Prepared by Ira Epstein & Company
DEUTSCHEMARK/JAPANESE YEN
Recent economic events, namely the possibility of an interest rate hike in Germany coupled with trade surpluses in Japan, suggest to me that traders should be buying D-marks and selling Japanese Yen.
Technically, this spread has widened from a 2300 point difference to about 3400 points in a span of 12 weeks. In the last four weeks alone the spread has gained 600 points. I recommend opening this position by buying December D-marks at a discount of 2700 points or greater to the December Japanese Yen. Use a stop of 80 points or greater from your point of entry.
THE TED SPREAD
The TED involves buying U.S. Treasury bills and selling Eurodollars. The TED spread is a spread position of 90-day interest rate instruments guaranteed by the U.S. Treasury versus Eurodollars that are not guaranteed. This is considered to be a quality spread. When quality concerns increase, regardless of the cause or justification, conservative investors will shift funds to investments perceived as being safer. Therefore, the T-bills should always carry a premium over the Eurodollars. Margins on this particular spread are $225. I recommend entry here, using a stop of 10 points or ($250).
As long as the stock market continues to enjoy record growth, and inflation stays allegedly at bay, I believe that the gold market will continue in its sideways price pattern.
Platinum, on the other hand, technically looks very strong. The mere fact that supplies are tight and demand keeps increasing, this market looks primed for a major breakout . Although the price has gone up $100 since spring the next technical object appears to be the $500 level.
The spread between gold and platinum has gained $100 over a period of 6 months. Buying January platinum and selling December gold as a spread has great potential; but, caution is advised due to the volatility. Two (2) contracts of platinum (50 oz.) are required to equal one (1) contract of gold (100 oz.)in terms of contract size. This 1:2 ratio also affords the lowest margin requirement ($1500 initial margin). An approximate risk factor of about $12 is recommended.
LONG DECEMBER CATTLE/SHORT DECEMBER HOGS
On a seasonal basis, the market posture of December hog futures appears bearish to me. In my experience a solid close above the 64.25-cent level is needed to give this market a bullish bias.
In the live cattle market I believe the reverse to be true, that is the 4th quarter is when prices tend to firm. I think this a prudent time to consider purchasing December cattle and selling December hogs. Use a minimum of a 150-point stop.
LONG DECEMBER VERSUS SHORT MARCH CORN
Although the harvest is putting downward pressure on the market, foreign demand coupled with domestic buying leads me to believe that this is an excellent time to initiate new trades. “Bull spreading,” buying the front month (December) and selling the back month (March), using a 4- to 5-cent stop, makes this in my opinion a good trade recommendation.
September 30, 1997
Ira Epstein & Company
223 West Jackson, 7th Floor, Chicago, Illinois
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