Prepared by Steven R. Myers

We had a mini panic in the stock markets of the world on Thursday as the Hong Kong stock market dropped 7%. Such a panic will cause a one-day pullback in an otherwise bull market. That would be a day of opportunity. To buy on such a day may give you a trade that is forever thereafter above water and you can immediately put a stop at the breakeven point and just sit back and let it move. Let's look at how some of the markets reacted on the panic day. Most markets did dip. This is normal as there is often liquidation as people free up cash. You would have thought that such a panic day would have had people running to gold and silver for protection. The fact that there was not enough buying on that day to drive the price sharply higher is telling you something about those markets. What could help the gold market if that can't? This then means that just about anything is bearish for gold. This then means that it is a market that is very weak internally and the momentum is to the down side. This certainly showed up the day after as gold dropped nearly $10 when the S&P rallied back a meager half of what it dropped the day before. Commodity divergence is a very important way that you can rate the strength of each market against the others and the strength of the overall markets. Gold has been weaker than silver for some time and was again during this panic. This shows you which one of the group to be short.

The corn and beans have rallied overall during harvest and even before. The large crop does not scare the market. The size of the crop is evidently not large enough for the demand. There may also be an El Nino premium put into the grain prices until later next year when the extent of this weather problem is known. The markets seem to be telling us there is a new leader in the grains. The beans are normally more volatile than corn, but they were only down half as much on Thursday's panic day. The front month of beans is gaining on the back months some lately even though it is the harvest spot trading month of November. A shortage of spot beans during harvest? What will happen after the harvest selling of beans dries up after the harvest time is over? The bean meal was the grain that closed up even on that panic day. I take these divergence signals to be telling us that beans are taking the lead away from corn and that the front meal months are the strongest of the bean complex.

I know that the fundamentals in corn are quite good. They may be better than even when corn went over the $4.00 level. The carryout leftover amount of world coarse grains next year are supposed to approach the lowest ever recorded as a percentage of usage. So you see I do not think the potential in corn is low. It is just that you are best long the leader of a group. The leader is the one that is beginning to move up the best. It can also be the one that has moved up the most in the previous few months. It also helps that beans are the grain that has had the largest moves throughout history. We had an upmove of about $10 per bushel in the 1970's in beans. A big weather problem could cause an even larger move now that the whole world is becoming addicted to the use of this legume. Corn is also a main ingredient as the third world feeds more and more chickens. Does the milk come from the grocery store or the cow? I think you need both. The third world is getting used to eating better and they would rather like to continue.

It is quite interesting that corn has become strong right when the Chinese buying delegation is in the country. This may be telling us that they are buying some corn. The corn and bean harvest will soon be over. That will slow down the selling of the cash corn. I am still bullish corn. It will not go straight up to $4.00 in one jump, but this may be a good one to pyramid add to your winner as it goes up.

Yes...Natural Gas Still The Leader

Crude oil is also turning into a bull market. Watch for crude to gain momentum on the upside. Once a market becomes a leader of a group it will usually continue in that fashion. Natural gas has moved up $5,000 per contract and I expect at least that much more.

This leader is beginning to have an upward pull on all the energies. Crude oil is always worth keeping an eye upon as you move into the winter season...that can produce a big demand for energy.

The S&P is looking more and more like that large distribution rounding top over the last few months. Selling that strangle again may be a way to profit until that new trend really starts. That strangle which consists of selling an out of the money call and an out of the money put still looks like it will continue to drop from that $25,000 per level to the zero level. It has dropped about half of that already. There will be more strangles that can be written on many different commodities as time goes on. There will be more on the S&P also. Most strangles will be in markets that move slower and will thus hold much cheaper options. That is not to say that it is not worth writing $1,000 option strangles if they have a good chance of expiring worthless. You should sell the options that will expire worthless...in non trending markets and only buy options that have a good chance of doubling...in a trending market. It is true that a lot more options expire worthless than the amount of ones that jump by $5,000 in the last month of their life. You do have to be careful when writing options because the risk is theoretically unlimited even though these out of the money options will expire worthless.

October 24, 1997 Steven R. Myers

Myers On Futures Co.

P.O. Box 777, Summerfield, Florida

Financial Commentary

THE ALLENDALE ADVISORY REPORT | STRATEGY FOCUS | WEEKLY OUTLOOK
ECONOMIC PERSPECTIVE | FED STEER PRICES GOING NOWHERE FAST
U.S. ECONOMIC AND INTEREST-RATE OUTLOOK
STICKING WITH THE U.S. TREASURY MARKET | THE TODD MARKET TIMER
CASH AND BONDS-- THE RODNEY DANGERFIELDS OF FINANCIAL ASSETS?
MYERS ON FUTURES | THE COPPER JOURNAL | COMMODITY FUTURES FORECAST WEEKLY REPORT
INTEREST RATE WATCH | NIKKO MARKET COMMENTS

Consensus National Futures and Financial On Line Index

Copyright 1997, by Consensus Inc.  All American and Pan American rights Reserved. editor@consensus-inc.com

Hosted by:
One Crossroads Place
610 West Maple Ave, Suite WWW
Independence, MO 64050
(816) 252-4080
sysop@kcmo.com

wmeubank@ocp.kcmo.com