Shades of 1994? As long-time readers of these market commentaries may recall, I was screaming during the fourth quarter of 1994 that we were experiencing a buying opportunity of historic proportions, due, in part to what I viewed as the market's obsession with irrelevant external events. At that time, the events included the Orange County default(which I'd bet is now forgotten outside if Southern California), the Intel Pentium flaw, and the Barings derivatives blowup. These days we are contending with severe market plunges whenever Alan (“wrong-way”) Greenspan blusters about overvaluation or because October 1997=October 1987 + 10 years. But today's market dive provided what may be the topper, as it was precipitated by a crash in the Hong Kong market. Why a U.S. plunge? Ostensibly because the earnings of some multinationals and tech companies will be impacted by a meltdown in Southeast Asia, but I can't help but believe that there are many who feel the a U.S. market meltdown could be precipitated by events in Southeast Asia. Why else would the CBOE Volatility Index, which rises like clockwork whenever fear is in the air and panic put buying occurs, soar its highest level today since the most recent market bottom in mid-September? But fear was also in the air late last week as we approached the crash 10th anniversary, as a record number of equity puts traded on the CBOE on Friday. There is also fear evident in the fixed income markets as speculators have piled into out-of-the-money put on the March Eurodollar futures in the expectation that Greenspan will soon hike rates. But now that we have a crisis in Southeast Asia, I can't imagine Greenspan opting for a rate hike unless he were determined to destroy the world's equity markets. So we have more than our share of irrational and unfounded fears, just as we did in late 1994. The bad news is that this surely isn't a major market bottom, but the good news is that despite all of the fears and the plunges, the Dow and the S&P 100 Index (OEX) have been holding at major support levels around their 20-week moving averages. Should these support levels continue to hold, we could be at new highs very quickly on the next upleg. If support does not hold, I see maximum risk to the 7400-7500 level on the Dow before the bull market resumes.

October 23, 1997Bernie Schaeffer

Investment Research Institute, Inc.

1259 Kemper Meadow Drive, Suite 100, Cincinnati, Ohio

Financial Commentary

THE ALLENDALE ADVISORY REPORT | ASTRO-TREND | SPRING OUTLOOK
COMMODITY FUTURES FORECAST WEEKLY REPORT
THE OPTION ADVISOR
COMMITMENT OF TRADERS ANALYSIS-CURRENCY CONTRACTS
MYERS ON FUTURES | NIKKO MARKET COMMENTS | NIKKO MARKET COMMENTS
SORTING IT ALL OUT | INTEREST RATE WATCH | FINANCING AND THE “NEW” CANADA
U.S. TREASURY BOND TECHNICAL ANALYSIS
ITALY: WILL MARKET OPTIMISM BE REWARDED
SEEING THROUGH THE ILLUSIONS IN STRUCTURED FINANCE
EL NINO OUTLOOK | THE REAPER MARKET COMMENTS | WEEKLY OUTLOOK
YOU SHOULD BE FULLY INVESTED FOR THE NOVEMBER-DECEMBER-JANUARY RALLY

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