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VIEWPOINT TECHNICAL OUTLOOK
SEPTEMBER BONDS: It's a good thing we jumped aboard the bullish bandwagon as prices just missed our goal of 116.20 last week, trading to a high of 116.15 at the time of writing. As we stated last time, the contract was due for a correction to the 115.10 support level, and that correction came last Thursday. This correction could very well turn into a reversal, bringing bonds back to the daily bollinger band at 113.31. Daily momentum indicators are currently supporting this theory, as the MACD oscillator has already turned bearish and the slow stochastic indicator is poised for a bearish crossover from within overbought territory. The beginning of the week will be crucial. A break below the 115.05 support level may send us off and running to the mid-114's, possibly even the 113.31 level. While a bounce off this level could once again push us towards resistance at 116.20 and beyond. We'll stand aside, waiting to see which scenario will play out. Keep in mind that the long-term bullish trend remains fully intact.
S&P 500: The December S&P contract rolled over to the downside this week, trading to a low of 948.10 at the time of writing. An interesting pattern has developed on daily charts over the last 7-8 months. Open interest for the December contract has traded to extremely high levels, near 240,000, and then dropped sharply to approx. 180,000. The sharp drop in open interest has been followed by 128 point and 75 point increases the last two times it has occurred (late March and late June). Well, last week the same pattern arose on daily charts once again, with open interest trading from a high of 231,700 to 190,500 at the time of writing. Sticking with the trend, we are definitely bullish longer-term on the contract. However, shorter-term, daily momentum indicators are pointing towards a continued pull-back. Support lies below the market at 942.46 and 930.30. Look for these levels to cap any downside move this week.
DOLLAR/DEUTSCHEMARK: Still no rate hike, although the potential remains. Over the past couple of month's the lack of a rate hike has not stopped the contract from falling from nearly 1.9000 at its August highs, to its present lows at the 1.7500+ level. Daily charts point towards a continuation of this trend into this week. Look for support to come in at 1.7501, with secondary support at 1.7301. If dollar/Deutschemark can bounce off of primary support at 1.7501, look for a possible rebound to the 1.7900 by week s end. However, the greater risk points towards a continuation of the bearish channel which began on August 6th (1.7945- 1.7301).
DOLLAR/JAPANESE YEN: Last week's dip to the 119.33 level briefly penetrated the lower daily trendline support at 120.02. Since that time, dollar/yen has returned to its bullish channel (120.19-125.35). Again, this week's charts are pointing towards further downside risk ahead. If dollar/yen can close below the lower trendline at 120.19, look for a possible move to the 118.25/30 area. On the upside, rallies should be capped by last weeks highs at 123.06. Longer-term, momentum indicators on weekly charts are beginning to turn bearish, possibly signally an end to the nearly 4-month long bullish move.
September 25, 1997Gregory P. Fortuna
Thomson Research
22 Pittsburgh Street, Boston, Massachusetts
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