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COMMODITY REVIEW AND OUTLOOK
195 Route 6A, Suite 6, Orleans, Massachusetts
(November 18, 1997) STOCK INDICES: S&P 500–SHORT TERM–Dealer selling emerged this week at the same time as tech stocks were beginning to erode. There was also talk that arbitrage sell programs kicked in. The firm tone to bonds was also cited as a reason for the selloff. I am not making this up. Has anybody ever seen a commercial wherein the investment house is not bullish on America? I have been in this business since 1974, and have yet to see someone say that selling, not buying stock was a good idea. Asia remains on the minds of index traders. If the problems in the Middle East should escalate, I suspect traders could kiss the prospect of new highs goodbye. A disruption in the flow of oil and commerce would be very unwelcome. The selloff may not be over, so traders should stay cautious. If you throw a rock in a pool, ripples spread. Latin America and Brazil may be joining the Asians in the prospect of a serious stock market selloff and currency weakness. Moody's changed its outlook for Hong Kong banks from stable to negative. This will discourage international investment capital from looking for bargains in Hong Kong, and may exacerbate the problems. Higher interest rates could also increase the cost of doing business in Brazil, leading to a slowdown, and therefore more selling. In any event, now we are reaching areas where the sellers have low-risk trades.
RESISTANCE–Resistance basis December is near 952, 956, 960-962, 965-970.
SUPPORT–Support is near 941-944, 924-932, 871-869, 862-860, 851, 846, 835, 830, 821-818, 801.
RECOMMENDATION–Stay cautious, and if not very aggressive and well capitalized, stay out. Aggressive traders might look for rallies to the 948-956 area as a selling area, with stops of 200-300 points or over 962 or 965. Look for a break back to the mid 920's-mid 930's, although the very low 940's may offer support. Use stops or trade options. Later this week we have options expirations, which may encourage buying. If aggressive, buy the mid-low 930's with 300-500 point stops, looking for a test of the 950's.
M. Steven Morgan
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