wmeubank@ocp.kcmo.com
VIEWPOINT TECHNICAL OUTLOOK
DECEMBER BONDS: Bonds are on the move higher once again. At the time of this writing, bonds were yet to take out resistance at the 118.00 level. However, they were back on the bullish track, supported by strong momentum oscillator readings. Near term, look for bonds to take out resistance in the 118.13/16 area, trading to the upper volatility band at 118.27/30. If bonds can trade through this area as well, which is quite unlikely, the next major resistance stands at the upper daily trendline at 119.19.
S&P 500: The S&P Index looks like its in for a rough go of it this week. The determining factor for us was the failure to close above major resistance at 944.43 last week. These failed upside breakouts should lead to oversold prices in the early part of this week, which could result in a trade back down to the breakout level at 914.62. Also providing support to our bearish outlook is roll-over on the daily RSI indicator. This too failed to break above critical resistance at the 60 level, further confirmation that the upside move to 949.62 most likely was just a correction in the new downtrend.
U.S. DOLLAR/DEUTSCHEMARK: U.S.$/DM appears poised for a slight retracement of its huge downward push since its highs were reached in the beginning of August. Some of the daily momentum indicators are deep within oversold territory, while others have already turned bullish. This suggests that a bounce is soon to follow, possibly to the daily volatility band at 1.7483. This is our near-term target for this week. Resistance at 1.7433 will have to be taken out along the way, which may be no small order. Longer-term, if the reversal gains strength look for the 31.8% retracement at 1.7788 as the next upside target.
U.S. DOLLAR/JAPANESE YEN: A few weeks ago we discussed that the ADX reading on weekly U.S.$/JY charts were at their lowest levels since February 1994. We predicted that this would eventually result in a major move in U.S.$/JY. We also pointed out that the last time ADX readings were that low was during the first week of July 1996, which marked the beginning of the nearly year-long move from a low of 108.70 in July 96 to a high of 127.47 in April 97. Well, ADX readings have fallen even further since that article. The indicator now lies just above the critical 15 figure, at 16.71. At the same time U.S.$/JY has moved from a low of 120.21 to a high of 123.48. If ADX begins to turn upwards from here, and U.S.$/JY pushes higher, our direction may just be determined. If this turns out to be the case, not only will the 127.47 high be taken out, but we could obtain levels not seen since the early 90's. Our advice, keep a close eye on that indicator!
November 6, 1997Gregory P. Fortuna
Thomson Research
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