Yachtsman Trading Desks Update

Tuesday, April 1, 2008

I am hearing very mixed reactions to the broadly based 300 point Dow rally we are seeing today. Early on, the trader’s consensus centered upon the beginning of the month and the new quarter funds flowing into the institutional investors who sought to put the new money immediately to work.

But later in the morning a break above 12,500 on the Dow and the 1360 level on the S&P 500 Futures brought in more buying by the “Quant” funds and the technically driven mutual and hedge funds that are sitting on large cash positions. This in turn was the cause for some short-covering and brought in more buying. While breadth remains decent, volume could be better and the low number of new highs show just how oversold this market actually is at this point.

There remains a great deal of skepticism by most traders I speak with as to the rally’s sustainability into the end of the week and the all-important non-farm payroll number on Friday. Traders are reluctant to start new positions and are disciplined in making very small additions to positions that are not participating to the extent of the broader market.

I'm anxious to see how the S&P Futures hold into the close as they have led this rally from a gap up open this morning. The financials are leading and are the largest component of the S&P 500. Traders seeking exposure are using the S&P futures as the way to get it, but their buying into the close and the on balance buy/sell orders will be the real tale of this tape.

I'm certainly not chasing anything here and have done some small staged selling as my Disciplines require. If you have not booked some small profits here I urge you to do so. Follow through is not guaranteed but a booked profit is.

We'll keep an eye on the dollar along with the traders on the desks as it is stronger today and is being cited as the obvious factor in the commodity, oil and gold weakness.

Stay patient and don't chase. Let’s see how we close.

Yacht