US DEBT REVIEW AND OUTLOOK
US TREASURIES continued to range trade, with overnight rallies in Asian equities finally allowing for the long end of the yield curve to make a downward push through near term support levels. Treasuries regained footing after equities continued their uptick in volatility (see what happens when the news keeps harping on the fact that volatility has hit a low point).
Weaker than expected readings on US durable goods numbers and weekly unemployment claims slammed the major equity indices down to their worst levels of the year. Money coming out more risk sensitive sectors continues to find its way into the short end of the yield curve. Fixed income traders appear to be favoring a strategy of locking in funds at short term rates in order to seek opportunity through the lending out of funds at oncoming variable rates which are expected to rise as emergency liquidity programs end and the germination of a normal interest rate policy begins within the next several years. After effects (or shocks) of this strategy could lead to continued downward pressure on fixed income prices, while volatility begins to increase as uncertainty regarding the security of government fixed income continues to come into question.
Technically, US 30 years broke through initial support at 117-30 overnight. The pattern of the market suggests that it is getting ready to stage a breakout of its monthly trading range. The contract appears to be setting up for a move to the downside for a test of 117-12, with 116-28 setting up as significant support. Watch out for upside breakout point of 119-24. This could result in a gathering of upward momentum and reversal of downside sentiment.
US EQUITY REVIEW AND OUTLOOK
Stocks apparently had to deal with a major case of indigestion on Thursday, resulting in the major equity indices closing at their worst levels since the Dubai World debt scare in November of 2009. Disappointing numbers on employment and US durable goods weighed on already shaken investor sentiment as last night’s State of the Union address failed to offer solid direction for economic recovery.
Growing concerns regarding a possible new contagion of sovereign debt concerns continues to erode risk tolerance as the Euro Zone struggles with Greece’s inability to work out its fiscal and monetary weakness. The inability of the Euro Zone to implement a cohesive solutions highlights the apparent weakness of the union, while the growing of US government, rather than proactive economic policy appears to be prompting equity investors to undertake a “buy the rumor, sell the fact” mentality, particularly as volatility (no, it did not go away just because the news said it retreated below the Pre Lehman collapse levels) returns to the forefront creating a traders environment.
TECHNICAL OUTLOOK – With March S&P futures closing below 1081.00, the contract is setting up for a possible test of the next support level at 1068.00. A break of this level may result in a challenge of 1062.00 and a key support level at 1059.00. Upside retracement will likely be subdued ahead of next week’s employment data. Expect initial resistance at 1089.60.
Prepared by Rich Roscelli & Paul Brittain, contact: firstname.lastname@example.org
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US DEBT REVIEW AND OUTLOOK