FINANCIALS
The December Treasury Bonds and December Treasury Notes are experiencing a short-covering rally overnight. After several days down, traders feel the short-term move has been over done. This current rally will be very important to the trend. Expectations are for this market to rally back at least 50% of the last break. If sellers step in a secondary lower top will be made and the market will begin to look like it’s topping. For months the treasuries have been strong because of flight to quality buying. Now that the Fed and Treasury are attempting to rescue the banking industry the budget deficit is expected to soar. This may mean higher interest rates in order to finance this debt. If the resolution to rescue the financial industry passes into law on Friday then look for the downtrend to resume. Continue to watch for short-covering for one to two days or until these markets reach retracement zones. Look to be a seller on this rally.

EQUITIES
Global equity traders are confused because of the changes in the rules. This is leading to choppy two-sided trading. Profit-takers hit this market yesterday following two days last week of unprecedented gains. Look for trading to continue on both sides of the market as no one seems to be willing to commit to either direction until trading gets back to normal. Money has been leaving the stock market and flowing into commodities. This may lead to thin trading conditions. Be careful of getting whip-sawed. Bearish traders should focus on the Nasdaq since this index has fewer financial stocks and more stocks available for shorting.

CURRENCIES
The Dollar should continue to get crushed as the activity by the Fed and the Treasury is expected to balloon the U.S. budget deficit. For safety reasons, traders are favoring all currencies but the U.S. Uncertainty and instability combined with the huge amount of shorts in the futures contracts should help rally the currencies over the short-run. There may be some profit-taking today after several days of excessive rallying, but this move should be treated as a buying opportunity. The Yen and Swiss Franc will take their direction from the stock markets. Lower stock markets mean higher Yen and Swiss. The Canadian Dollar should remain strong as long as it gets supported by higher gold and crude oil.

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