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IRA EPSTEIN & COMPANY
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(November 11, 1997) STOCK INDEXES: THE S&P 500 STOCKS INDEX–The December S&P contract is trading today, Tuesday, near the critical support level of 926.20 which I define as the bottom of its previous bull channel. If the market closes below this number today, I see the next support zone at the 912.00 level.
Looking closely at the daily price chart, it appears that a head and shoulders formation may be forming. This is often associated with a topping formation, often seen when markets are getting ready to change trends.
The financial markets such as the 30-year T-bonds are not trading today due to the Veterans' Day Holiday. However on Wednesday normal trading will take place and bond traders will be watching the FOMC meeting for news of an interest rate hike. Some analysts feel that the meeting will be a “non-event,” with the Federal Reserve Board refraining from raising rates because of the economic turmoil in Asia. These same analysts think that the stock market has already factored in the “no-rate hike” scenario.
On the flip side, many traders still view the U.S. market as a safe haven and remain nervous because of uncertainty about the emerging markets in the Far East and Asia.
I would recommend looking for selling opportunities in the December S&P contract. The momentum studies are negative and stochastics are turning down. Therefore, one could look to sell the market on further weakness. I think an appropriate strategy would be a bearish position with the use of put options on the S&P or the Dow Jones futures.
Also, remember that the size of the big S&P contract has been split in two and each point is now worth $250.00.
Bob Gulley
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