Agora Outlook

Publisher Ken Davidson                                                                                                                  Fax 250-860-2051
e-mail davidson@silk.net                                                                                                      www.agoraoutlook.com

                                                               June Expiration                                                               June 11th 1999

Davidson’s View

This week the market really began to slide after Japan reported that its economy grew a much stronger than expected 1.9% during the first 3 months of the year. The rise in GDP was led by domestic components, capital spending and consumer spending, which increases the likelihood that the growth was not just a one quarter affair. The sharp GDP rise also raises the risks of a global reflation occurring and increases the chances of a Fed rate hike. The Consumer Price Index is out next week but Thursday's report from Japan has magnified the risk of a Fed move, even if the Consumer Price index report comes in weaker than expected.

The news from of Japan was that its economy grew at a very robust pace. The health of that nation is critical to the high valuations that currently exist in our equity markets. We have been the consumer of last resort. It is simply not possible for us to buy everything the world produces; we need other economies to be able to compete on both the production as well as the consumption side. Therefore, the news out of Japan has to be encouraging but bad for our markets. The Japanese markets rallied nearly 3% on the news. It's hopeful that the strength appearing in Japan will earn the respect of international investors and attract some foreign capital. I suspect that money will slowly begin to find its way from our fixed-income markets into theirs. This was evident Thursday and Friday as our bond market tanked.

An important factor for the stock market is that the 30-year bond is now sitting right on its long-term upper trend line that was started in late 1994. If this line is broken there is a possibility that 30-year interest rates could move to over 7.00%. This would be horrific for stocks. It could also mean that more money would move to Japanese markets. The key numbers that traders will now be focusing on are the Consumer Price Index (CPI). This number is important because last month it came in well above expectation and a strong report this month would certainly heighten speculation for a rate hike. This could cause the market to slide, but with all of the discounting this past week, the market may just put off any real selling until after the Fed is finished meeting on the 29th & 30th. We also have triple witch expiration on Friday. That alone is enough to keep everyone confused, so moves in either direction should be short lived with some strong volatility. 

Technically

At this point, the S&P 500 has made a 62% retracement of the uptrend that started in March 1999. This has been deeper than the kind of pull back we would expect if the market was still strong. However, the market did get a bit overdone to the upside in terms of its movement. Over the past three years, the SPX has breached the 20-week exponential moving average less than half a dozen times, and until the market closes below the Weekly20EMA, we will give the market time to show us what it wants to do.

This week has revealed a very oversold market short term and almost oversold on a daily basis. The Mclellan Oscillator is now quite oversold so a bounce could come at anytime. However, the summation index has now definitely moved to the downside. The 5-day Arms isn't even close to the buy zone yet as it is staying around the 1.00 area. The 5-day Arms index will need to go above 6.00 for a cycle low. The 10-day ARMS index is in worse shape than the 5-day being only nine ticks from an overbought position. This indicates that a very few amount of stocks are trying to hold up the market

Market sentiment this week according to the Put/Call ratio has risen but is still indicating the market is overbought. Short Interest is rising, but not high enough to indicate that there should be a rally in the market. It does look like the ratio of Bulls/Bulls + Bears by Investor’s Intelligence’s are reflecting investors getting worried however which is a good sign. For now it looks like the market is stuck at the all time high of 1375.98 and the recent low of 1277.31. We will watch this decline to see how far it goes and will be watching for signs of failure along the way. Resistance overhead is at 1327, 1350.50, 1367 and 1375. Support is at 1277, 1260 and 1220.

Mclellan Oscillator: -86 -100 oversold +100 overbought
Summation Index: +1127

Five day arms: .95 .80 and below, overbought 1.00 and above, oversold
Ten day arms: .89 .80 and below, overbought 1.00 and above, oversold

Bulls: 58.3 previous week 61.6 50% plus overbought/bearish
Bears: 28.7 previous week 27.7 50% plus oversold /bullish
Correction: 13.0 previous week 10.7

Five day Qvix: 24.84

 

Economic Effects

Tuesday

Productivity in the nonfarm business sector slowed to a 3.5% annual pace in the first quarter of the year, revising its first estimate of 4% growth in productivity. Unit labor costs rose at a 0.7% annual rate, a large upward revision from the 0.3% estimated a month ago. Productivity measures output per hour worked, while unit labor costs measure the cost of labor per unit of output.

The financial markets rarely react to the productivity numbers, largely because they swing wildly from quarter to quarter and partly because economists aren't sure how accurately they measure one of the most important (and elusive) concepts in the economy. In the long run, productivity growth is the only way living standards can rise. The economy has been enjoying a long, gentle increase in productivity that many attribute to the contributions of high technologies such as computers, the Internet and quick and cheap communications.

A month ago, Federal Reserve Chairman Alan Greenspan warned that the boom in productivity could end at any time, thus setting off an inflationary spiral. The first quarter numbers do not show an alarming drop in productivity or a disturbing increase in unit labor costs. In 1998, productivity grew 2.2%, nearly double the 1.2% recorded in 1997. In the fourth quarter of 1998, productivity grew 4.3% and unit labor costs fell 0.4%. In the first quarter, output rose at a 4.4% rate while hours worked increased 0.9%. Unit non-labor costs (largely materials and capital) rose 1.9% after falling 1.4% in all of 1998 as commodity prices plunged.

The picture was better in manufacturing. Economists believe they have a better handle on measuring productivity in manufacturing than in services, where the idea of "output" is hard to register. In manufacturing, productivity rose at a 6.2% pace as output rose 1.6% and hours worked fell 4.4%. Unit labor costs in manufacturing fell 1.1%.  U.S. businesses stocked their shelves at a brisk pace in April, while sales by wholesalers rose to a new record in a report indicating consumer spending still strong.   Total inventories rose 0.2% in April to a seasonally adjusted $288.96 billion after a rise of 0.2% in March. The March data was revised down from an initially reported 0.3%.

Total wholesale sales were a seasonally adjusted record $221.87 billion, marginally up from $221.80 billion in March, which was the previous record. The inventory to sales ratio, which measures how long it would take to deplete stocks totally at the current sales pace, remained steady at 1.3 month’s worth.

The report suggested that consumer spending, which has been a major factor in the current expansion, now in its ninth year, continued unabated in April. The report said inventories of drugs rose 5.3% to $17.13 billion, up from $16.27 billion in March. Elsewhere inventories of other products saw modest gains and declines. Strong gains were seen in wholesale sales of petroleum products, which rose 7.5% to $13.58 billion compared to $12.63 billion in March. Wholesale sales of automotive products rose 3.2% to $20.83 billion in April compared to $20.19 billion the previous month. Sales of apparel dropped 8.4% to $7.19 billion compared to $7.84 billion in March while sales of professional equipment such as computers fell 2.9% to $21.58 billion.

Thursday

The number of first-time applications for state unemployment benefits rose for the third consecutive week, jumping by 14,000 in the Memorial Day holiday-shortened week. Initial jobless claims rose to 323,000 in the week ended June 5, compared to an upwardly revised 309,000 for the prior week. It was the highest level of claims since 358,000 in the Jan. 9 week. Fresh claims in the week ended May 29 had originally been reported at 305,000.

Weekly jobless claims, which Wall Street analysts had forecast at 307,000 in the latest week, have been hovering near the 300,000 mark since early this year, a level consistent with a robust labor market. A Labor Department spokeswoman said it was not unusual to see a ``bump up'' in the level of claims in a Memorial Day holiday-shortened week.

The four-week average, viewed as a more accurate indicator of longer-term labor conditions, also rose for the third consecutive week, climbing to 308,250 in the week ended June 5, up from 305,250 a week earlier.   

Import prices rose for a third straight month in May, led by a continuing increase in petroleum costs. Import prices rose 0.7% last month after a revised 1.0% increase in April that was previously reported as up 0.8%. Export prices were unchanged in May.

Petroleum import prices rose 8.0% in May after a 19.4% surge in April. May was the third straight month that petroleum import prices have seen sharp increases. But excluding volatile petroleum costs, May import prices were up only 0.1%, after falling 0.2% in April.

Inflation sensitive bond prices declined slightly after the figures were released. Traders said the report added to the negative sentiment on inflation. Imports of automotive products had slight price gains last month, but prices of imported capital goods and consumer goods other than autos fell. The biggest gain in import prices was industrial supplies and materials, which rose 2.8% in May after a 4.6% jump in April. Prices of foods, feeds and beverages also rose 0.7% in May after a 0.5% gain in April. The department also said export prices were unchanged in May after rising a revised 0.3% in April. Previously April export prices were reported as up 0.2%.

The biggest gains in May export prices were in foods, feeds and beverages, which rose 0.7% after a 1.0% rise in April, and in industrial supplies and materials, which were up 0.5 percent following a 0.3% rise the prior month. Export prices of automotive vehicles and parts rose 0.2% in May, while agricultural and nonagricultural commodities both were up only 0.1%. But the costs of exported capital goods and consumer goods other than autos fell in May, Labor said.

Friday

Wholesale prices rose modestly in May, settling back from a spike in April when an energy price surge sparked fears of inflation. The Producer Price Index (PPI) whichmeasures prices paid to the nation's factories, farms and refineries, rose 0.2% last month after a 0.5% gain in April. Excluding volatile food and energy costs, the core PPI was up only 0.1% in each of April and May. In the first five months of this year, the core PPI has barely budged, down 0.2% in January, up 0.1% in February and flat in March.

The May numbers were in line with economists' expectations. They had anticipated most price increases for finished energy products stemming from an agreement in March among oil exporting countries to curb production. For today, the PPI is in line with expectations and a non-event. The government is scheduled to issue its more intensely watched Consumer Price Index, seen as a better measure of inflation trends, next Wednesday.

Analysts expect the Federal Reserve who next meet to consider interest rate strategy on June 29-30, will weigh May's CPI performance heavily in deciding whether or not to nudge borrowing costs up to keep price pressures in check. Bonds fell after the May wholesale prices report was issued along with a stronger than expected report on May retail sales from the Commerce Department. Prices later recovered to trade slightly below their level from the time before the two reports were published.

The energy component of the monthly PPI was unchanged in May following a 5.1% jump in April. After shooting up a record 29.1% in April, gasoline prices fell 2.7% last month. Food costs rose last month, though, with the wholesale gauge's food component climbing 0.5% following a 0.9% April drop. The department said pork prices increased 8.3% in May while fresh fruit prices were up 12% from April. Despite the favorable performance of overall producer prices last month, there were hints of potential problems down the road.

The crude goods component of the index climbed 5.5% in May, the biggest monthly pickup in around 2-1/2 years since a 6.1% increase in December 1996 as prices for crude oil, natural gas and crude petroleum all jumped. Crude goods prices were up only 1.3 % in April. These warnings signals will likely keep financial markets in some apprehension about the Fed's intentions.

Sales at retail stores posted a solid gain in May, indicating that consumer demand remains robust and doing nothing to allay fears that interest rates could go up soon to cool off the economy. Retail sales rose 1.0% to a seasonally adjusted $242.2 billion, led by strong gains in auto sales. That compared to a revised 0.4% increase in April, previously reported as a 0.1% gain.

The overall increase was above the expectations of analysts who had forecast a 0.8% gain in a Reuters poll. For the 12 months ending in May, retail sales rose a hefty 7.8%. Financial markets reacted cautiously to the report, which many analysts read as increasing the odds of an increase in key interest rates later this month. Inflation sensitive bond prices fell immediately after the report, but then recovered along with the stockmarket futures.  Solid consumer demand has been the driving force behind the more than eight-year old expansion in the economy, helping it to weather almost two years of global economic turmoil prompted by Asia's financial crisis with barely a scratch.

Next Week’s Economic Indicators

This week will give of the most important indicators of the entire year. On Monday we get Business Inventories. The market will likely ignore this indicator, as it is a backward looking indicator. If, however, inventories are building, this may give the market an excuse to rally. On Wednesday we get the Consumer Price Index. The market has been waiting for this number for two weeks. If this number shows a big increase in inflation, look out below, as the market will sell strongly! This is one of the most important indicators for Allan Greenspan, so whatever this number reveals he will consider seriously. Many analysts are placing the result of this number on if there will be an interest rate increase by the Fed when they meet at the end of the month. This past week the market sold off, discounting the number, so if we remain flat going into Wednesday we could see a rally after the release. We also get Housing Starts, Industrial Production and the Beige Book. Housing starts have been slipping a bit so if this continues the market will likely be happy. Industrial Production numbers are also normally important but this month they’ll be ignored unless they help to confirm the CPI number by revealing that workers are not being productive enough in comparison to what it takes to produce merchandise and services. The beige book will likely be completely ignored, as everyone already knows that the Fed is in a tightening bias now. On Thursday we get Jobless Claims, and Trade Deficit Figures. If there is another record trade deficit the market could start to react to it. Remember 1987? After the crash, the most important indicator for the market was the trade deficit. Last month we saw another record deficit and the market moved higher on the news. The only difference between now and then was that back then we had both a trade deficit and a budget deficit and right now we have a trade deficit and a budget surplus. No matter what, though, the market cannot ignore this news and eventually will sell off it continues to be a bad number. Something to watch...

MARKET CLOSES

Index

Last Week

This Week

Change

Percent

Dow Jones

10799.84

10490.51

-309.33

2.9

S&P 500

1327.71

1293.67

-34.04

2.6

S&P 500 Futures Sept.

1330.50

1308.50

-22.00

1.6

S&P 100

672.37

654.86

-17.51

2.6

Nasdaq

2477.96

2448.12

-29.84

1.2

Russell 2000

442.33

438.02

-4.31

0.9

30-Year bond

5.96%

6.15%

Program Trades

Although the market sold off all week, our trades are all still looking great going into expiration. The only problem this month is that we haven’t been able to get into many Call trades for Spreads. Premiums have also been very tight so there haven’t been any really good Short Spreads or Outright Sells worth going for. Flat summer markets like this are not that great for getting all of our trades in but the good thing is that we’re still looking at another profitable month! All trades are indicating a strong 96% probability of success going into expiration next week.

Current Trades

**Trades listed below are all for the current expiration cycle unless otherwise noted. Fill prices are averaged out as reports come in by subscribers being filled.**

Average Entry price

   

Weekly

 
   

Bid

Ask

last

         
 

S&P 500 Cash Trades:

     

1415 sold Call $3.00

Long Trade

0

.50

.25

1425 bought Call $2.25

$.75 Credit spread

0

.50

.13

         

1225 sold Puts $9.00

Long Trade

1.50

2.00

2.00

1215bought Put $8.12

$.88 Credit spread

1.06

1.54

1.75

         

1200 sold Puts $8.00

Ultra Trade

.63

1.00

.88

1195 bought Put $7.50

$.50 Credit spread

.63

1.13

.56

         

S&P 100 CashTrades:

         

630 sold OEX Puts $8.00

Long trade

1.68

1.88

1.83

625bought OEX Puts $7.00

$1.00 credit spread.

1.25

1.32

1.32

         

720 sold OEX Call $1.25

Long trade

0

.06

.06

730 bought OEX Calls $.75

$.50 credit spread

0

.06

.06

         

600 sold Puts $3.13

Ultra Trade

.32

.50

.32

590 bought Puts $2.50

$.63 credit spread

.25

.32

.32

         
 

S&P 500 Options Feb. Futures Trades

     
   

Hi

Low

Close

Sold 1225 Put average $8.00

Long Trade

2.50

.80

1.80

Bought 1215 Put average $7.00

$1.00 credit spread

N/t

N/t

1.40

         

Sold 1200 Put $7.00

Ultra Trade

1.20

.60

.90

Bought 1190 Put $6.25

$.75 credit spread

.90

.40

.60

         

 

Copyright 1998. All rights reserved. The information contained in the AGORA OUTLOOK NEWSLETTER is based upon data that is believed to be accurate, but is not guaranteed, and subject to change without notice. All projections, forecasts, opinions, and track records cannot be guaranteed to equal our past performance. Persons reading this newsletter are responsible for their actions. Officers and employees of this publication may at times have a position in the securities mentioned, or related services.

Agora Outlook

Publisher Ken Davidson                                                                                                                       Fax 250-860-2051
e-mail davidson@silk.net                                                                                                             www.agoraoutlook.com

                                                                           June Expiration                                                         June 4th 1999

This week seemed to have the "fundamentalists" of the market bumping up against the "technicalalists" of the market. (I know that’s not a real word but it sounds pretty good) Technicians are screaming that because the market has held above critical break points it should now rally to another all time high. I was surprised to hear this considering how pathetic volume has been all week and very few stocks have moved the market up.

We’re now into a gap period for the market having made it through the "fundamental" employment report and we won’t be getting another important economic indicator out until next Fridays Producer price Index. More importantly, the Federal Reserve may raise the "fundamental" interest rates as early as June 29-30, during the Fed’s next meeting. This only gives the "technicalists" an opening for a few days to move out of an oversold market.

Interest rate jitters will probably reappear before next Friday as the 30-year bond’s hint of higher interest rates should hold back the market’s upward path. It is very close to 6.00%. Besides that, a rally in technology is crucial if the market is to go higher since it does not look as if the bank stocks are going to be in on the action for a while. It appears that the resignation of Fed. Vice Chair Alice Rivlin has been having an impact on these stocks and bonds. Does she know something we ought to know?

The Federal Reserve is in an interesting position. The dollar is going through the roof versus almost every currency, especially the Euro, so if they do raise rates the dollar will go even higher, creating an even higher trade deficit which we know can cause very unhealthy markets. (eg; Crash of 1987, but that’s another story!) Thursday's plunge in the Euro and the sharp rise in t-bill rates go hand in hand. That is especially bad when you realize it may cause even more dollars to move to foreign shores.

As we move into trading next week it looks like the "technical traders" will be in charge at first but something tells me that with all of the "fundamental problems" out there, any rally attempt is going to be short lived no matter how good the rebound has been!

Technically

With the market rallying this week it has put it itself into an interesting position. Although daily indicators are just coming out of an oversold position, stochastics, momentum, relative strength and hourly indicators are quite overbought. This is being confirmed by the five-day arms index being in an almost overbought situation. The indicator may become overbought quickly once again as there have been very few stocks moving the market and closing tick readings this week were once again over +900 and Friday’s number was +1134 indicating short term tops. From a longer standpoint, the bull/bear indicator of market newsletter writers is becoming extremely tilted to the bullish side indicating a top in the market. It is a contrary indicator. With the volatility index continuing to move lower, any correction that does occur will likely be short lived so we may just be moving into a wider band of consolidation for the market for a few more weeks until there can be a deeply oversold condition created.

Mclellan Oscillator: -7 -100 oversold +100 overbought
Summation Index: +1312

Five day arms: .84 .80 and below, overbought 1.00 and above, oversold
Ten day arms: 1.07 .80 and below, overbought 1.00 and above, oversold

Bulls: 61.6 previous week 60.7 50% plus overbought/bearish
Bears: 27.7 previous week 28.6 50% plus oversold /bullish
Correction: 10.7 previous week 10.7

Five day Qvix: 26.30

Economic Effects

Tuesday
A bullish reading on the nation's manufacturing sector heightened fears that the Federal Reserve will be pushed to raise interest rates. The National Association of Purchasing Management (NAPM) reported its index of manufacturing activity in May rose to 55.2 from a 52.8 level in April. Economists had expected a reading of 53.4.
This is a bearish number for the bond market and does heighten the risk of a Federal Reserve rate hike sooner rather than later. The prices paid component of the index rose to 52.2 in May from 49.9 in April, it’s first reading above the 50 level since December 1997. A reading above 50% for the overall NAPM index indicates that the manufacturing economy is generally expanding.
 
The NAPM report also showed further signs of a strengthening labour sector. The employment component of the index registered 53.5 versus 49.5 in April. That was the first month manufacturing employment has grown after eleven consecutive months of decline. Last month, the U.S. Labour Department said nonfarm payrolls rose by 234,000 while the unemployment rate registered 4.3 percent in April. The 30-year bond slid over a point on the NAPM report and the Dow also extended losses after the report.
 
An economic forecasting gauge fell for the first time in 10 months in April, but the economy should continue to expand through the end of 1999, a private research group stated. The Conference Board said the Index of Leading Economic Indicators, a measure of future economic activity, fell 0.1 percent in April, the first decline since a 0.2% drop in June 1998, after being flat in March. Economists had expected April leading indicators to be unchanged from March. This looks like only a temporary pause, although last week's drop in the stock market adds some complications. Still, with most of the leading indicators, including the stock market, showing increases this year and the economy showing growth in so many areas, this expansion should continue and become the longest ever. Changes in the leading indicators index are intended to predict turning points in the business cycle, such as a pickup in growth or a recession.
The three positive factors to the April leading index were stock prices, average workweek and money supply. Six factors of the index were negative contributors in April, led by vendor performance, initial jobless claims and building permits. The Treasury yield curve was flat in April. The report also said the index of coincident indicators, a measure of present economic conditions, rose 0.2% in April after an identical increase in March.
The index of lagging indicators, which shows past economic performance, rose 0.4% in April after being flat in March. Evidence of cyclical imbalances in the lagging indicators that might threaten economic stability are neither consistent nor convincing. March leading indicators were revised downwards from a previously reported 0.1% increase, while lagging indicators were previously reported as up 0.2%.
 
       Spending on construction projects posted its largest drop in April in more than five years. Construction spending fell 2.4% to a seasonally adjusted annual rate of $697.4 billion from a record high of $714.8 billion in March. The decline, which hit both the public and private sectors, was the first since October of last year and the largest since spending fell 3.0% in January 1994. The drop was also much larger than the 0.1% dip forecast by economist. Private spending dropped 1.9% to $545.7 billion while public spending fell by 4.2% to $151.7 billion, the department said.
The department revised its construction spending figure for March to 1.3%, up from the previously reported 0.5%, mainly because of a revision in private non-residential spending. While April's results were lower than March, spending was still 8.0% above spending in April of last year. April's contraction was seen almost across the board, with private spending on housing, office buildings and public spending on industrial, highways and infrastructure projects all dipping modestly. Small increases were reported for both public and private educational spending and well as in public spending on housing and redevelopment. Miscellaneous public spending also reported a small gain.
 
Wednesday

Sales of new homes soared unexpectedly in April as consumers rushed to lock in low mortgage rates amid escalating home prices. Total sales of single-family homes shot up 9.2% to a seasonally adjusted annual rate of 978,000, the second strongest monthly rate on record and sharply contrary to economists' forecasts for a modest decline to 890,000. The report showed strong consumer demand was pushing new-home prices to record levels. It further depressed prices in bond markets, already edgy about the possibility that the Federal Reserve might raise interest rates to dampen inflation risks.

The yield on the 30-year bond, climbed to 5.98% immediately after the economic data was issued from 5.94% the day before. Stocks also weakened in early trading as pessimism about a potential rate move by the central bank moved through markets in the wake of the home sales report, which complemented other recent data showing little sign of slackening economic momentum.

April's sharp rise in new-home sales followed a revised 0.8% decline in March sales to 896,000. Previously, March sales were at an annual rate of 909,000. Sales in April were the strongest since last November, when new homes were being snapped up at a record pace of 985,000 a year. Every region except the West recorded higher monthly sales, including a 33.5 percent pickup in Midwest sales to a record 211,000 a year.

At April's sales rate, the supply of homes on the market dipped to a record low of 3.7 months' worth from 4.1 months' in March, implying home-price pressures were likely to continue. The mean, or average, price for a new home jumped to a record $193,100 in April from $186,300 in March.

Lending rates for 30-year mortgages dropped to an average 6.92% in April from 7.04% in March but have since moved up modestly. Analysts said the relatively cheap lending rates coupled with plentiful jobs were fostering rising incomes that gave consumers the confidence to undertake long-term financial commitments.

Thursday

Shoppers have not lost their desire for new clothes or the latest electronics, according to May retail sales figures that beat most forecasts. At first glance, it appears to be a continuation of a very good spring, particularly in apparel. Retailers reported sales figures for the four weeks ended Saturday, May 29. Most of the sales associated with the Memorial Day holiday will be included in June results.

The rebound in manufacturing that unsettled the markets on Tuesday didn’t seem quite so robust on Thursday. Orders for new factory orders fell 1.2% to $345.4 billion in April behind big drops in aircraft orders and defense goods. Excluding the 12.3% drop in transportation orders, total factory orders rose 0.5%, the third monthly increase in a row.

Total orders increased 2.8% from April 1998 and were up 3.3% for the first four months of the year from year-ago levels. The factory orders report comes one week after the department released a preliminary report on durable goods orders, which fell 2.1% in April. Nondurable goods declined 0.1%.

The report shows just how scattered the recovery in manufacturing is. Orders have fallen in two of the past three months and have increased just 0.4% since December. In April, industrial machinery posted a second straight healthy gain while electronics barely rose. Primary metals showed steady improvement. Processing of other raw materials such as stone, glass and clay, fell. Shipments of factory goods dropped 0.4% to $347.6 billion while inventories sank 0.1% to $463 billion, the sixth drop in a row. Unfilled orders fell 0.4% to $524.5 billion, with the entire drop accounted for by canceled orders for aircraft.  Falling inventories should mean factories would have to increase production and hiring to meet rising demand.

Those extra workers will put pressure on an already tight labor market. Manufacturing has shed more than 400,000 workers in the past year, one major factor that's reduced wage pressures. Now the Federal Reserve fears that hiring by factories could be the catalyst for wage-push inflation to break out.

The number of people filing new claims for unemployment benefits rose for the second consecutive week, the government said in a report that still showed signs of plentiful jobs.  The Labour Department said weekly jobless claims rose to 305,000 in the week ended May 29 from 301,000 the previous week, exceeding forecasts of 299,000. The four-week moving average also climbed for the second straight week, reaching 304,250 from 303,750 a week earlier. Economists view the average as a more reliable yardstick of jobless trends because it evens out weekly fluctuations. Despite two weeks of increases, new claims remain near 300,000, where they have been since January, a level consistent with unusually low unemployment.

Friday

The economy only added 11,000 net new jobs in May, the Labor Department reported today, far below expectations of investors worried that the economy is overheating.
Traders had trouble reading the report, first cheering the weak job growth, then worrying over a jump in hourly earnings before finally deciding the report was mostly favorable. The report contains two signs that could help make the case for the Federal Reserve to raise interest rates at the end of the month: The unemployment rate dipped to 4.2%, matching a 29-year low, and average hourly earnings rose 0.4%or 5 cents to $13.19.
Average hourly earnings have risen 3.6% in the past year.
 
The confused and moderate reaction of traders is evidence of people being scared about inflation. Everything about the report shows a gradual deceleration of growth pointing to falling trends in payroll growth, hourly earnings and hours worked.
Many analysts expect the Fed to raise rates at its June 29-30 meeting, making good on the threat it issued at its last meeting. The Fed is worried that inflation, which has been falling for most of the expansion, is now on the rise. Higher interest rates would slow the economy by making purchases and investments more expensive. That slowdown would reduce pressures, especially in the tight labor markets, that could lead to higher prices. May's employment report takes some of the pressure off the Fed, which has been calling for a slowdown for more than a year.  The release included benchmark revisions dating back to March 1998, but the total impact of the revision was insignificant, adding just 44,000 jobs over that time, about a sixth of the typical size of revision. At the same time, the government said 343,000 jobs were created in April, up from the 234,000 estimated a month ago. So far in 1999, an average of 196,000 jobs have been created.

Next Week’s Economic Indicators

On Tuesday we get Productivity and Costs. This number has been important of late and with the worry of inflation mounting this number could be very important. It is very important to have good productivity if costs are moving higher. The market will watch it closely. There is also Wholesale Trade out but the market will likely ignore the number, as inflation is the main focus on the market right now. On Thursday we get Jobless Claims. Claims have been sitting around 300,00 and as long as they stay there traders will ignore the numbers. For the week, the most important number out will be the Producer Price Index on Friday. The market knows that Allan Greenspan watches wholesale numbers closely and if there is a big rise you’ll see the market sink.

MARKET CLOSES

Index

Last Week

This Week

Change

Percent

Dow Jones

10559.70

10799.84

+240.14

2.2

S&P 500

1301.77

1327.71

+25.94

2.0

S&P 500 Futures June.

1298.00

1330.50

+32.50

2.5

S&P 100

658.58

672.37

+13.79

2.0

Nasdaq

2470.06

2477.96

+7.90

0.3

Russell 2000

438.68

442.33

+3.65

0.8

30-Year bond

5.83%

5.96%

 

Program Trades

Last week we were able to quickly get into our Put trades for the month and some people were able to catch a few Call trades when the market opened higher on the Monday morning after May’s expiration finished on Friday. So far we haven’t found any really decent Outright Sells to place and have been hesitant to place Put Short trades as the market doesn’t feel like it has completed this correction as of yet. There has been no heavy volume down days with a sharp reversal to even look like it is finished.   Nonetheless all of our trades are looking great and with 10 days to expiration all our Put trades have a 91% probability of expiring worthless. Our call trades have a 97% probability.

Current Trades

**Trades listed below are all for the current expiration cycle unless otherwise noted. Fill prices are averaged out as reports come in by subscribers being filled.**

Average Entry price

   

Weekly

 
   

Bid

Ask

last

         
 

S&P 500 Cash Trades:

     

1415 sold Call $3.00

Long Trade

.13

.50

.25

1425 bought Call $2.25

$.75 Credit spread

.18

.54

.25

         

1225 sold Puts $9.00

Long Trade

1.50

1.75

1.50

1215bought Put $8.12

$.88 Credit spread

.93

1.88

2.13

         

1200 sold Puts $8.00

Ultra Trade

.75

1.00

1.13

1195 bought Put $7.50

$.50 Credit spread

.63

1.13

.88

         

S&P 100 CashTrades:

         

630 sold OEX Puts $8.00

Long trade

1.13

1.38

1.25

625bought OEX Puts $7.00

$1.00 credit spread.

1.00

1.13

1.25

         

720 sold OEX Call $1.25

Long trade

.06

.13

.13

730 bought OEX Calls $.75

$.50 credit spread

0

.06

.06

         

600 sold Puts $3.13

Ultra Trade

.32

.38

.38

590 bought Puts $2.50

$.63 credit spread

.18

.25

.18

         
 

S&P 500 Options Feb. Futures Trades

     
   

Hi

Low

Close

Sold 1225 Put average $8.00

Long Trade

1.90

1.20

1.20

Bought 1215 Put average $7.00

$1.00 credit spread

1.30

1.05

1.05

         

Sold 1200 Put $7.00

Ultra Trade

2.20

.75

.75

Bought 1190 Put $6.25

$.75 credit spread

1.70

.65

.65

         

Copyright 1998. All rights reserved. The information contained in the AGORA OUTLOOK NEWSLETTER is based upon data that is believed to be accurate, but is not guaranteed, and subject to change without notice. All projections, forecasts, opinions, and track records cannot be guaranteed to equal our past performance. Persons reading this newsletter are responsible for their actions. Officers and employees of this publication may at times have a position in the securities mentioned, or related services.

Short Trades

Long Trades

Ultra Trades

Outright Short Sales

1999 Current

170%

1999 Current

68%

1999 Current

74%

1999 Current

42%

1998

66%

1998

43%

1998

79%

1998

71%

1997

108%

1997

188%

1997

82%

   
1996

163%

1996

169%

1996

99%

   
    1995

93%

1995

76%

   
    1994

79%

1994

89%

   
    1993

177%

1993

long

   
    1992

112%

1992

long

   
    1991

162%

1991

long

   
    1990

166%

1990

long

   

Futures Trades

Outright Sells & Strangles

Long Trades

Ultra Trades

1999 Current 135% 1999 Current 46% 1999 Current 88%
1998 3 mths. 130% 1998 3 mths. 93% 1998 3 mths. 16%