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COMMODITY INSIGHT
152 Ennis Lake Road, Ennis, Montana
(November 9, 1997) STOCK INDICES: After the blood bath that the Dow Jones has taken over the past 3 weeks, it is easy to feel convinced that rallies in equities should be viewed as a selling opportunity. Especially if one is also following the Asian equity markets that are in greater peril than ours.
But I am not so certain that sharp rallies in the Dow should be sold, at least at current levels. By current levels, I am referring to a Dow of 7500 to 7600 and an S&P futures market of 931.00, give or take a bit.
Keep in mind that I have been calling for 10% to 15% break in the Dow since last spring. The current break, thus far has been 16%. For all intents and purposes the Dow has met my objective, for the time being.
What bothers me about selling the Dow or the S&P is the debt markets. If Treasury bond prices continue to rise as they have been doing since early August, it is going to be difficult to keep the equity markets depressed. The higher bond prices rise, the more violent the rally in equities could be. This past Friday for instance, the bond market ended the week at its second highest level since the first few months of 1996. If bond prices can rise much above the 118-20 level, equities could fly.
At this time, I see little to do in either stocks or bonds.
Jerry F. Welch
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