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COMMODITY INSIGHT
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(November 2, 1997) FINANCIAL INSTRUMENTS: On Monday, the Dow Jones experienced its largest one-day loss in history when it dropped 551 points. The following day, the Dow experienced its largest one-day rise in history when it jumped 337 points.
What does such erratic trading mean? If you're trading stock futures, you had better be well margined. Involvement in equities is not for the feint of heart.
Since early summer, my work has been suggesting that the Dow Jones was on the verge of experiencing a 10 to 15% drop in value. Thanks to the last week's collapse, the Dow has finally met my downside objective. From the 8299 high set on August 8 to the 6971 low set on Tuesday, the Dow had dropped 16%.
From current levels, my work now suggests that breaks in the U.S. equity markets be viewed as a buying opportunity. A major low was more than likely set on Tuesday and higher prices are coming.
As a matter of fact, traders and investors need to keep in mind that stocks always follow the lead of bonds. If bonds rise high enough, stocks will follow. With those thoughts in mind, it should be noted that on Friday, T-bonds closed at their highest level since February of 1996.
Jerry F. Welch
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