SEPTEMBER BONDS: Last week's price action was strong enough to sway us back to the side of the bulls. At the time of writing this, the September contract was trading back above key short-term support at 113.08. Resistance levels we're looking towards this week are the 50% Fibo retracement level of the August 1st to August 13th move at 114.15 and the 62% level of that same move at 115.02. Our favorable outlook for this week is backed by several momentum indicators, including a bullish crossover on daily stochastics from well within oversold territory. However, a break back below support in the 113.00/03 area would signal another near-term reversal, thus resulting in a possible probe of the 112.08 level.

S&P 500: The S&P contract did in fact suffer a near-term reversal last week, pulling back all the way to the 916.00 level. Short term, we are looking for strong support from the lower daily bollinger band at 915.54. However if this support can be taken out to the downside, a test of long-term support at 883.67 (June outlier low and 38% retracement of the April 13th to August 7th move) is possible. As the September S&P contract has crossed below the 21-day moving average and the daily bollinger band has taken on a negative slope to it, we favor a continuation of the bearish move. But we must preface this by pointing out the excellent support the lower daily bollinger band has provided since the end of April 1997.

DOLLAR/DEUTSCHEMARK: Dollar/Deutschemark narrowly avoided an extremely bearish signal last Thursday, closing above key support at 1.8630 (daily downtrend). The close at 1.8395 kept dollar/Deutschemark in the lower half of its daily bollinger band, yet just above the upper weekly bollinger band. The 1.8377 (weekly upper band) is a key technical level, which if dollar/Deutschemark should close below it, could lead to large loss this week. In this scenario, a probe of support at 1.8175 (50% retracement of 7/12-August 6 move) and even a probe of the 1.8000 figure, is certainly possible. Our outlook remains neutral/bearish, looking to sell rallies this week.

DOLLAR/JAPANESE YEN: Dollar/Japanese Yen holds a slightly brighter outlook than dollar/Deutschemark for this week. Last Thursday's close below the weekly bollinger band at 118.35 provided a bearish signal heading into this week. Look for support at 116.70 (converging daily exp moving averages) and longer-term support at 114.00. The 114.25 outside low for the week ending August 8th and the rejection of RSI at the 60 level, both combine to confirm the bearish outlook for dollar/Japanese Yen. Last week's price action did not indicate a breakout to the upside, rather it was simply a test of resistance, which held. We expect dollar/Japanese Yen to continue that failure into this week.

August 14, 1997 Gregory P. Fortuna

Thomson Research

Consensus National Futures and Financial On Line Index
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