Prepared by The Hightower Report

As we approached the month of October traders can expect all kinds of comparisons to great stock market crashes of the past. The most recent mini-crash of 1987 was significant, but it has almost become commonplace that any sizable break in October is thought to be the “big one.” The current fundamental condition of the stock market remains very solid with the main problems being concerns of an earnings decline associated with the contrived slowing of the economy and potentially bearish currency impacts. As of late September the U.S. stock market was beginning to see competition from foreign stock markets which is made even more critical by an environment of “high yield expectations.” Since the worlds' fund managers have given the public such huge rates of return during this bull market they must continue that pace or risk losing capital to those who have caught the hottest market. Therefore in the months ahead we expect any U.S. Dollar trend change to be very significant. Already charts that depict U.S. financial market in terms of other currencies show just how expensive these instruments are in the eyes of the rest of the world. While current conditions warrant a continuation of strong performance in the U.S. we have to wonder how much further relationships in the currency can stretch before the conditions themselves evoke change! We think the emergence of the German economy and the excessively strong dollar are clear signs that the multi-year bull market in stocks is at least in the closing stages. In the best case scenario we think stocks manage an extended consolidation or sideways trade while the worst case might be a correction like was seen in May through July of 1996 or in the correction seen from February to April of 1997. The mentioned corrections in 1996 and 1997 were on a magnitude 602 and 755 Dow points!

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September 24, 1997The Hightower Report

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