Friday, February 16, 2007

Equity Index Update

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Brad Sullivan
February 16, 2007

The index markets traded in a light volume narrow range as Dr. Bernanke finished his testimony on Capitol Hill. The SPH7 contract produced a range of 0.4% for the entire session as players held their bids from Wednesday’s sharp advance.

This morning the indices are marked slightly lower on news that MSFT’s Vista software projections are a bit too optimistic. After trading through yesterday’s low in the SPH7 contract, buyers bid the pre-market higher on a rumor that AMR would be taken private in a deal led by GS. The morning’s economic data was right in line on the PPI with a headline reading of -0.6% and a core reading of +0.2%. Housing Starts came in a bit weaker than anticipated. Since that news, the indices have lost their slight bid and now rest around -1.00 pre-open.

We are focusing on an early close in the treasury market, option expiration in the equity markets and a pretty aggressive back and forth trade in the dollar. The Yen carry trade and its potential unwinding is in the back of everybody’s mind. However, I still hold that only a move below 115 in the Yen/Dollar would get the carriers frightened. And if that were to happen, it would be a short term detriment to the equity markets.

Keep a close eye on the “normal” expiration trade, which consists of a sharp mark higher just prior to and through the first minute of the open. Afterwards, look for a break around -0.3% in the SP before sideways action hits.

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