Tuesday, May 03, 2005

The market: I know this dance

I've had this song going through my head for about a week now. In fact, I've completely rearranged my winamp playlist around it. I can't stop listening to it. Funny thing is, I just realized why. Guys like me, we obsess, and strange the way the brain's subconscious finds ways to manifest itself.

I say, we can dance, we can dance
Everything out of control
We can dance, we can dance
We're doing it from wall to wall
We can dance, we can dance
Everybody look at your hands
We can dance, we can dance
Everybody takin' the cha-a-a-ance

Safety dance
Is it safe to dance
Is it safe to dance

S-s-s-s A-a-a-a F-f-f-f E-e-e-e T-t-t-t Y-y-y-y
Safe, dance!

Its obvious. The market has been doing the safety dance for the past two weeks. Any day now, its going to stop this wall to wall nonsense and finally it will be safe to dance (probably on the short side).

Trader Mike has written a useful technical analysis of the indexes, post-fed meeting. I'm also watching that downward sloping upper-channel trend line Mike has so clearly illustrated. A persuasive close above that line this week would likely cause me to start tossing short positions out of the airplane to lighten the load.

An interesting phenomenon happened in the last 5 minutes of today's close. Bill Cara's post-fed meeting discussion includes commentary on the Fed chief's 3:55PM EST post-script remark: "Longer term inflation expectations well-contained." Is Greenspan bailing out the stock market? You would think he would know better. A more likely explanation is he's doing more of what he's been doing all year: buying time. Meanwhile, institutional money is fleeing to bonds as fast as possible without wrecking the escape hatch on the way out. At the time of this writing, the spread between the 3 month and the 30 year U.S. Treasury Bond has narrowed to 172 basis points. As I understand it, there are two main reasons why this spread is narrowing. The fed rate hikes are pushing up the short-term yields, and investors buying the longer term bonds causes their yields to contract. Regardless, we still might see the market get squeezed higher because of Greenspan's remark late this afternoon. It may be that he was trying to push the market above that downward sloping trendline and cause a squeeze ahead of Friday's jobs report to soften its impact? Its really anybody's guess, but it boils down to one thing for me, soon it will be safe to dance.


At 11:10 AM, Blogger crystal said...

Great post, nice analogy!


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