Prepared by Ira Epstein & Company

Packer demand has been and continues to be light going into the Thanksgiving Day holiday. In my opinion the next area of concern appears to be the threat of possible snow storms in the Plains later this week. Any serious accumulation might disrupt deliveries, thus causing a run up in price. On a technical note, price has held above the 40-day moving average. Prices have not been able to penetrate the October lows to the downside. All this gives credence to the possibility of higher prices.

I continue to recommend the spread of long December versus short April cattle at the market, using a 150-point stop. Current initial margin required is about $375.

After reviewing the CFTC's Commitment of Traders report I believe that now is the time to start looking at the cotton market. Specifically, I suggest initiating a bull spread (long March/short October) at current market levels. My reasoning for this is two fold. First, I feel the overall long positions outnumber the short positions by a ratio of almost 7:1. Secondly, having withstood the typical barrage of selling throughout the harvest, I think the March contract appears to show good price support at $3.50 discount to the October. I believe that buying March cotton, and selling October cotton at current levels requires a risk of about 80 points ($400) and current initial margin required for this position is approximately $500.

At the slightest hint of concern about the equities markets, cliches like “flight to quality” begin rumbling throughout the investment community. I believe the best way to take advantage of such tumultuous conditions is the TED (long T-bill/short Eurodollar) spread.

The TED involves buying U.S. Treasury bills and selling Eurodollars. The TED spread is a spread position of 90-day interest rate instruments guaranteed by the U.S. Treasury versus Eurodollars that are not guaranteed. This is considered to be a quality spread. When quality concerns increase, regardless of the cause or justification, conservative investors shift funds to investments perceived as being safer. Therefore, the T-bills should always carry a premium over the Eurodollars. Margins on this particular spread are $225. I recommend entry at current market levels, and suggest using a stop of 12 points ($300) or greater.

November 24, 1997Paul Kocelko

Ira Epstein & Company

223 West Jackson, 7th Floor, Chicago, Illinois

OPTIONS

Spread Trading
Tiger On Spreads
Consensus National Futures and Financial On Line Index

Added to the WWW 11-28-97
Last updated on 11-28-97

Hosted by:
One Crossroads Place
610 West Maple Ave, Suite WWW
Independence, MO 64050
(816) 252-4080
sysop@kcmo.com

wmeubank@ocp.kcmo.com