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COMMODITY REVIEW AND OUTLOOK
195 Route 6A, Suite 6, Orleans, Massachusetts
(December 4, 1997) FINANCIAL INSTRUMENTS: BONDS–SHORT TERM–Bonds are still in a coma. Directionless trade, with the idea that the prospect of Asian selling of U.S. bonds receding into the past. I find it interesting that bonds are able to hold their own with their minuscule yield when the stock market is such a good deal. Perhaps the bonds are unconvinced. The fact that stocks remain high is encouraging a certain amount of flight to quality buying even now. The problems in Asian markets may continue to add support to the bond market, with aggressive buying by dealers of mortgage-backed securities also supportive. Lower oil prices are also positive to bonds. Deflation is beginning to be talked about in the pits and by traders and analysts, which is also suggested by the erosion of the CRB Index chart. There is talk that world growth may be slowing. As I mentioned before, 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.
RESISTANCE–Resistance lies near 119.28, low-mid 120.00's.
SUPPORT–December bonds have support near the upper 118.20's, 118.18, 117.16, 116.31.
RECOMMENDATION–Bonds have the potential 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 mid-upper 118.00's with stops of 16-32 ticks or under 118.16. Look for 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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