Prepared by Phil Tiger

The CRB Index continues choppy. The Index broke briefly above resistance at 246 on October 3rd and then fell back but remains near that level. The Index continues to display potential up trend development. The area of CRB: 236 to 242 should now provide support but a sustained up trend would require substantial price work above the 246 level and particularly a move above 252. A seasonal low for the CRB Index in the October-November time frame would not be unusual but confirmation is needed.

Grains and oilseeds had turned strong but are choppy once again. Harvest is virtually complete for soybeans while corn is half way there and should be finished soon.

The 1998 corn carry out is estimated by the USDA (October 10th) at 781 million bushels. This is a positive number for corn. The 1998 old-crop/new crop spreads have firmed. Recent lows are expected to hold. The nearby December/May corn spread is still holding near 15 cents May premium but further gains for the back spread appear limited. Stand aside. The old-crop May/new-crop December '98 corn spread had slipped from near 20 cents May premium (August 25th) to near 1 cent May premium (September 30th) but is now holding near 10 cents May premium. Stand aside for now but consider the long May/short December corn spread on a break back to near 4 cents May premium. A 4-cent stop is suggested with 15 to 20 cents May premium the objective. Note however, that a major move in favor of the old-crop May (or July) corn is unlikely before the second quarter of 1998.

Wheat/corn spreads had turned in favor of corn but are now stabilizing. The December relationship dropped as low as 77 cents wheat premium before uncovering some support (now near 80 cents wheat premium). The seasonal tendency is for wheat to gain on corn into November but it appears to have peaked early this year. The next trade to look for in these relationships is to buy July corn/sell July wheat on 4th-quarter strength. Keep an eye out for a further wheat rally but stand aside for now.

Intra-delivery wheat spreads remain weak. The December/May wheat spread had dropped to near 22 cents May premium where some support was evident. While carrying charges will inhibit further gains for the back spreads, the forward spreads appear to have at best, limited potential. The 1998 old-crop May/new-crop July wheat spread is trading near a weak 1-cent July premium. Stand aside.

Intermarket wheat spreads are steady, though off their best levels. The trend is still positive for December Kansas City versus Chicago wheat and remains positive for Minneapolis versus Chicago wheat as well. The December Minneapolis/Chicago wheat spread had set back 10 cents from the contract high of 37 cents Minneapolis (October 6th) premium. The December K.C./Chicago wheat spread is steady near 11 cents K.C. premium–only 2 cents off the highs. Stand aside in both K.C. and Minneapolis versus Chicago wheat spreads for now as they appear to be rather rich.

The soybean complex turned sharply higher October 3rd and has appreciated dynamically. The overall trend is now up but somewhat overbought. The 1998 carryout estimate (per the October 10th USDA report) is at an adequate 270 million bushels but that number could become smaller if demand continues at a pace ahead of a year ago. Harvest is virtually complete. The November forward soybean spreads remain barely steady. The long November/short March soybeans from September 15th at 9 cents March premium is in liquidation as this is written. A nominal 5-cent loss is assumed on the stop at 14 cents March premium hit on the close on October 22nd. Stand aside. The January/July bean spread had slipped to near 23 cents July premium and remains near that level. Little if any strength for the spread is expected. Next year's old- crop July/new-crop November '98 soybean spread had firmed from near 17 cents July premium to a six-week high of 33 cents July but has slipped back to near 28 cents July premium. Some further easiness is expected for the spread. Stand aside in old-crop/new-crop bean spreads for now.

Nearby crush values are easier with values for December near 69 cents, January near 64 cents, and March near 54 cents. Soy oil product values are steady with October through March between 35% and 36.5% with the nearer months weakest. Soy oil spreads are barely steady and little changed. The December/May soy oil spread is steady near 55 points May premium. Hold the long May/short December '98 oil spread from 10/8 at 20 points December premium. A nominal 20-point risk is assumed with a 30-point or greater May premium the objective.

Soybean meal spreads had firmed on the bean rally but have slipped back to support. The January/May meal spread had rallied to near 650 points January premium following the low near 300 points January set on October 6th but is now back to 300 points January. Stand aside for now but begin watching the March/July meal spread for a potential seasonal back spreading opportunity on strength within the next 90 days (currently near $1 July premium).

The January soybean meal/soy oil spread had rallied to highs near $8,300 meal premium (contract value) but has settled back to near $7,000 meal. Those long January meal/short soy oil should hold with the stop at $6,500 meal. Otherwise, stand aside.

Meats and meat spreads remain mixed. The December/February cattle spread has firmed to 2-month highs near 165 points February premium. Hold long December/short February cattle spread (initiated at 275 points February premium on September 2nd) with the nominal stop raised to point of entry and the objective at 100 points February premium. The February/April cattle spread continues weak but is now to a level (375 points April premium) where support is expected. Also begin watching the June/October '98 cattle spread for a seasonal low in the period just ahead (currently near 270 points October premium–an historically low level). Be alert for a recommendation in the forward spread in the period just ahead.

Cattle/hog spreads continue to favor cattle. The December cattle/hog spread is generating new contract highs at 690 points cattle premium (October 22nd). Stand aside at current levels but favor long cattle/short hogs on sharp breaks.

Hog spreads continue to ease. The December/February hog spread has highs near 180 points December premium but has dropped to new contract lows near 90 points February premium (October 21st). Stand aside here as well. Continue to watch the April/July hog spread (currently near 570 points July premium with a high near 125 points July) for a back-spreading opportunity. This is the most reliable of the hog spreads and can be expected to decline to 500 to 700 points July premium. Be prepared to initiate the back spread on a rally to near 200 points July premium.

The February belly/hog spread has rallied to 230 points bellies premium. Hogs are favored seasonally into the new year but historically, a belly premium of at least 600 points is desirable for initiation of a long February hog/short belly spread. Stand aside for now.

December T- bonds remain mixed with values above support (112 to 113-16/32nds) and below resistance (116-118). The December MOB spread broke to new recent lows near 120/32nds Muni's premium and continues with a weak tone. A resumption of strength for the MOB is expected but the current technical picture is negative.

Aggressive traders who were long December Muni's/short T-bonds from near 135/32nds Muni's premium were stopped out near point of entry. Stand aside for now.

The December NOB spread broke to new (recent) lows on 10/7 near 197/32nds T-bonds premium but has bounced back to near 165/32nds T-bonds premium. Hold the long December 10-year note/short T-bond spread (NOB) from 175/32nds T-bonds premium (September 24th). A nominal stop of 24/32nds is being used with the first objective at 128/32nds T-bonds and smaller T-bond premiums possible.

The December TED spread remained firm with values up to new recent highs of 95 points T-bills premium (10/21) but broke sharply on 10/22. A significant move in the TED spread is not likely without a measurable change in short-term interest rates. Those long December Eurodollars/short T-bills should hold with a stop at 96 T-bills. The objective is a move to below 72 points T- bills premium. Also keep an eye on the December '97/December '98 (calendar) Eurodollar spread (currently near 35 points premium the nearby). Those who established the forward spread near 30 points premium the nearby should hold with the stop raised to 28 points premium the nearby. A move to 40-50 points premium the December '97 Eurodollar is anticipated.

The December S&P 500/Value Line spread found support near 5,500 points S&P premium after favoring the Value Line for nearly 2 months. The lows were set on September 15th near 5,600 points S&P premium. The overall trend has recently shifted back to the S&P with values now near 7,200 points S&P premium. The temptation is to buy the December Value Line/sell the December S&P on a further rally to levels near 10,000 points S&P premium for a move of 4,000 points in favor of the Value Line. Note that this is a high risk trade.

Currency spreads (crosses) remain choppy. The December Japanese Yen/Deutschemark spread had slipped to 5-month lows near 2,530 points J-yen premium (October 7th) but is now trying to turn in favor of the yen. Support is evident near the lows. The trend, which had been favoring the D-mark is turning in favor of the J-yen. Aggressive traders should consider long December J-yen/short D-mark (or Swiss Franc) on a break to near 2,650 points J-yen premium.

The December J-yen/Swiss Franc spread has a similar pattern to the J-yen/D-mark spread. Recent (5-month) lows near 1,280 points J-yen premium have uncovered support. A shift in favor of the yen is expected. Consider long J-yen/short Swiss Franc on a break to support.

The December Swiss Franc/D- mark spread has slipped to new (recent) lows in the vicinity of 1,150 points Swiss premium. The Swiss Franc has approximately a 20% premium over the D-mark at these levels. A Swiss premium above 20% is historically high. Entry into the long D-mark/short Swiss Franc December cross will be considered if a rally can extend to near 1,300 points SF premium (currently near 1,160 Swiss Franc premium). Longer term, the D-mark should be favored.

Precious metals are barely steady with silver running neck and neck with gold. The December gold/silver ratio has slipped to new lows near 64 (a 9- year low) but has found support at that level. The spot ratio is expected to favor gold over the longer term with 80-85 the objective.

The October platinum/gold spread is easing and back near $98 platinum premium. Watch the April relationship (currently near $90 platinum premium) for a potential long platinum/short gold spread on a break to near $80 platinum premium.

Copper and copper spreads are barely steady. Seasonals point to a low in the October- December period. The December/May copper spread set a new low near 75 points May premium on September 16th but has bounced back to a December premium. Aggressive traders should consider the back spread: long May/short December copper near 100 points December premium. Use a nominal 100-point stop with the objective at 100 to 200 points May premium. Continue to watch the May/December '98 copper spread for a potential seasonal low within the next 60-90 days and a forward spreading opportunity at a December premium (currently near 100 points May premium).

New York softs remain mixed. Coffee is two sided. The December/May coffee spread found support at 1,600 points December premium but then broke to new 4- month lows near 1,320 May. The overall trend has turned down again. Aggressive traders who were long December/short May coffee from near 1,650 points December premium were stopped out near 1,650 points May premium for no gain. Stand aside for now though the bias is still to look for a place to initiate the forward spread for a play into the December demand season. The December/March coffee spread is similar but with smaller numbers. Those long December/short March coffee from near 1,100 points December premium were also stopped out at point of entry. Watch for a reentry opportunity.

Cocoa and cocoa spreads appeared to have bottomed but have weakened once again. The December/May cocoa spread has slipped again to near $60 May premium where it remains. Stand aside for now but keep an eye on the '98 cocoa spreads for a potential forward spreading opportunity.

Sugar and sugar spreads remain weak. The fundamental outlook remains negative. The March/October '98 sugar spread set new lows near 7 points October premium on September 25th. The spread has bounced back to resistance above 25 points March premium and remains within that range. Stand aside for now but consider the back spread on further strength.

Stand aside in the lumber spreads for now.

December cotton has bounced above the contract lows (October 70th at 70 80). The spreads are weak. Orders to buy December/sell March cotton have been canceled as the market structure is quite weak and time is growing short. Stand aside in the cotton spreads.

The long March/short July FCOJ spread was established on October 20th at 600 points July premium. The spread should favor March into the new year and especially from current levels where carrying charges act to limit the risk. A nominal 200-point stop is suggested with 400 July to even money as the objective.

The entire energy complex rallied on Middle East tensions and then rolled over. The petroleum complex has stabilized while natural gas has displayed renewed strength. Weather has been seasonal, supplies adequate, and there has been nothing to disrupt the flow of energy into the marketplace. Nearby petroleum complex spreads had rallied sharply into the first week of October but have all set back. The long December/short March heating oil spread had slipped to near 50 points March premium but is back near even money as this is written. December/March heating oil and unleaded gasoline spreads are back to the middle of their ranges while the December/March natural gas spread is generating new highs near 850 points December premium. Crude oil spreads have weakened with the December/March crude spread setting new recent lows (October 20th) at 5 points January premium.

Hold the long December heating oil/short unleaded gasoline spread from 150 points heating oil premium (May 15th). The spread has rallied more than 200 points off the lows of 179 points unleaded gas premium (September 2nd) but has done little in the past few weeks and remains near 50 points gasoline premium where the revised stop is in jeopardy. The spread will be liquidated on near-term strength as fundamental considerations appear to be negative in spite of the seasonal tendency to favor heating oil.

Hold long January heating oil/short unleaded gasoline spread from 80 points heating oil premium (August 20th). The spread had been holding near point-of- entry but has also slipped to just above the revised nominal stop at even money. 500 points or more heating oil premium remains as the objective but the stop is near at hand.

October 27, 1997Phil Tiger

Tiger On Spreads

P.O. Box 64401, Chicago, Illinois

Spread Trading
The Spread Trader
Tiger On Spreads
Consensus National Futures and Financial On Line Index

Added to the WWW 10-31-97
Last updated on 10-31-97

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

wmeubank@ocp.kcmo.com