DECEMBER BONDS: Our bullish outlook from last week was confirmed by December bonds, which surpassed our expectations of 119.02. At the time of writing this article, bonds had retraced from their highs at 119.18 to trade at 119.02. With a series of three days of higher highs and higher lows, we are looking for the bullish move to continue into this week. Our next target is the upper daily trendline at 120.01. The key support level lies below the market at 118.00 (both psychological support & the daily volatility band). We will buy any pull-backs towards the 118 figure. A break below this level will force us to exit all long positions and reverse our outlook to neutral/bearish.

S&P 500: The December S&P futures contract continues its tear higher, topping out at 961.83 at the time of writing. Intra-day charts are beginning to provide overbought readings, as well as hefty resistance in the 960/965 area. This should help to cap the upside for the short term, but by mid-week we may once again be at new highs. Daily and weekly charts are supporting this view. Both momentum and directional oscillators are pointing to higher prices by the end of this week. Some upside targets include 964.63, 968.49, and 972.61. Support can be found in the 933-935 area.

DOLLAR/DEUTSCHEMARK: Last week we called for a retracement of the long-term bearish trend to the 1.7391 level over the short term. We achieved this level and some, but are not yet at our medium-term objective at the 31.8% retracement level at 1.7788. This is our target for this week, with further resistance above the market at 1.7920. Also, our directional oscillators are nearing confirmation levels, which would help turn this retracement into a reversal in our minds. Look for confirmation of this on the technical front, as well as, support to hold at 1.7265 (the daily volatility band). If both of these can be obtained, we will begin to consider that a new bullish trend has been formed.

DOLLAR/JAPANESE YEN: Last week we discussed the overbought signals on the daily momentum oscillators, as well as the deterioration of the directional oscillator readings. We finally are beginning to reap the benefits of these bearish technical indicators. Price seems to have topped out at last week's high at 127.43. With momentum oscillators turned over to the bearish side and the directional oscillators pointing south, we are looking for test of the daily volatility band at 123.68 this week. Again, we are still waiting for the daily RSI readings to drop below the key 60 level to confirm this move as a trend reversal, instead of a mere retracement. At the time of this article RSI was at 60.70.

November 20, 1997Gregory P. Fortuna

Thomson Research

22 Pittsburgh Street, Boston, Massachusetts

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