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Stocks rallied early and bonds sank on Tuesday on expectation that the release of GDP today would show a better than consensus number. The peculiarity of trade accounting mandates that GDP will be revised higher due to declining imports, which actually indicate economic ebbing.

Stocks tried to conform to the pattern of rallying into FOMC soirees. This suggests a reversal today after the Communiqué is released – unless it contains unexpected bullish news…Because bonds are tanking, we wonder if the Fed will announce an increase in its $300B monetization plan. It would please Bill Gross.

The window for stocks to rally is closing. The most bullish seasonal, the propensity of stocks to rally from November 1 to April 30 (particularly small caps and tech), ends on Thursday. The short-term upward seasonal bias (end-of-month & start-of-month) ends on Friday.

Technical indicators on stocks and major indices are negative or rolling over because the momentum of the rally that commenced in mid-March has dissipated and volume remains soft…Banks, abetted by FASB accounting changes and other facilities, are issuing beaucoup securities. The Treasury is issuing like crazy and the May refunding looms…Insider selling is exploding.

fed-monettize

30-year bond continuous future – The Fed better have a scheme to remedy this dire looking chart.

More for today – GDP (-4.7% is consensus but the market expects a sharply higher revision) will impact early trading. As usual, traders will have a knee-jerk reaction to the headline number. But one must scrutinize the details of the report to gauge ‘real’ activity…Analysts expect a sharp upward revision due to lower imports, which actually indicates economic weakness…Government spending should be a factor.

Category: Think Tank

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