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Wednesday, June 23, 2010

Market Thought... think ahead

We are just in a sea of negativity. The Fed. statement was no different. In my opinion, it corroborated what we are seeing in the 10yr treasury yield.

The yield is currently hitting its high-end support. It looks to want to test the low-end (3.0).

If it does, do not fear it. The fear of deflation will take the market down with it.

An important event took place after I published my Market Thought post 'hint of concern'. China indicated they will begin revaluing the Yuan. We may have seen hints of this in the 5yr treasury market with the relative weak demand. The Yuan/dollar adjustment would mean higher inflation, and higher rates.

This is why, fundamentally speaking (in pure economic algebra), the 10yr treasury yield will not break 3.0 to merit real deflationary concern. But since the 'hint of concern' post, I did see a few interviews highlighting this as a concern, so I must assume its baked into the hedgies at this point. When/if the current support is broken, it may trigger a market sell off that may lead the SP500 to its daily 320SMA.

We may see a new level of fear, capitulating the market and present a buying opportunity.

I will look to add IBM (calls), AAPL (calls), F (common), GS (calls), NAT (common), C (common) and JCG (common).

Around the 1040 level of the SP500, valuations matter. The street will price in deflation, but as mentioned above, they will be wrong.

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