This spread moves in very close correlation with outright market direction because the Swiss Franc usually is more volatile than the D-mark as prices travel either up or down. Indeed, the spread's action for several months has illustrated this point very well. For instance, the spread was at a 1500-point premium Swiss Franc last October when the Swiss was at 8200 and the D-mark at 6700. As outright prices have fallen"the Swiss Franc hitting a low near 6880 and the D-mark falling to 5900"the Swiss Franc premium narrowed to 880 points. A subsequent rally sent the Swiss Franc premium to back to about 1000.

Because the spread's recent low was near the lower end of the historical range, we recommend buying June Swiss Franc and selling June D-mark below 900 points Swiss Franc premium. We expect the premium to expand once again to at least 1000 points. We would risk 50 points from entry.

Cotton spreads have been extremely weak this year. As an example, the recently-expired March contract fell to the full carrying charge of about 200 points under May; the current front-month May delivery has been weak against the July as well.

The July delivery, which is the last old-crop contract, seems to fail every time it attains a premium of between 50-100 points over the new-crop October. In addition, July could fall close to the full carry of 300 points under October because supplies appear adequate to meet both foreign and domestic demand. We recommend buying October and selling July on a rally back to the 50- to 100-point resistance level premium July. We look for July to decline at least 250 points against October. Risk 125 points from entry.

LONG OCTOBER/SHORT DECEMBER CATTLE
At 205 points premium December, with an objective of 100 points
October premium, risking to 365 points premium December.
LONG 2 MARCH S&P 640 PUTS/SHORT 2 APRIL S&P 650 PUTS
At 30 points credit, collected twice, with an objective of zero, risking to the market at 650.
LONG MAY/SHORT JULY PORK BELLIES
At 5 points premium July, with an objective of 200 points premium May, risking to 105 points premium July.

LONG 2 MARCH S&P 550 PUTS/
SHORT 2 MARCH S&P 600 PUTS
At 25 points credit, collected twice, expired worthless for a total profit of 50 points before commission.
LONG 2 MARCH S&P 575 PUTS/
SHORT 2 MARCH S&P 650 PUTS
At 25 points credit, collected twice, expired worthless for a total profit of 50 points before commission.

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Last updated on 04-18-97

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