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THE WEEKLY RE- LAY
OVERVIEW: The predictability of this market has become a little scary as it seems to be adhering to everything the technicals and cycles anticipate. Traders were instructed to buy S&P put options, staggering them from 944.00 up to 954.50/SPZ if the market rallied into November 4-5.
The S&P bounced to 955.00 and set a high on November 5, so traders should be in these positions from a very advantageous point. The market needs to follow-through on the downside quickly if this trade is going to work.
Bond traders were stopped out of their put positions on Thursday's close with small losses.
Intermediate traders should be long gold call options from 10/17 (308--309.0/GCZ) and long silver futures from 463-467.5/SIZ– holding these with about $1,000/contract profits.
Aggressive- intermediate traders remain long January soybeans (and 725 or 750 calls) from 693-697.0 and should be holding with profits of over $2,100 per contract.
STOCK INDEXES: To repeat from last week–Despite the extreme volatility, the S&P & DJIA continue to be very predictable–a sign that consolidation remains in force. This is relative since it could be a 1500-point DJIA range and a 150-point S&P range, but it is orderly as evidenced by this past week's perfect fulfillment of the 6900-7100/DJIA price objective by October 28-30.
Don't mistake this to mean that we will not see a sharp drop back to the lows, nor that a break-out could not occur at any time. But, for now, all signs point to a large, volatile consolidation chock full of opportunity.
Other signs of this were the monthly close in the S&P which held the monthly HLS, the weekly close which held the weekly LHR and the daily close which held the daily HLS–in each of the most recent respective periods.
Dec. S&P (SPZ) DJIA Weekly Trend: Down Down Weekly Resistance: 950.55-955.00 7715//7915 Weekly Support: 910.25-912.05 7443-7460 Daily Trend: Down Down Daily Resistance: 940.30 7640 Daily Support: 922.30 7523
On a different note, the S&P tested its monthly 2nd close resistance (954.50/SPZ)–which is similar to what happened in Oct. 1987 before that 40% hiccup. By itself, this is not a sign of a looming collapse–but is a negative needing to be confirmed by a daily close below 921.10/SPZ, which would trigger my forecast for a drop to 823.60/SPZ & 6850/DJIA.
As conveyed last week: The perceived optimum scenario for the next couple weeks (the one I expect most from the current vantage point) is to see a rally into November 4-5, followed by another decline into November 17-19.
One scenario could alter this: Since both the S&P/DJIA are showing signs of early-month strength (closing above the 11/03 high more than once, and both just testing a daily HLS which held), a second rally into Nov. 17-19 could take place.
INTEREST RATES: Bonds held near-term support at 117-05 and rebounded back to the month-opening highs but could not break out. As I stated last week, I do not think that technicals and cycles warrant bonds staying at these levels for long, but I am not one to argue with the market either–since it is always right.
Dec. Bonds (USZ) Mar. Euros (EDH) Weekly Trend: UpUp Weekly Resistance: 118-23//119-02 94.22//94.24 Weekly Support: 117-08//115-08 94.12//93.99 Daily Trend: Up Up Daily Resistance: 118-13 94.20 Daily Support: 117-17 94.14
If the S&P dips and reverses higher into November 17, the bonds could see some quick selling and a sharp drop to 115-08//115-13/USZ by as early as November 14.
I still expect another rally into the end of the year and I still expect a test of 121-00 in bonds. The question remains.
November 13, 1997 Eric S. Hakik
Jeneric Trading Corporation
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