Prepared by Steven R. Myers

There is a lot of deflationary pressure and excess capacity pressure that is bearish for the S&P. Deflation is imported into this country by 30% cheaper goods to compete against when the foreign currencies are devalued by 30%. They can sell their goods 30% cheaper than us and make money. They can devalue their currency and not have inflation if their real estate prices are dropping sharply. This is a one world economy. So you can see that deflation is not necessarily bullish for our economy or the S&P! A little was until it went off the cliff. This affect also coincides with the public believing that the stock market will always go up. There is never an always in the markets. I know that a trader is about to get hurt big time when he uses the word always when describing any market trend. You need to prepare for the unexpected or it will eventually get you. You may luck out the first time. That will only set you up to try to ride out all the upcoming dips. The public has been conditioned to ride out all dips in the S&P. The public is right in the last upleg of the larger bull markets. They are wrong most of the time. They will be wrong to a larger degree once they have been right for a while.

Market volatility usually comes at the end of a large upmove. We are now getting some volatility in the S&P. This tells me that the new trend in the S&P is down. The normal bear market grinds lower for months or years. It does not drop all the way in one day.

Bonds are moving up because of the flight to quality. Another reason is that they are yielding 6% while the rate is under 2% in Japan. That is too much of a difference as we become a one world economy. Money can be moved around too easily. A couple of the largest and smartest traders are said to be moving a large amount of money into bonds. George Soros and Warren Buffett did not become billionaires by doing the wrong thing or by following the crowd. Another thing they are said to be doing is to be going long the yen and short the dollar because of this new interest rate realignments.

These new trends they like can also be played by you and me. Large trends are not over in a week! That is long bonds, long yen, short S&P, and the dollar. It is very interesting that the deflation affect is more bearish for gold than the panic affect is bullish. Trends trend and gold has been trending lower for some time. The market has been telling you what the direction of least resistance is for gold. Buying gold was the thing to do in the last war, not this war. The downtrend in copper the last few months has also been an economic indicator for the coming state of the world economy.

There is an old saying that stocks and commodities move inversely. That means that a downtrending S&P will cause more people to look at other investments. The stock market is teaching people that larger risk does come when you have a larger potential. People used to think a 10% return was high in the stock market. They are now conditioned to look for more. Some will go back to their safe 4% cd's. Other people will look across the board. The economies of the third world will actually grow faster at our expense in the long run. The drop of their currencies will allow them to grab a much larger share of the world's exports. This means that they will have the jobs and money to be able to eat better.

There will continue to be one or two super star performers each year in the commodity markets. You do not know which one it will be. Your job is to go with the strongest trends no matter what the name is at the top of the chart. You will cut your chances of success if you ignore some of the commodity groups. That $50,000 upmove next year may be in the yen or coffee. You will have no chance of getting it if you refuse to even consider those two markets...whatever those two markets may be.

Hogs have had a seasonal downtrend in October. It is normal for hogs to put in a seasonal bottom in the fall. We already have the first signs of strength. You can use a 72% conversion factor to get a close idea of how the new lean hog contract relays to the cash hog market. 72% of the lean hog contract trading at 70 cents would equate to cash hogs at $50.40. It is not out of the question to see cash hogs at 50 cents per pound. It is a nice move up to the 70-cent level in the lean hog contract. The funds are said to have been short a huge amount of hogs going into the fall low. It should exert a great upward pressure on the futures if they have to get out in a hurry when the cash hogs rally toward the $50 level. Consider buying hog calls or the futures. Discuss your defense with your broker. Always have a plan of defense along with your plan of attack. How much should you lose before you decide you are wrong? How much should you give back after you have a profit? Many people risk too much at both times! Your first objective should be how little you can lose and only then how much you can make!

October 31, 1997Steven R. Myers

Myers On Futures, Co.

P.O. Box 777, Summerfield, Florida

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

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