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MYERS ON FUTURES
Prepared by Steven R. Myers
Bond Bull Move Update
This market has moved higher as we get more low inflation reports. New highs are always confirmation of a bull market. This market moves in $500 or $1,000 spurts. Every one of the last $1,000 upmoves as it moved from 115 to 120 was a further confirmation of this bull move. Bull markets get higher as time goes on. You go long bull markets if your intention is to go with the trend and to make money. This is the opposite of what the traders buying gold in that downtrend could expect. Rookie traders buy downtrends, but they had better learn better real quick. Silver has proved that markets in the same group can move independently. You have to go by the chart trends because which fundamental that will have the most affect on any one commodity will change. It is deflation that is pushing the price of gold to the downside. The rate of inflation fundamental means less in silver right now than does the basic law of supply and demand. I expect the long silver/short gold spread to go another $5,000!
Bonds Confirm Deflation
And Maybe Depression?
Continued deflation can spell deflation and interest rates near zero. It has not even moved that far in the crashing Asian countries yet, but that is the direction they are going. This spells a big bull market for bonds even if we just get a slowing economy. A real worldwide turn to deflation would spell an upside explosion in bonds. This means that a long position in bonds should make a nice profit or a huge profit. It may be wise to try for that nice profit while waiting on the possibility of a huge profit. A market has to have a small uptrend before it can have a huge and extended uptrend. This is an uptrend right now, but not a runaway uptrend. Try to position some long positions in the futures or options. Use the size of stops that fit your risk tolerance.
Divergences Spell Huge Moves!
A divergence is a move away from the norm and what is expected. The price of silver starting to move the opposite of gold was a divergence. The bonds and dollar both moving higher over the last month is a divergence. Lower interest rates should mean less demand for the dollar, but that is not what is happening. There is some other fundamental that is having a larger affect. Economic changes usually last for a long time. This is why the financial futures can trend for years. The point here is to expect a continuation in this new trend higher in both the bonds and the dollar. The dollar appears to be the safe haven of the world. The dollar has to break out over 100 and then 102 before it can really take off. I do not think it will go as high as 150 like it once did before, but we do not need a $ 50,000 move to be worthwhile. Consider a long position in the dollar. Using the right stop protection and money management can be especially tricky in volatile markets. Do extra what if planning, but do be long the dollar and bonds if possible.
Other Commodity Fallout!
Deflation will spell downtrends for more than half of the markets. These down trends will go lower than you would expect. The grains will be one example if the weather is also perfect. One exception may be the front month of beans to fulfill the tight bean demand before the new-crop Brazil beans can be harvested in April. I am especially bearish the new-crop November beans which should move under $6.00. The November beans appear $1.00 too high, but the January beans appear priced about right. This means that there is the possibility for the bull spread to move nicely with only a little bullish news for January beans. I may be premature on this one. This spread was slow last year until mid-January when the new year farmers bean selling was over. There will be a fight this year between a tight spot supply problem and possible deflation. Beans could move a buck either way. This means go with the trend, but be very, very careful with this one. This one may move south until after the first of the year.
There Will Be Nice Uptrends
And Downtrends In 1998!
Wheat is one market that appears to be going to show us how low a market can go when both supply and demand is bearish! Consider a short here. Cocoa is one market that is perking up unexpectedly. Cocoa may be a divergence from the rest of the deflation commodity downtrends. Divergence markets can have more potential than most expect.
Go With The Trends In 1998!
There just may be more downtrends of significant size than normal. Some of the significant uptrends may be bonds, silver, Dollar Index, and cocoa.
December 12, 1997 Steven R. Myers
Myers On Futures Co.
P.O. Box 777, Summerfield, Florida
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