Bond & equity report for Oct. 27

SUMMARY OF UPCOMING DATA 10/27/09

9:00 AM S&P HOME PRICE INDEX

10:00 AM CONSUMER CONFIDENCE (54.0)

1:00 PM US 2 YEAR AUCTION ($44 B)

DATA RESULTS 10/26/09

US 5 YEAR TIPS (TREASURY INFLATION PROTECTION SECURITIES) ($7.0 B) (BID TO COVER 3.10. YIELD 0.76%)

US DEBT REVIEW AND OUTLOOK

US TREASURIES began the week in negative territory, as fixed income traders appeared to be suffering from a case of the “chills” (forgive the Halloween inference). This week brings concerns regarding the outcome of $123 billion of new Treasury debt coming to auction.

Monday’s kickoff of $7 billion of 5 year TIPS (Treasury Inflation Protection Securities) was well received by the marketplace. The bid to cover ratio of 3.10 was the highest in nearly 5 years and the yield awarded was nearly .25 basis pts lower than analyst’s forecasts. Despite this surprising strength, the markets came off their lows only slightly as traders remain cautious ahead of the major supply auctions which begin on Tuesday with $44 billion of US 2 year notes.

Overall, concerns for Treasuries appear focused on the long end of the yield curve due to expectations that the short end will find buyer support as the US government tries to lock in short term interest rates on its outstanding obligations going into the optimistic to realistic period of economic recovery (likely going into 2012).

Technically, Dec US 30 year futures broke through key support level at 118-24. Daily RSI offers indication that market could still have downside to test. Treasury futures should be looking for next level of support to set up at 117-12, with a break of this level setting up downside target of 116-18. Volatility based on fundamental influences could play significant factor up to midweek, so look for initial pullback to 118-18, with resistance to set up at 119-08.

US EQUITY REVIEW AND OUTLOOK

US EQUITY FUTURES broke through major support levels on Monday, as support from earnings begins to wear thin and an analyst’s downgrade on the regional banking sector spurred short covering of positions in the US dollar, taking down commodity prices and corresponding equity sectors as well. Financials led the initial pullback, led by commentary by a senior banking analyst that many US regional banks would not show a profit until well into 2011 and posted a “sell” rating on the sector. The negative sentiment carried over into the larger financial institutions. Bank of America lost nearly 6 % while Citigroup dropped nearly 3 %. In addition to profitability concerns, the overall sector is under growing concern regarding the potential impact of new capital raising that regulators may require from these TARP taking entities in order to pay back a portion of funds borrowed.

The strategy of payback would require issuing of new shares which would likely dilute existing shareholder equity, a circumstance that stockholder have become all too familiar with- and none too happy about. Of course, the rebound in the US Dollar contributed to the pullback in energy and material based sectors as commodity prices pulled back.

Technically, Dec S&P futures tested key support and resistance levels during this session. After failing to pierce 1087.00, the market turned around and broke through the bottom end of the recent range at 1073.00. After breaking this level, the market challenged the next level of support at 1063.00 before closing above this level. Downside target levels for the contract; 1056.90, 1048.00, 1037.00. Resistance levels-1078.90, 1083.00. Upside breakout target-1103.00.

US DEBT FUTURES

OPEN

HIGH

LOW

CLOSE

CHANGE

US Z9 (US 30 YRS)

118-27

119-02

117-25

118-02

-31/32nds

SP Z9 (S&P 500)

1077.50

1088.40

1061.50

1066.40

-10.50

Prepared by Rich Roscelli & Paul Brittain.

PLEASE EMAIL QUESTIONS OR COMMENTS TO RICH@BINVSTGRP.COM

Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. Commodity Trading School, its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.

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