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COMMODITY REVIEW AND OUTLOOK
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(October 29, 1997) STOCK INDICES: S&P 500–SHORT TERM–While this rally is fun, I still have to wonder if there are more problems. If Hong Kong rallies, will Asian investors buy? Or sell? The talk that the U.S. economy is in good shape is right as far as it goes. Unfortunately, it may not go far enough. Do you know anyone with a Honda, a Sony, or for that matter a computer or TV? What about Asian banks and securities companies? What if Asian paychecks stop coming? Do the workers go back to the farm or on the dole, as they did in the U.S. in the 1930's? Hong Kong was the first big chip to fall, but I suspect the problems are more widespread than that. The Asian selling of gold may have been a tip off that the problems are serious and will not go away quickly. The break in the Hong Kong market may be the most negative occurrence we've seen in some time, as it is hard on the heels of a currency crisis in Southeast Asia. Most of the traders I've talked to over the last year seemed to be of the opinion that the stock market top would be put in by action in this country. Why? We have all the marbles. And this 15-year bull market was led by growth in world trade. Now we may see a contraction, as foreign consumers and end users have to deal with a market that is not always going up. Instead of profit, debt could become an issue. This could be a serious break, as Japan has also had problems, and it is difficult to say for sure just how stable some of the “Tiger” nations really are. Don't forget, just a few years ago they were featured as emerging markets, and with that territory can also come problems. If Hong Kong, Tokyo and Singapore all have problems, chances are that it could become a problem elsewhere also. When a market is over, the weakest fall first and furthest. The bulls, who were once very aggressive and bought into the declines, are now becoming spooked, and quickly sell the rallies. This is a market that has acted toppy for some time. There may be some difficult choices ahead for all parties.
RESISTANCE–Resistance basis December is near 927-930, 941-944, 952, 956, 960-962, 965-970.
SUPPORT–Support is near 871-869, 862-860, 851, 846, 835, 830, 821-818, 801-794.
M. Steven Morgan
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