wmeubank@ocp.kcmo.com
COMMODITY REVIEW AND OUTLOOK
195 Route 6A, Suite 6, Orleans, Massachusetts
(November 6, 1997) STOCK INDICES: S&P 500–SHORT TERM–If the stock market should suddenly lose cabin pressure, oxygen masks will drop out of the ceiling. Stay calm. Over the past week, I've read “What, me worry?” and the buyers on the break referred to as geniuses. I didn't know it was that easy. Profit-taking is weighing on the rally in the stock market. Dealers are said to have been sellers on the way up. I have a number of traders calling me asking about crude, due to the saber rattling between the U.S. and Iraq. No one has asked me if it is bearish to the stock market. I suspect that the huffing and puffing is probably no more than that, but it doesn't really pay to anticipate Saddam.
However, it adds a negative background note to the action. The selloff may not be over, and traders should stay cautious. If you throw a rock in a pool, ripples spread. Latin America and Brazil may be joining the Asians in the prospect of a serious stock market selloff and currency weakness. Moody's changed its outlook for Hong Kong banks from stable to negative. This will discourage international investment capital from looking for bargains in Hong Kong, and may exacerbate the problems. The move by Brazil to raise rates encouraged worried investors. It remains to be seen if that is the correct response. Perhaps they should be worried. Higher rates could also increase the cost of doing business in Brazil, leading to a slowdown, and therefore more selling. In any event, now we are reaching areas where the sellers have low risk trades. Pay attention to rallies from recent levels in the event of more selling.
RESISTANCE–Resistance basis December is near 952, 956, 960-962, 965-970.
SUPPORT–Support is near 941-944, 924-932, 871-869, 862-860, 851, 846, 835, 830, 821-818, 801.
RECOMMENDATION–Stay cautious, and if not very aggressive and well capitalized, stay out. Aggressive traders might look for rallies to the 948-956 area as a selling area, with stops of 200-300 points or over 962 or 965. Look for a break back to the 924-932 area, although the very low 940's may offer support. Use stops or trade options.
M. Steven Morgan
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