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COMMODITY REVIEW AND OUTLOOK
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(December 4, 1997) STOCK INDICES: S&P 500–SHORT TERM–Weak tech stocks and profit-taking sent the indices lower after market's strong rally. We are back in the area that the market had trouble holding last time. While this market may have new highs, I still suspect that the problems that caused the selloff remain, with new and interesting ones appearing every day. Consider that the IMF would like to see Korea raise rates to the 18-20% level, and that Brazil has already raised rates to shore up their currency. Then ask what would happen if rates were raised in this country. If the rise in rates in the early 1980's taught us anything, it is that high interest rates are bearish. It's all part of the same world economy, and while I don't believe that we will be jumping out of windows, I don't see new highs as sustainable at this time.
RESISTANCE–Resistance basis December is near 977, 980-982, 991-992.
SUPPORT–Support is near 971, 968, 960, 955, 947, 941-944, 924-932.
RECOMMENDATION–Stay cautious, and if not very aggressive and well capitalized, stay out. We have moved into moment of truth territory. On the prior rallies, the S&P had difficulty in holding above the 982 level. If aggressive, traders might sell a rally to the upper 970's, low 980's with stops of 300-500 points, looking for a decline back to the mid-low 960's. Be alert for buying near 970.
M. Steven Morgan
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