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US$ gains vs. Swiss Franc

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Earlier this morning, we thought it a short-term positive that we were seeing some selling in Treasury Bonds as YIELDS there were higher. However, we noted that the December Swiss Franc Futures (sf01z) were strong vs. the US$ and some money may have been rotating back out of the U.S., but not at an alarming rate. In the past hour, we've seen a reversal in fortunes for the Swiss Franc as the US$ is not posting gains there. This may now set up the scenario for a bullish move in stocks.

Swiss Franc Dec. 2001 futures - last nine months

This is perhaps the "most exciting" thing I've seen take place today. With selling in Treasury bonds, we had to be monitoring foreign currencies earlier this morning. The US$ was weak against most major currencies, but now that is starting to change. There may have been some speculator this morning bidding up Swiss Fran futures with the thought that US/Britain forces bombing strategic locations in Afghanistan could be unsettling. However, the action that is beginning to unfold in the US$/Swiss Franc doesn't depict that type of market psychology. While the Franc did rally this morning, it did not get above our 80.9% retracement level of 0.6226. It came close at 0.622, but perhaps some institutional money saw that rally as an opportunity to sell some strength, with the thought that things here in the U.S. were beginning to stabilize.

Now equity bulls have some hope. They see some selling in bonds (across all major maturities) and get the feeling there's some cash being raised. Where's that cash going? Right now, it doesn't look like it is being converted to foreign denominated currencies. It could be going into corporate bonds here in the U.S., but it could also find its way into stocks.

Looking for the Biotechs

I'm sticking with my earlier observations from September 21st and 24th that the Biotech Index (BTK.X) is the place to be looking for strength. This group seemed to make the preemptive move higher before the NASDAQ Composite (COMPX) found gains two days later. The BTK.X has been showing some gains today of 2%, but just can't make a sustained move at this point. I view the breaking of yesterday's high to the upside as a form of leadership, but it is tentative at best. Representative stocks in the group I'm looking for leadership from are Amgen (NASDAQ:AMGN), Biogen (NASDAQ:BGEN) and Idec Pharmaceutical (NASDAQ:IDPH).

Jeff Bailey
Senior Market Technician
Option Investor

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