but we hung in there for a possibly better trade on Friday morning at the opening.  We’ll see if that looks best as the week progresses.

Dow Industrials:  12,331.60  +47.75
VIX: 11.27
QQQQ:  44.42
RYVNX:   16.81
RYAIX:  21.39
RYCWX:  36.05
TLT:  91.15
BEGBX:  14.43

No comments: