Prepared by Ira Epstein & Company

The stock market appears to be as resilient as ever and inflation is allegedly at bay. I believe these factors should keep downward pressure on the gold market.

Platinum, on the other hand, looks technically strong. The recent test of the $400 price level has shown good support.

The spread between gold and platinum has traded in a $50 range since September 1st.

Buying January platinum and selling December gold as a spread has great potential; but, caution is advised due to the volatility. Two (2) contracts of platinum (50 ounces) are required to equal one (1) gold (100 ounces) in terms of size; also this 1:2 ratio affords the lowest margin requirement ($1500 initial margin). An approximate risk factor of about $12 is recommended.

At the slightest hint of concern about the equities markets, cliches like “flight to quality” begin rumbling throughout the investment community. I believe the best way to take advantage of such tumultuous conditions is the TED (long T-bill; short Eurodollar) spread.

The TED involves buying U.S. Treasury bills and selling Eurodollars. The TED spread is a spread position of 90- day interest rate instruments guaranteed by the U.S. Treasury versus Eurodollars that are not guaranteed. This is considered to be a quality spread. When quality concerns increase, regardless of the cause or justification, conservative investors shift funds to investments perceived as being safer. Therefore, the T-bills should always carry a premium over the Eurodollars. Margins on this particular spread are $225. I recommend entry at current market levels, and suggest using a stop of 12 points ($300) or greater.

LONG DECEMBER COTTON/

SHORT MAY COTTON

After testing and holding support levels at 72.00 cents, the cotton market now appears to be stalled. Some traders attribute this stall to the Spark's forecast of 90.7 million bales (versus the USDA's estimate of 89.9 million bales) for the total crop. Others attribute Levi Strauss' closing of 11 plants as being overall bearish for the entire cotton industry.

Based on my previous recommendation, I suggest raising the stop on current positions to 180 points premium to May contracts. Special notice should be given to the overhead resistance at 160 (160 points premium to May). When the December cotton price is less than 150 points I recommend entry using a 50- point stop.

November 4, 1997Paul Kocelko

Ira Epstein & Company

223 West Jackson, 7th Floor, Chicago, Illinois

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