PFGBEST Interest Rate Comment

CHICAGO - Feb 8/10 - SNS -- Following is the interest rate futures comment from PFGBEST Research.

Fundamentals Trump Technical Analysis

Feb 5, 2010

Thursday Feb. 4 was a great example of market fundamentals trumping technical analysis.   This is something I have seen consistently over my trading career and believe will always be the case.

After a big move down Wednesday, even the bond bulls were having trouble making their case.   One widely read commentary suggested that at the very least bonds would be under pressure during the day, testing lower support levels, with the hope that there would be a bounce in the afternoon going into Friday's employment numbers.   However, no one could predict the fundamental economic realities that kicked in Wednesday night.   Serious financial problems in Europe finally came to a point that the markets could no longer ignore.   I believe the 'straw that broke the camel's back' was Spain trying to sell 500 million in Euro bonds, but could only muster up enough buyers to take approximately 300 million and had to drop the entire issuance.  

Some will argue that technically the bonds reached a point that was a buy signal because it reached a divergence point or other type of signal.   Fair enough, but there can be no denying it was the fundamentals that turn the market on a dime and recovered ALL of Wednesday's sharp selloff, plus more today (Friday).

The UK Telegraph wrote:

'Spain has suspended an auction of sovereign bonds as investors take fright over the country's property crash and accelerating slide into economic crisis.

The treasury pulled an expected sale of 15-year bonds after probing the market informally, saying it would wait until credit conditions began to calm down. "We are not facing financing problems. We placed a successful three-year note on Wednesday," said a spokesman.'

You can get more details from other news sources, but in short the point is that as much as you might like, use and trust your technical signals, don't ignore what is going on fundamentally.   In today's financial world, this especially means on a global scale.

Check in next week for a very important follow-up point I want to make concerning the financial situation playing out in Europe and the US.

Gregory Brown

gbrown@pfgbest.com

1-800-785-6506

1-312-775-3509  

PFGBEST Research Team

Phone: 800-361-6855 or 319-553-2181

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