wmeubank@ocp.kcmo.com
FISHBACK MANAGEMENT & RESEARCH
P.O. Box 23798, Lexington, Kentucky
(November 13, 1997) FINANCIAL INSTRUMENTS: MARCH BOND FUTURES–Our bond market model remains bullish. While bullish, there are certain situations that are deteriorating. Interest rate trends are mixed. Long-term rates are falling across the globe. But short-term rates are flat from previous levels. In the U.S., rates have climbed to the point where they are only 1 basis point below the level one quarter ago. This configuration means that the market is pushing rates lower, but that the Fed is not acting to lower rates. Meanwhile, the yield curve is bullish. But the latest week's action is a definite warning shot. The rate on the 13-week T-bill is 5.16, which is the same rate as that of the 26-week bill. That is almost an inverted yield curve, which would be very bearish. Gold price action is as bullish as it can be, at least for bonds. The gold stock index (XAU) is collapsing. That means inflation expectations are just about dead. Sentiment on the bond market is in “no man's land.” The net of all this is that our market timing composite is bullish for now. We will, however, have to remain vigilant to any further deterioration in our indicators.
RECOMMENDATION: Sell the January 114 put and buy the January 112 put for a minimum credit of 13/64 or better. If you can't enter the trade by Tuesday's close, cancel your order and wait until further instructions.
Donald M. Fishback
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