Prepared by Steven R. Myers

This new downtrend in the S&P is looking more and more like the bear market that everybody used to be waiting for. The public is now convinced that it is a bull market and they are waiting for a dip to buy. The public has very good hindsight and very poor foresight and no imagination. It is true that you can make just as much going down as going up. You have to go with the current trend for as long as it goes. You cannot say you will buy next Friday or whenever. The market will move to its own agenda and nobody else's. It is a new bearish signal on how the S&P reacts to the bonds, The S&P used to soar if bonds moved slightly higher. The S&P can now barely be positive on a strong up day in the bonds. This means that hardly anything can help the S&P at the moment. There is a selling wave in motion. It is hard to tell how long it can last. It is a fact that the S&P will often have some real weak spells in the fall. October can have some real sinking spells. Be aware that the trends and reversals are happening a lot faster than the last couple years since everybody is computerized.

I do not know if the current downtrend will be the big one or not. Nobody knows that, but it is safer to go with the trend and let it go as far as it wants to without it hurting you. It is better to be completely on the sidelines or even short as long as the trend is to the down side. I want to caution you to consider yourself the most vulnerable when you feel the most safe. People have told you and you now believe it–that you should always be loaded up with stocks no matter what and you will come out in the long run. That is exactly how investors felt in real estate, gold, oil, and every other long-term run up...at the end of it. The warning signs are there, but you are now conditioned to ignore them. Please do not!

Most markets take some time to turn up after a bottom. They will have to rise and fall while making slightly higher and higher highs and lows while they slowly build momentum. That is what the cocoa and sugar markets are doing now. It can plainly be seen if you look at the long-term weekly and monthly charts. You will have some medium- size runs that could make a little profit while you are long and waiting for the big breakout to come. That is a good way to position yourself. The surprises usually agree with and extend the long-term trends.

There are different ways to play the long-term trends. You can buy some call options so you can limit your risk and be able to forget about them for a while. The other way is to go long the futures and try to trail up a stop as the market moves for you. One advantage in the futures is that market profits can be used to self-finance more positions as the market moves for you. It is much harder to pyramid add to your position with options.

Watch the bull spreads to signal the big run-up. These are gaining at the moment in the cocoa market, but they are starting from a negative position. The sugar market is showing a slight weakening just ahead...if the spreads are showing anything at all. The bull spreads have to go above even money to be good indicators.

August 15, 1997 Steven R. Myers

Myers On Futures Co.

P.O. Box 777, Summerfield, Florida

Consensus National Futures and Financial On Line Index
Financial Commentary Index

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