Volatility has continued in the market with good reason. The non-farm payrolls really shocked the market last Friday, coming out at a -4,000 jobs created for the month. (The market was expecting an expansion of 112,000 jobs.) Among other things, the housing market continues to weaken. The number of Adjustable Rate Mortgages coming due are expected to peak between January and June 2008. This number is considered to be highly correlated with the number of foreclosures as both seem to rise in tandem. The trickle effect is in place. As the housing market slides, many people are losing jobs related to it-including realtors, construction workers, and mortgage brokers, to name a few. According to many market analysts, the economy is likely to continue to become much more stagnant before it becomes better. Many of the speeches given by Fed members recently lead us to believe that the Fed will indeed cut rates on the 18th.
Prior to Labor Day, comments were made by President Bush calling for Freddie Mae and Fannie Mae to help bail out the sub-prime lenders that are at risk of default. Although the stock market rallied from these comments, the government quickly clarified that they are not trying to bail out individuals entirely.
The inflationary concerns seem to have been placed on the backburner temporarily. The Fed is still concerned with inflation and the threat of hyperinflation, but growth has become of the utmost importance to carry the economy through this turmoil.
Fed Watch: The upcoming FOMC meeting is scheduled for September 18th. The market is expecting the Fed to cut rates .25 - .50 basis points at this time due to the continued sub-prime mortgage concerns.
Technical Update: The December 10-Year Note is solidly in an uptrending channel. In the last newsletter, my upside target objective prior to the September 18th FOMC meeting was 110-23.0. We have hit this target level. At this point the market continues to appear overbought, but there is no sign of a reversal at this point.
December 10-Year Note becomes front month on Friday.
Near Term Trend: Higher
Long Term Trend: Higher
Support: 110-03.0, 109-14.5, 108-14.0
Resistance: 13-13.5, 114-22.0
