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THE REAPER
P.O. Box 84901, Phoenix, Arizona
(November 25, 1997) STOCK INDICES: The Dow Jones Industrials have completed an ABC corrective rally toward 8,000 resistance. The Dow needs to hold above 7,250 support to be bullish. Likewise, December S&P faltered amid over- bought technical and psychological conditions at 975, a level that must be cleared for December S&P to turn bullish. A weak close by December S&P below 900 should be seen as bearish. Until then, it's no man's land. Resistance for the Dow Jones Transports is at 3,200- 3,300, with support at 3,000-3,100. As expected, the Dow Jones Utilities have accelerated up, broken out to new highs, moving up with the December T-bond contract, only the utilities are stronger. There could be a greater financial meltdown in Japan. The December Nikkei Dow has already slumped to 15,000. If 14,000 is broken, a panic and collapse could occur. The Japanese Yen is already in retreat, too, with strong support between .70-.78. Will we have a Christmas/year-end rally? Certainly, the monetary ease on the part of the Fed, as well as declining interest rates, are supporting the stock market, as is consumer confidence via money flowing into mutual funds, although decreased somewhat. Eight-six cents of every dollar Americans have put into stock market mutual funds since 1936 have gone into the stock market since January 1, 1991. Thus, a normal correction in the U.S. stock market could take back 80% of the money put in since 1991. Only one in 12 small investors made any significant changes during the October 23-28 stock market crash. Careful.
RECOMMENDATION–Of the 10% of the long-term Investor's Portfolio that is invested in speculative stocks, utilities continue to perform the best. Also investing 10% in blue chip mining stocks on weakness such as Barrick Franco-Nevada and Euro-Nevada. are worthy of consideration. Investors who have hedged against a general bear market in stocks, hold a 10% position in the Rydex Ursa Fund as discussed in the long-term Investor's Portfolio. Cautious and speculative investor's who have hedged stocks by purchasing and holding LEAP puts on the S&P, such as the December 1998 55 and 65 puts–hold. High-risk speculator's who have purchased put options in the March 1998 S&P futures contract–hold.
R.E. McMaster, Jr.
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