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COMMODITY REVIEW AND OUTLOOK
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(November 18, 1997) FINANCIAL INSTRUMENTS: BONDS–SHORT TERM–There has been talk circulating that Japan may sell U.S. Treasuries. There is also talk that several hedge funds were divesting themselves of bonds. Lower oil prices are also positive to bonds. Ideas of low inflation and no rate hikes are spurring buying in the bonds, sending them to new highs. There is talk that world growth may be slowing. As I mentioned in the gold article, investors want reliability and safety. What better place to weather a storm than the warm and comforting arms of Uncle Sam and his Treasury? If we experience another stock market selloff, expect the momentum to increase to the upside. Bonds have the potential for new highs by a substantial margin, so don't be complacent. If there is a serious crisis, we may begin to hear more stories of Asian nations divesting themselves of U.S. bonds, and regardless of the likelihood of such a story, these are nervous markets.
RESISTANCE–Resistance lies near the upper 118.20's, 119.28, low-mid 120.00's.
SUPPORT–December bonds have support near 118.18, 117.16, 116.31, the low 116.20's.
RECOMMENDATION–The potential is there for the bonds to trade near the 126 level. However, this market may hit some air pockets on the way up, as these are very nervous markets. Aggressive traders might buy December bonds on dips to the low 118.00's, upper 117.00's with stops of 16-32 ticks or under 117.05 or 116.14. Look or a move to 121.00 or so. Option traders might buy near the money calls for a move into the low-mid 120.00's.
M. Steven Morgan
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