The latest letters are listed here and work backwards for the entire expiration cycle.

Agora Outlook

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

                                                                                December Expiration                                             December 18h 1998

The Chicago Mercantile Exchange said its E-mini S&P 500 futures on Tuesday set a new single-day volume record of 35,989 contracts.

Last month, the E-mini was the exchange's third largest futures contract by volume, with daily volume averaging 21,551, CME said.

The E-mini contract is one-fifth the size of the CME's standard S&P 500 futures contract and is targeted to smaller institutions and retail customers. Launched in September 1997, the contract trades primarily electronically via the exchange's GLOBEX-2 system.

But, what effect does it have on your pocketbook, that is the question? The answer for that comes from a combination of psychological and monetary forces. In my opinion, psychology forces have to stay very nervous to keep the Federal Reserve continuing to flood the system with money. With recent trends showing a rising tide in optimism, that presents an interesting question. If it should continue, and the market rallies in the face of the very bullish optimism, history would tell us that the bubble could only go so big, and the bigger the bubble, the bigger the bust. So, yes a rally can continue even from today's highest valuation in US history, but it would be setting up some very nervous conditions in the next few months. My preferences would still like to see a correction NOW, but with the seasonal influences, a correction would go against tradition. The McClellan oscillator has turned back up slightly, but ever so slightly--moving from -181 on Monday to -93 yesterday. If it crosses back above the zero level, traders should play the game, but keep those stop-losses close.

 Davidson’s View

This expiration turned out well with all our trades giving us full profits. I put off writing this, as I wanted to see if President Clinton was going to be impeached or not. The vote came in to impeach so now everything will move to the Senate, which doesn’t re-adjourn until January. This coming week may see a sharp spike down to show some response to the vote but otherwise it will likely be flat. People won’t want to do anything one way or another because we’re in the week of Christmas holidays. Most analysts believe that the Senate will not convict Clinton, although a trial there could be long and difficult. Other political worries are also likely to fade into the background as investor’s retreat to the sidelines ahead of Christmas on Friday. On Thursday, the market will close at 1:00 p.m.

The continued military action in Iraq will also be a non-event as far as the market is concerned. The only surprise of the week may come from an interest-rate cut from Federal Reserve policy makers when they meet Tuesday. Most economists figure that the Fed will keep the target federal funds rate at 4.75%. If they did move to lower interest rates, the market would probably move higher. If anything, it may be best to look at the technical condition of the market for next week’s move.

Technically

With the Nasdaq Composite making a new all time record high it was interesting to see that there were more stocks in the index making new 52-week lows than those making new highs. On Friday with the Dow and S&P 500 near all time highs there were barely more advancing stocks then declining ones. It seems once again that the upside action has been in a small group of the large-cap stocks. This can be seen in the advance/decline line continuing to fall and the Mclellan Summation Index continuing on a downward path.

Momentum indicators either have been falling or not rising enough to confirm the rally, suggesting that a test of resistance will result in at least a corrective move lower.

Most Medium and Short term indicators are quite overbought so the upside is being confirmed.

Mclellan Oscillator: -71 -100 oversold +100 overbought
Summation Index: +1033

Five day arms: .88 .80 and below, overbought 1.00 and above, oversold
Ten day arms: .96 .80 and below, overbought 1.00 and above, oversold

Bulls: 56.8 previous week 57.4 50% plus overbought/bearish
Bears: 31.3 previous week 31.3 50% plus oversold /bullish
Correction: 11.3 previous week 11.3

Five day Qvix: 29.09

MARKET CLOSES

Index

Last Week

This Week

Change

Percent

Dow Jones

8821.76

8903.63

+81.87

0.9

S & P 500

1166.43

1187.96

+21.53

1.8

S & P 500 Futures Dec.

1175.30

1197.00

+21.70

1.8

S & P 100

574.68

589.84

+15.16

2.6

Nasdaq

2029.31

2085.66

+56.35

2.7

Russell 2000

394.51

397.42

+2.91

0.7

30 Year bond

5.01%

5.01%

 

Program Trades

The year ended well with full profits on all of our trades this month as all of our sold options expired worthless. Our Cash Long trades saw an overall profit of 51%. 25% on the put trade and 26% on the call trade. We only saw a profit on one side of our Ultra trades this month since we couldn’t get into the calls so we only saw a 10% profit on those trades. We decided not to do any no Outright Short sells this month as we expected volatility but we did see a 12% profit in the 1175/1200 Short trade already reported about earlier in the month.

We have only been doing the Futures trades for 3 months now but they have turned out to be a great success, especially the Outright Short Sells and the Strangles. We saw a 34% profit on the Strangles this past month but only an 8% profit on Outright Short Sells. We had a $10.00, 21% loss at the beginning of the month this was because we were stopped out on our sold December 1210’s. The S&P 500 blew right through our stops giving us a loss so we sold the January 1210’s to cover the loss and then bought them back with a $14.00 profit providing us with a small Outright Short Sell profit of $4.00 or 8% profit for the month.

It was the second month for Long trades and here we made 48% total. These trades are basically the same as the cash Long trades but the margin is much lower. This was the first month for our Ultra trade futures and we made 16% on them.

Current Trades

Average Entry price

Bid

ask

last

1100 sold SPX Put $5.00

Long trade

0

0

0

1090 bought SPX Put $3.75

$1.25 credit spread

0

0

0

1060 sold SPX Put $3.00

Ultra trade

0

0

0

1050 bought SPX Put $2.50

$.50 credit spread

0

0

0

1175 sold SPX Call $18.00

Short trade

0

0

0

1200 bought SPX Call $10.00

Bought back for a

$3.00 profit

0

0

0

1220 sold SPX Call $7.57

Long trade

0

0

0

1225 bought SPX Call $6.25

$1.32 credit spread

0

0

0

S&P 500 Options Futures Trades

Low

High

Close

Sold 1210 Call $10.50

Strangle

0

0

0

Sold 1100 Put $6.00

Total sold $16.50

0

0

0

Sold 1190 Call $11.00

Short Trade

0

0

0

Bought 1200 Call $8.00

Bought back for a

$3.80 profit

0

0

0

Sold January 1210 Call $35.00

Outright Short sell

0

0

0

Bought back for a

$14.00 profit

Sold 1100 Put $4.50

Long Trade

0

0

0

Bought 1095 Put $3.62

$.88

0

0

0

Sold 1220 Call $7.50

Long Trade

0

0

0

Bought 1225 Call $6.00

$1.50

0

0

0

Sold 1250 Call $1.90

Ultra Trade

0

0

0

Bought 1260 Call $$1.10

$.80

0

0

0

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 1999 Current 1999 Current 1999 Current
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

3rd month of trading

Outright Sells & Strangles

Long Trades

Ultra Trades

1999 Current 1999 Current 1999 Current
1998 130% 1998 93% 1998 16%

Agora Outlook

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

                                                                                December Expiration                                             December 11h 1998

 Davidson’s View

I would like to apologize, as on Friday you were supposed to be told that there would be no more full newsletters for the rest of 1998 since we are now moving into the Christmas season and our end of the year preparation for our 1999 outlook. Of course, there will still be daily commentaries and we’ll be watching the market closely, especially this week, because of the impeachment proceedings.

This week saw the Dow impacted by 7 of its 30 stocks pre-announcing weak 4th quarter earnings. On the other hand tech stocks helped the S&P 500 with support as the Nasdaq refused to fall on these forecasts or the worries of impeachment. The divergence between the Dow & the S&P 500 was evident last week when the Dow fell 2.2%, and the S&P 500 slipped by only 0.9%

With an increasing chill affecting global economic activity it looks like several Dow stocks are dreading winter. Last week, the losers were led by Coca-Cola, Union Carbide, J.P. Morgan, and Merck, all giving profit warnings of varying severity. The week before, it was Dow components, Boeing, Sears Roebuck, and Johnson & Johnson. And then there's the weakness in economically DuPont, International Paper and Caterpillar.

The higher importance of this divergence is that our industrialized economy, as represented by the Dow, is slowing, while hopes remain high for quite a few of the S&P 500 companies, particularly those in the technology and pharmaceutical sectors. Normally, the Dow and S&P have tracked each other quite closely, but this is the second straight year they have diverged at the end of the year. In 1997, the S&P also beat the Dow by a fairly big margin, gaining 31% against the Dow's 22.6% rise. With the S&P now dominated as never before by large technology and drug issues, the index is becoming a growth-stock index. The Dow, meanwhile, still has a sizable industrial component despite the addition of such growth stocks as Wal-Mart, Johnson & Johnson and Hewlett Packard in 1997.

Of course, if we look at it from another perspective, we see the Dow making a healthy pullback after reaching a new high and the S&P 500 not pulling back as much because of its support from the Nasdaq Composite which remains in a world of its own. The tech sector is leading the overall market but it cannot continue to go up forever. The coming week should see even more volatility if tech investors decide to take profits and it is also triple witch expiration on Friday.

The important thing to note is that any pullback is still in the context of an uptrend. There would need to be some sort of catalyst to really knock the market. This could emerge if the impeachment hearing gets out of hand or if more big cap companies warn of earnings shortfall.

On another note, I saw a television report about a small investor who wanted to buy the opening price of the internet stock "earthweb" when it came on to trade. It was priced to open at $9.00. The guy put in an open order to buy. The first trade on the stock was for $9.00, the second was around $90.00 of which he was also filled for! He then actually complained when the stock turned around and closed around the $30.00 range at the end of the day. An open order for anything; option, stock, or futures is ridiculous and shows me that there are way to many people out there who are inexperienced in their trading. Another thing is that when I see something like that report it tells me that the internet frenzy may be coming to an end soon! One of the best traders during the 1929 crash took a tip from an elevator operator. The boy told him that he had a great stock tip for him. That day he went to work and sold everything he had. A short time later the crash hit.

Economic Effects

Wednesday

The deficit in the broadest measure of U.S. trade widened to a record $61.3 billion from July through September. The current account trade deficit grew by 8.1% in the third quarter from $56.69 billion in the second quarter. It measures not only trade in goods and services but also investment flows into and out of the United States, making current account the most all encompassing gauge of trade activity with the rest of the world.

The third-quarter deficit was well above economists' forecasts for a $58.6-billion shortfall. It was the fourth consecutive quarter in which the current account gap set new records. The swelling in the third-quarter deficit resulted from a bigger shortfall on investment income and a smaller surplus on services than during the second quarter. The deficit on goods trade was virtually unchanged, despite struggling overseas economies in Asia and elsewhere that has provided a less buoyant market for U.S. exports. There was a weakening in foreign investment because of a sharp drop in U.S. stock prices after they peaked in July, as well as to unsettled conditions in U.S. bond markets. Share prices have since recovered much of the third-quarter decline.

The beige book reported that the long-running economic expansion was still going in November, even though many industries reported weakness in exports, the Federal Reserve said.

All12 district economies continued to expand in November, despite contraction in export industries, the Beige Book summary of economic activity in Fed districts said. Fed policymakers will use the report when they meet Dec. 22 to consider interest rate cuts.

The Fed has cut interest rates three times since late September, most recently on Nov. 17, to counter what it described as unusual strains in financial markets. The latest report, prepared by the Dallas regional Fed bank based on interviews before Dec. 1, said low interest rates were stimulating loan demand, but said bankers were tightening their standards and credit terms. The Fed said that labor markets were tight nearly everywhere, especially in retail sectors, but pressures for higher wages have subsided. Goods prices were "steady or falling" across the country, except for scattered increases on items like building materials. Manufacturers foresaw continued softening because of weaker exports, with industries cutting production for a wide range of items from clothing to chemicals, lumber, paper and steel. Economic turmoil in Asia and elsewhere has slashed U.S. sales into foreign markets.

Thursday

U.S. initial jobless applications inched up in early December, increasing for the second consecutive week. The number of Americans registering first-time claims for state unemployment funds rose to 314,000 for the week ended Dec. 5. Economists surveyed had projected new claims at 315,000. Initial claims were up from 313,000 the week before and were at their highest level since the week ended Nov. 14, when claims totaled 340,000. Since mid-July, claims have stayed below 320,000 with the exception of two weather-related spikes in November. While claims have risen in the past weeks, they are still near levels considered to be consistent with a healthy labor market. The four-week moving average of new jobless claims, which irons out weekly claims fluctuations to give a better indication of jobless trends, fell to 316,750 from a revised 319,000 in the prior week.

U.S. wholesalers' inventories dropped in October, though not as fast as sales in a fresh indication that holiday shopping might be getting off to a slow start. Total inventories at wholesalers declined 0.2% to a seasonally adjusted $283.43 billion in October after rising by 1.3% in September. Sales fell 0.4% to $213.01 billion following a 1% increase in September. Analysts had forecast that October wholesale inventories would be unchanged from September instead of declining. All the change in October inventories occurred among quickly used non-durable goods like paper, petroleum and farm products where producers have been encountering problems including weaker overseas sales and falling prices. Nondurable inventories fell 1.1% to a seasonally adjusted $97.73 billion after rising 2% in September. Wholesale inventories of more costly durable goods, like cars, furniture and machinery, were up 0.2% to a seasonally adjusted $185.70 billion after increasing by 0.8 % in September.

Though the October report showed slower sales by wholesalers, the stock-to-sales ratio that measures how long it would take to sell off inventories at the current sales pace held steady for a third successive month at 1.33 months' worth. That was up from 1.28 months' worth a year earlier, in October 1997, though likely not enough to suggest a sudden unwanted pileup of unsold goods.

Friday

Sales at retail stores were surprisingly strong in November, a report on Friday showed, as consumers got the holiday shopping season got off to a brisk start. Total sales climbed 0.6% to a seasonally adjusted $229.35 billion last month after an upward revised 1.2% jump in October. The November rise was in sharp contrast to Wall Street economists' forecasts that sales would decline 0.1%. Department store sales climbed 1.4% last month to $30.16 billion, the biggest increase since a 1.5% gain last February. The jump followed a slight 0.3% rise in October. The surge in department-store sales shows consumers were eager to shop at the start of the key holiday sales season that runs from Thanksgiving Day through New Year's Day and accounts for a quarter or more of many businesses' annual sales. Sales by car dealers, which were expected to drop in November after scoring the biggest monthly increase this year in October, instead rose 1.3% to $56.7 billion. The October increase was 2.6%. Excluding automobiles, overall retail sales in November were up 0.4% following a 0.8% rise in October. The report showed that consumer spending, which accounts for two-thirds of national economic activity, remained a vital force behind the economy's overall expansion. Sales of building materials jumped 0.9% to $14.09 billion in November, reflecting the strong pace in construction activity, after a 0.6 percent increase in October.

A big drop in energy prices and the biggest decline in food costs in 17 months made inflation a no-show once again at the wholesale level last month. The Producer Price Index, which measures inflationary pressures before they reach consumers, dipped 0.2% in November as the price of gasoline, vegetables and fruit all took a nosedive.

Through the first 11 months of this year, prices at the wholesale level have been falling at an annual rate of 0.7% as global economic turmoil has depressed demand for oil and other commodities. Inflation has been almost as well behaved at the consumer level. So far this year, the Consumer Price Index is rising at an annual rate of just 1.6%, even better than last year's ll-year low of 1.7%. The November CPI will be reported next Tuesday and the expectations are for it to show a modest 0.2% increase.

The absence of inflationary pressures has given the Federal Reserve the leeway to cut interest rates three times this fall in an effort to ensure that a big rise in America's trade deficit, which has battered manufacturers and farmers, does not push the country into a recession.

The November 0.2% drop in the PPI was the sixth time this year that wholesale prices have actually fallen. It was the first outright decline since a 0.4% fall in August. The PPI had risen by 0.2% in October. Energy prices dropped 1.2% last month, their biggest drop since August, as gasoline prices fell by 6.9% and home heating oil costs were down 5.6%. Energy prices have been falling as deep recessions in Asia have cut daily world demand by about 750,000 barrels per day. Crude oil prices are now at a 12-year low of around $11 per barrel compared to $23 per barrel a year ago.

Inflation was also contained outside the volatile food and energy sectors. The so-called core rate of wholesale inflation was up just 0.1% in November, matching the October performance.

The University of Michigan's preliminary consumer sentiment index for December fell to 100.7 from a final reading of 102.7 in November. The current conditions component fell to 112.3 from a final reading of 115.9 in November. The consumer expectations index dropped to a preliminary reading of 93.3, versus 94.3 in November. Sentiment is slowly turning once again, which could affect buying in the future.

 Next week’s Economic Indicators

On Tuesday we get the Consumer Price Index and Business Inventories. Neither of these indicators will be taken seriously unless inventories are way out of whack. On Wednesday we will get Housing Starts, Industrial Production and Import and Export Prices. Housing starts have been strong the last few months and a strong number would assist in keeping consumer sentiment higher. Industrial Production will reveal how tight businesses are able to keep the production from their workers. If capacity utilization slips we could see a negative result from the market as lower capacity means less earnings when you go down the line. Thursday has Jobless Claims and International Trade. Neither of these numbers will be regarded as important to affect the market this week.

Technically

Yesterday saw more stocks on the New York Stock Exchange making new lows (76) than any other trading day since October 15, 1998--one week off of the panic decline. In comparison, the S & P 500 is now at 1165.02, 11.2% higher than the 1047.49 level of October 15, 1998.

At the time, over 80% of all stocks in our universe were trading over their 50-day moving average. But now, five weeks later, we see that number has dropped to 70.5%. Investor's Intelligence uses a 70/30 rule on this indicator, which says that you can sell when this number moves above 70% and then drops below. Their repurchase is triggered on this indicator when the number of stocks trading above their 50-day moving average drops under 30%, and then rises back above. They find that in the vast majority of times a downward penetration of 70% produces a drop under 30% in the immediate future. 

Currently, with the 3-week average of the equity put/call ratio 9.91% under its 39-week average, the short-term nature of the market desperately needs at least a lull here to allow a little reconditioning of the "wall of worry."

Put/call ratio low... One of my data keepers informed me today that the 10-day moving average of the put/call ratio is at its lowest reading in a decade, since before the 1987 stock market crash.

Mclellan Oscillator: -33 -100 oversold +100 overbought
Summation Index: +1997

Five day arms: 1.15 .80 and below, overbought 1.00 and above, oversold
Ten day arms: .90 .80 and below, overbought 1.00 and above, oversold

Bulls: 56.9 previous week 57.9 50% plus overbought/bearish
Bears: 31.0 previous week 29.8 50% plus oversold /bullish
Correction: 12. previous week 12.7

Five day Qvix: 25.77

MARKET CLOSES

Index

Last Week

This Week

Change

Percent

Dow Jones

9015.63

8821.76

S & P 500

1176.54

1166.43

S & P 500 Futures Dec.

1180.28

1175.30

S & P 100

579.89

574.68

Nasdaq

2001.84

2029.31

Russell 2000

398.37

394.51

30 Year bond

5.04%

5.01%

 

 

Program Trades

Our Ultra and Long trades are looking great as we get set for the final two weeks of trading in Decembers expiration cycle. We decided to get out of our Short trades in both the cash and futures markets for good profits this past week as the market pulled back. The $14.00 profit on the Short Sell on the futures turned out to only be a $4.00 profit as we had to re-coup a $10.00 stop loss on the 1160 December sold call a couple of weeks ago. The trades are listed below:

With the 1175/1200 Short call trade today it was reported that the 1175 call was bought back when the market was lower for an average $12.00 supplying us with a $6.00 profit and sold the 1200 call when the market started to move higher for an average $7.00 giving a loss from the original buy of $10.00 of $3.00. Since the original credit of $10.00 between the two was made, an overall profit of $3.00 or 14% ($3.00 divided by the $22.00 margin requirement)

The 1190/1200 futures call trade saw the 1190 bought back at the markets lows for an average $7.20 giving a profit of $3.80 and sold the 1200 futures call as the market rose off of its lows for an average $7.00 giving a loss of $1.00. The profit turned out to be $2.80 or 38%, ($2.80X250=$700 divided by $7.20X250=1850 margin requirement. The January 1200 futures call was bought back for an average price of $21.00 today giving a $14.00 profit or $14.00X250=$3500.00 divided by $12,000 margin = 29%.

Current Trades

Average Entry price

Bid

ask

last

1100 sold SPX Put $5.00

Long trade

2.44

2.82

2.75

1090 bought SPX Put $3.75

$1.25 credit spread

1.82

2.32

2.13

1060 sold SPX Put $3.00

Ultra trade

1.32

1.38

3.13

1050 bought SPX Put $2.50

$.50 credit spread

1.13

1.50

1.13

1175 sold SPX Call $18.00

Short trade

19.88

21.13

20.00

1200 bought SPX Call $10.00

Bought back for a

$3.00 profit

8.13

9.13

8.13

1220 sold SPX Call $7.57

Long trade

3.00

3.75

4.00

1225 bought SPX Call $6.25

$1.32 credit spread

2.25

3.00

3.00

S&P 500 Options Futures Trades

Low

High

Close

Sold 1210 Call $10.50

Strangle

3.20

5.00

5.00

Sold 1100 Put $6.00

Total sold $16.50

2.50

4.25

2.50

Sold 1190 Call $11.00

Short Trade

8.20

14.00

12.00

Bought 1200 Call $8.00

Bought back for a

$3.80 profit

5.30

8.00

7.50

Sold January 1210 Call $35.00

Outright Short sell

N/t

N/t

Bid 20.30

Bought back for a

$14.00 profit

Sold 1100 Put $4.50

Long Trade

2.50

4.25

2.50

Bought 1095 Put $3.62

$.88

N/t

N/t

Bid 7.10

Sold 1220 Call $7.50

Long Trade

2.00

3.20

3.00

Bought 1225 Call $6.00

$1.50

1.50

2.50

2.50

Sold 1250 Call $1.90

Ultra Trade

.50

.70

.70

Bought 1260 Call $$1.10

$.80

N/t

N/t

Bid 7.10

 

Agora Outlook

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

                                                                                December Expiration                                             December 4th 1998

Davidson’s View

The week started with the market being cautious, needing to prepare itself for pre-earnings warnings. It was surprised when the Federal Reserve let it leak out that they were thinking about raising margin requirements for stock traders and that there would most likely be no more rate cuts this year. This brought Internet stocks down and with it the rest of the market. As the week went on things just continued to get worse as the Asian contagion coming home to roost once again as the World bank announced that worldwide GDP would only grow at 1.5%. Then layoff announcements continued in a steady stream all week. Some of the cuts and reasons for layoffs were:

Boeing, 48,000 due to production cuts; Exxon-Mobil about 9,000 due to the merger; Kellogg Co.-765 due to cost cutting; ITT Industries up to 1,200 due to restructuring; Smurfit-Stone Container 1,660 restructuring, Courtaults Textiles 1,125 restructuring, United Dominion Indus 600 due to cost cutting; Volvo 5,300 due to weak sales; Deutsche Bank/Bankers Trust 5,500 due to merger; Amway 542 due to declining sales; health care giant Johnson & Johnson is eliminating 4,100 jobs, or 4% of its work force, in a bid to better compete in the drug business and free up dollars to spend on research and development. (SOURCE: MSNBC news services.)

From airplanes to corn flakes, banks to oil-drillers, companies slashed workers at a pace not seen since the early 1990’s. The trend has workers worried and economists wondering whether the upswing in downsizing will continue to deflate consumer confidence and jeopardize the economys growth rate.  The Asian financial crisis is still weighing on the U.S. economy as 1998 comes to a close. Business planners are becoming more attuned to the fact that problems are going to be longer lasting than originally thought. A wave of layoff announcements has made for a grim holiday season for tens of thousands of workers.

When the World Bank said that it sees the global economy continuing to slow down this put more pressure on the market. It’s becoming apparent once again that the recent wave of global economic turmoil will continue to squeeze growth in Latin American countries as they work to shake off the lingering symptoms of the Asian contagion. Worldwide recession in 1999 is possible, but not likely. The report does say that the Asian economic crisis will slow down growth in Gross Domestic Product worldwide to about 1.5% for 1999. In the U.S., GDP growth is forecast at 2%, down from near 4% last year.

They expect the global slump to last for several years, with developing countries returning to higher growth rates around 2001. When our Federal Reserve cuts interest rates 3 times in 16 days, and the Bundesbank cuts rates only one week after disavowing a cut, it’s obvious they have concerns about the future.

For these reasons and the fact that we have already had two earnings warnings from Boeing and Sears which dragged down many other transportation and retail stocks, we could be headed for a recession next year due to over-capacity and excess speculation. The market again decided to ignore the possibilities of this happening but all these factors are definentely pulling steam out of the market. The coming week looks interesting as this weekend Venezuela is having elections and it appears they may be moving back toward stricter government control which investors over here don’t like very much. Also, Brazil may be forced this week to devalue their currency. If they do, their market will fall dramatically. In the past, when Brazil has fallen the U.S market has followed suit.

Economic Effects

Tuesday

The manufacturing sector slowed for the sixth straight month during November, but there are signs of a possible improvement in the economy by mid-1999, according to two reports issued today. The National Association of Purchasing Management, which tracks the manufacturing sector through a survey of corporate purchasing executives, said new orders, exports and imports declined at many of the nation’s factories last month. Economic activity registered at 46.8%, down 1.5% from October. Any reading under 50% is a sign of contraction in the industrial sector. The Index of Leading Economic Indicators rose 0.1% in October, to 105.6. The gain followed two months of flat results.

The purchasing manager’s survey is closely watched as it is good evidence of how the economy fared the previous month. The Leading Indicators are widely viewed as a forecast of how the economy will fare six to nine months in the future.

In the purchasing managers’ report, the rate of decline was faster than economists had expected. Exports failed to grow for the 11th straight month, while imports fell for the first time since July, 1998. New orders, a key indicator of demand for industrial goods, also fell in November, signaling a decline in production in the coming months. Although the Leading Indicators report rose in October, it was slightly below economists’ expectations. Six of the index’s 10 components rose in October, led by money supply. Four components, led by unemployment insurance claims, posted decreases. The stronger report was attributed to the rebounding stock market and the Fed’s decisions to trim interest rates three times this fall. The board’s index of coincident indicators for October, which looks at the economy’s current condition, rose 0.1% from September. The lagging indicators index, which looks at the past, decreased 0.1%. The leading index operates from a base of 100, set in 1992.

Construction spending rose 0.3% in October, while September's gain was revised higher. Construction has been one of the strongest sectors of the economy in the past year. All three reports were slightly weaker than forecast by economists, who were expecting the NAPM index to fall to 47.7%, construction spending to rise 0.4% and the leading indictors to rise 0.2%.

Wednesday

Sales of new homes rose in October as low mortgage rates and rebounding stock prices kept the housing market on course for a blockbuster year. Total sales of single-family homes increased 0.8% to a seasonally adjusted annual rate of 851,000. That was the 14th straight month that the annual pace has topped 800,000. The October rate was well above economists' forecasts for 844,000.

The pickup in October was entirely due to a large increase in the second-largest regional housing market, the West, the department said. Sales there rocketed 11.2 % to a rate of 248,000 last month. Other regions saw declines. In the South, sales fell 0.3%. They dropped 5.4% in the Midwest, and plummeted 11% in the Northeast. Despite the higher number of home sales, the median price for a home dipped 0.3 percent in October to $150,000, from $150,500 in September.

Mortgage rates have been hovering at their lowest levels in decades. In October, they averaged 6.71%, little changed from September, but down sharply from 7.29% a year ago.

Thursday

U.S. business productivity rose more than previously reported in the third quarter, a trend that bodes well for continued economic growth with low inflation. Productivity, which measures the hourly output of workers outside the farm sector, increased at a 3% annual rate in the three months ended in September, a sharp pickup from the 0.3% pace of the second quarter. It was previously estimated the third quarter to gain at 2.3%. The upward revision for the third quarter, which reflects bigger gains in output than were previously recorded, was in line with forecasts.

Unit labor costs, a closely watched gauge of wage inflation, rose at a moderate 1.1% rate in the third quarter, slower than the previously reported 1.7% pace and down sharply from a 3.7% second quarter rise.

Leading the productivity gains in the third quarter was the manufacturing sector, particularly makers of long-lasting durable goods, whose productivity rose 8.3%, up from the previously reported 5.4% pace and a 6.6% rate of increase in the second quarter.

Rising productivity is key to the health of businesses and the overall economy. Producing more goods and services per hour helps grow profits, which allows businesses to keep a lid on prices and gives workers a greater potential for wage hikes without inflation.

Manufacturing output in the third quarter, during which a strike at GM halted output at the world's largest automaker for several weeks, rose only 0.7%, the smallest gain since the second quarter of 1995.

The hours of factory workers fell at an annualized 4.3% pace during the period, the biggest drop since the second quarter of 1995. Manufacturing hourly compensation rose at a 3.3% rate. But since manufacturing productivity rose faster than compensation, unit labor costs in that sector fell at a 1.8% rate.

Jobless claims rose 12,000 last week after a sharp drop the previous week. Initial claims rose to 313,000 in the week ended Nov. 28 from 301,000 the prior week, when new claims fell by 39,000. Economists had forecast new claims of 314,000 for the latest week. Claims may have been offset by the shortened Thanksgiving week, which meant fewer days in which applicants could file for benefits. The closely watched four-week moving average, a less volatile measure of claims trends, rose by just 250 last week to 319,250. Friday, the Labor Department will release its employment report for November, which will give a broad look at labor market conditions throughout various sectors of the economy. Economists predicted the unemployment rate would stay steady at 4.6%.

The nation’s biggest retailers had mixed sales results for November. Discounters and specialty clothing chains fared the best while department stores struggling through the month. But even the gains seen in November were tempered by the warmer-than-normal weather across much of the country. After sales figures were released Thursday, many analysts warned that the holiday shopping season might be disastrous for some stores if it doesn’t turn cold quickly. There were very strong expectations for this Christmas season, thanks to the rebounding stock market and rising consumer sentiment in recent months. Many analysts predicted sales gains of about 4% to 5% for the November-December season compared to the same period in 1997. Discount stores continue to flourish, attracting value-conscious consumers who want affordable prices and wide selection of merchandise. The best results in November came from Wal-Mart Stores Inc. and Dayton Hudson Corp. Target’s division. Clothing chains like the Gap, Inc., which owns Old Navy, Gap and Banana Republic stores, and The Limited Inc., with its Express and controlling interest in Victoria’s Secret, also wooed shoppers last month with their current fashions and well-known brand names. On the weak side were department stores chains, which continue to lose business to the discount and clothing stores that offer better service, prices and selection. May Department Store Co. and Federated Department Stores Inc. reported lower than expected November sales.

The Merrill Lynch retail index, the investment firm’s barometer of sales performance at department stores and discount chains, was up 3% in November. It rose 2.2% in October and was up 3.8 percent in November 1997. Wal-Mart, the nation’s largest retailer, reported sales from stores open at least a year were up 7.7% from a year earlier, while total sales were up 13.7%.

Friday

The unemployment rate fell to 4.4% in November as strong holiday hiring at department stores and a booming construction industry offset continued layoffs in manufacturing. The seasonally adjusted rate, down from 4.6% in October and September, was the lowest since April and May, when joblessness fell to a 28-year low of 4.3%, the Labor Department reported today.

Employers added 267,000 jobs to their payrolls last month, the largest gain in three months. Both the unemployment rate and the number of jobs added were significantly better than anticipated by economists. In November, manufacturing employment declined by 47,000 jobs, bringing job losses there to 245,000 since March. The drops were sharpest at factories producing industrial machinery, apparel and textiles, electronic equipment, primary metals such as steel, transportation equipment and fabricated metals.  The slump in Asia has dried up demand for U.S. exports. This week, Boeing Co., the world’s largest aerospace company, said it planned 20,000 more layoffs, on top of 28,000 already announced and Johnson & Johnson said it’s eliminating 4,100 jobs, or 4% of its work force.

However, construction companies added 47,000 workers in November. Low mortgage rates have driven home sales to record levels, spurring a building boom. Also, employment in finance, insurance and real estate rose by 23,000, partly reflecting hiring by mortgage brokers. Other areas of strength include temporary-help firms, computer and data-processing services, engineering and management services and retail trade, which rose 65,000 on a seasonally adjusted basis.

Today’s stronger-than-average report probably will confirm views that the Fed will see little need to stimulate economic growth with an interest rate cut. Their next scheduled to meet Dec. 22. Worried about financial turmoil, the Fed has cut rates three times since late September.  The average workweek last month was unchanged at 34.6 hours. Within manufacturing, however, it fell a tenth of an hour to 41.6 hours. Factory overtime was unchanged at 4.5 hours. Average hourly earnings for nonsupervisory workers rose 3 cents for the second month in a row. At $12.93, the average is up 3.7% from a year ago.

New orders received by U.S. factories retreated in October for the first time in five months, pointing to weaker demand across the manufacturing sector. New orders for manufactured goods fell 1.6% to $335.08 billion in October on a seasonally adjusted basis, following a 0.8% gain in September. Analysts expected October factory orders to fall by only 0.6%. Shipments fell 0.1% in October to $340.09 billion, following a 1.2% rise in September. The value of unfilled orders fell 0.9% to $525.25 billion, after registering no change in September.

Shipments of durables, however, rose 0.3% in October to $193.42 billion, following a 2.1% increase in September. Inventories for durable goods, items like appliances, machinery and cars intended to last at least three years, also increased, by 0.7% in October to $298.9 billion.

U.S. manufacturing businesses have lost some steam as exports to struggling Asian and other overseas economies have faded, but domestic demand has remained vigorous, helping to offset the export drag.

Indicators revealed this problem during the week and even though the unemployment report was strong today with all of the lay off notices given this week, the weakness is sure to continue. In the coming months the market will probably react more and more to indicators as the market searches for direction within the economy and weakness becomes even more evident.

 

Next week’s Economic Indicators

This will be a quiet week for indicators. On Tuesday we get the Fed’s Beige Book indicating how Federal Reserve Districts are doing around the country. Thursday has Jobless Claims and Wholesale Trade. Neither of these indicators are of any significance to the market right now. On Friday we get the Producer Price Index and Overall Retail Sales. The PPI number will be ignored unless it is very weak. With the CRB index hitting a new low this past week there is more talk about deflation coming through the wires again. The retail sales number may also be important as analysts are expecting strong sales for Christmas.

Technically

Even with the downturn this past week the market has not worked off much of its overbought condition. When we look at stochastics, momentum and relative strength this is apparent.

In the last four weeks the indices have made new all-time record highs but the advances to declines have been negative on 12 of the 18 trading days. With the retreat in the market this week the advance/decline line has rolled over to the downside once again after making a high just before the all time high back in July. With the S&P 500 only a week off of its all-time record highs, the New York Stock Exchange had more stocks making new lows than it had six weeks ago, when the index was 10% lower. The appearance of new lows is usually the first sign of a problem creeping into the bulls camp. On the day that the S&P 500 made a new high there were only 60 stocks on the New York Stock Exchange able to join the index at the "new-high" celebration. That is not healthy at all.

Shorter term, the Mclellan Oscillator almost hit an oversold reading of –100 but was short by 12 points. More importantly, the summation index has rolled over again, looking to move lower in the near future.

The five-day Arms indicator is strongly oversold short term but the ten-day arms is still in overbought territory. Volatility has returned to the market will the Vix soaring this week due to the selloffs. The most important indicator of late has been momentum and that has been moving lower all week. It is important to note that if momentum picks up again it is likely that the market will follow.

Mclellan Oscillator: -33    -100 oversold +100 overbought
Summation Index: +1997

Five day arms: 1.15 .80 and below, overbought 1.00 and above, oversold
Ten day arms: .90    .80 and below, overbought 1.00 and above, oversold

Bulls: 56.9 previous week 57.9 50% plus overbought/bearish
Bears: 31.0 previous week 29.8 50% plus oversold /bullish
Correction: 12.  previous week 12.7

Five day Qvix: 25.77

MARKET CLOSES

Index

Last Week

This Week

Change

Percent

Dow Jones

9333.08

9015.63

-317.45

3.4

S & P 500

1192.28

1176.54

-15.74

1.3

S & P 500 Futures Dec.

1194.19

1180.28

-13.91

1.1

S & P 100

590.78

579.89

-10.89

1.8

Nasdaq

2016.15

2001.84

-14.31

0.7

Russell 2000

402.09

398.37

-3.72

0.9

30 Year bond

5.16%

5.04%

Program Trades

Our Ultra and Long trades are looking great as we get set for the final two weeks of trading in Decembers expiration cycle. We decided to get out of our Short trades in both the cash and futures markets for good profits this past week as the market pulled back. The $14.00 profit on the Short Sell on the futures turned out to only be a $4.00 profit as we had to re-coup a $10.00 stop loss on the 1160 December sold call a couple of weeks ago. The trades are listed below:

With the 1175/1200 Short call trade today it was reported that the 1175 call was bought back when the market was lower for an average $12.00 supplying us with a $6.00 profit and sold the 1200 call when the market started to move higher for an average $7.00 giving a loss from the original buy of $10.00 of $3.00. Since the original credit of $10.00 between the two was made, an overall profit of $3.00 or 14% ($3.00 divided by the $22.00 margin requirement)

The 1190/1200 futures call trade saw the 1190 bought back at the markets lows for an average $7.20 giving a profit of $3.80 and sold the 1200 futures call as the market rose off of its lows for an average $7.00 giving a loss of $1.00. The profit turned out to be $2.80 or 38%, ($2.80X250=$700 divided by $7.20X250=1850 margin requirement. The January 1200 futures call was bought back for an average price of $21.00 today giving a $14.00 profit or $14.00X250=$3500.00 divided by $12,000 margin = 29%.

Current Trades

Average Entry price

Bid

ask

last

1100 sold SPX Put $5.00

Long trade

2.44

2.82

2.75

1090 bought SPX Put $3.75

$1.25 credit spread

1.82

2.32

2.13

1060 sold SPX Put $3.00

Ultra trade

1.32

1.38

3.13

1050 bought SPX Put $2.50

$.50 credit spread

1.13

1.50

1.13

1175 sold SPX Call $18.00

Short trade

19.88

21.13

20.00

1200 bought SPX Call $10.00

Bought back for a

$3.00 profit

8.13

9.13

8.13

1220 sold SPX Call $7.57

Long trade

3.00

3.75

4.00

1225 bought SPX Call $6.25

$1.32 credit spread

2.25

3.00

3.00

S&P 500 Options Futures Trades

Low

High

Close

Sold 1210 Call $10.50

Strangle

3.20

5.00

5.00

Sold 1100 Put $6.00

Total sold $16.50

2.50

4.25

2.50

Sold 1190 Call $11.00

Short Trade

8.20

14.00

12.00

Bought 1200 Call $8.00

Bought back for a

$3.80 profit

5.30

8.00

7.50

Sold January 1210 Call $35.00

Outright Short sell

N/t

N/t

Bid 20.30

Bought back for a

$14.00 profit

Sold 1100 Put $4.50

Long Trade

2.50

4.25

2.50

Bought 1095 Put $3.62

$.88

N/t

N/t

Bid 7.10

Sold 1220 Call $7.50

Long Trade

2.00

3.20

3.00

Bought 1225 Call $6.00

$1.50

1.50

2.50

2.50

Sold 1250 Call $1.90

Ultra Trade

.50

.70

.70

Bought 1260 Call $$1.10

$.80

N/t

N/t

Bid 7.10

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

                                                                               December Expiration                                         November 27th 1998

Davidson’s View

So the Dow is almost back to where it was before the correction began in July. Since its low on October 8th we have seen a huge move upward. Earlier this week the Dow actually made a new high. Using monthly updated data on the relationship between earnings, dividends, interest rates, and price corrections since 1980, analysts estimate the S&P 500 is now overvalued anywhere from 6% to20%,

While the correction was going on in July the bulls went into hiding but are once again calling for Dow 10,000 by the end of this year and claiming we’ll see 12,000 next year. The bears are now the ones to timid to step out and make any predictions. For the bears though, it is a cause of fear, not because stocks could go higher still, but because the market could simply be setting itself up for another collapse. The bears say the recent recovery is nothing but a trap, the same sort of trap that led investors back into stocks during a rally after the great crash of 1929, and ended with the longest and most grinding bear market of this century. The Dow fell 48% from 381.17 on Sept. 3, 1929, to 198.69 on Nov. 13, according to Ned Davis Research. Then they rallied back 48% to 294.07 by April 17, 1930, only to fall a thudding 86% over the next two years, finally bottoming out at 41.22 on July 8, 1932. The bears see that happening again, complete with a depression and bank closures. The bulls argue that any comparison at all to the excess speculation of 1929 is preposterous. This rally, they say, is based on real gains in corporate profits and in productivity. Thanks to Federal Reserve interest rate cuts, the economic environment is improving, they say, and baby-boomer retirement money is already pouring back into the stock market which helps explain the big rally.

The Investment Company Institute, a mutual-fund industry group, says that cash levels at stock mutual funds rose to 6.2% in September, from 4.8% in April. And organizations that track mutual-fund flows say that, although people did pull some money out of stock mutual funds in August, they put it back in in September. Initial estimates also suggest that investors pulled money out of stock funds in the down days of early October, but then put it back in later in the month. People are used to the market rallying after it goes down, so individual investors are now more willing to hang in there.

Bearish investors now expect bonds to soar again as panic resumes and investors again run for cover, moving money to investments they consider safer. The bulls on the other hand, see signs that the shift into stocks and out of bonds has just begun. The biggest turning point for the stock market came on Oct. 15, when the Fed unexpectedly cut its target interest rate. Investors concluded that the Fed would do what it could to keep the U.S. economy from falling into recession, while at the same time seeking to help foreign economies by keeping U.S. demand strong.

As October wore on, momentum took over in the market. The more stocks gained, the more fund managers, who are rated on monthly performance, felt the need to join in. After the Fed cut rates on Oct. 15, many fund managers who had been skeptical about the market turnaround jumped back in, fearful of being left behind.

Stocks are starting to hold back as worries that the market and the economy have now rebounded so strongly the Fed could decide not to cut rates further at its next meeting in December or early next year. The next big negative in the market's backdrop is the earnings outlook, as companies will begin issuing fourth-quarter predictions next week. Warnings of profit shortfalls typically hurt the market in the best of times, and after four straight quarters of disappointments the roster of companies coming up short will probably run to the high side once again. With momentum starting to wane this could be the week for a correction to start. 1929 once again? I don’t think so, but it is prudent to be alert!

Economic Effects

Tuesday

U.S. economic growth rebounded strongly over the summer despite overseas financial turmoil, but profits at the nation’s corporations fell sharply. The gross domestic product, the sum of all goods and services, surged at a robust 3.9% seasonally adjusted annual rate in the July-September quarter. Estimates for the number were at 3.3%. The deterioration in the nation’s trade deficit was not as severe as first measured. Also, consumers purchased more trucks and used cars than originally counted. However, in its first look at third-quarter profits, the department said after-tax earnings fell 1.8% to a seasonally adjusted annual rate of $473.2 billion. It was the third quarterly decline over the past year. Profits are down 6.2% from the same quarter a year ago, the worst drop over a year since 1989. The report raises questions about the sustainability of the stock market rally, which on Monday pushed the Dow Jones average of industrial stocks to a new high: 9,374.  A wave of mergers has powered the latest rally, but many manufacturing companies are facing a profit squeeze. They must pay higher wages because skilled workers are scarce but they can’t raise prices in the face of competition from Asian nations trying to export their way out of their economic doldrums.  Though overall economic growth was strong in the third quarter, coming after an anemic advance at a 1.8% rate in the second quarter, it contained the seeds of the slowdown that economists expect for 1999. Consumer spending, which accounts for roughly two-thirds of economic activity, increased at a 4.1% annual rate. Purchases of big-ticket durable goods rose at a moderate 2.4% rate, even with the GM strikes. But, a pileup of unsold goods in inventory accounted for nearly a fourth of overall growth. Business investment in new equipment fell 1.1% after a run of stellar growth. It was the sector’s first decline in nearly seven years. Also, American export sales declined for the third consecutive quarter for the first time in 40 years. Still, the latest drop, at a 1.9% rate, was milder than the 2.9% first reported. Meantime, imports of foreign goods and services rose at a 1.3% rate, again not as severe as the 3.4% in the initial estimate last month. Inflation, as measured by a price gauge tied to the GDP, hit a 35-year low. Prices rose at an 0.8% annual rate. 

U.S. consumer confidence snapped back in November, reversing a four-month decline, promising robust Christmas sales, and heralding another year of economic growth.   Economists said the stock market recovery from its summer woes and Federal Reserve interest rate cuts that helped restore investors' confidence also buoyed consumers' mood.   Consumer spending accounts for about 2/3rds of the nation's Gross Domestic Product (GDP). The consumer confidence was one of many recent economic data showing that the economy remains healthy. However, most economists expect growth to slow in 1999.   After four straight monthly drops, in which it lost nearly 20 points, the widely followed Conference Board Consumer Confidence Index rose 6.7 points in November to 126.   Especially significant was November's nearly 11-point jump to 99.5 in the Conference Board's Expectations Index which measures consumers' outlook for the next six months.  The index gauging consumers' assessment of present economic conditions, which had only slipped slightly in the last four months, inched up to 165.7 in November from 165.2 in October.

As economists have said, the stock market's rise and the interest rate cuts that prompted the rally nourished consumer confidence. The November rebound in confidence was concentrated on consumers' assessment of the future, sentiment that is very closely tied to the stock market. Behind the stock market's rally was the Federal Reserve's rate cut on Oct. 15. That Fed action, the second of three rate cuts the last two months, ignited a market rally that sent major stock indices to record levels.  The gap between the number of those who consider jobs hard to get and those suggesting that jobs are easy to find continued to narrow in November, suggesting that the labor market is not as buoyant as it was a few months ago.

The Conference Board's annual holiday spending survey, released last week, projected American families will spend a record level of nearly $500 each on holiday gifts this year, up from $465 last year. Retail sales are expected to climb six to seven percent this holiday season from a year ago, moving into the $50 billion range.  In the Conference Board's most recent Consumer Confidence Survey, more people said they would buy a home or a major appliance in the next six months and more consumers expected business conditions to improve.

Orders for costly manufactured goods fell in October as demand for machinery and heavy equipment plummeted. New orders for durable goods fell 1.7% to $189.49 billion on a seasonally adjusted basis. That followed an upwardly revised 1.3% rise in September. October's fall was the first monthly drop since May. Economists in a Reuters survey had expected durable goods orders to fall 0.7%.

Durable goods include items such as cars and appliances that are meant to last three years or more. Monthly orders figures tend to be highly volatile, making it hard to draw conclusions about the broader economy. However, the sharp October drop in the industrial machinery component probably reflected weakness in demand from Asia and other foreign economies that have been hit by the global financial crisis. The department said orders for industrial machinery and equipment decreased 8.4% last month following a 4.2% gain in the prior month. Defense orders were off sharply, falling 9.8% in October.  The transportation sector also saw a decline in orders. The department attributed that to a fall in orders for railroad equipment and shipbuilding. Demand for electronics goods, such as cellular telephones and laptop computers, soared in October.

Wednesday

Americans spent more than they earned again in October, borrowing and dipping into their savings, mutual funds and home equity to maintain their standard of living. The U.S. personal savings rate, (savings as a percentage of after-tax income) was minus 0.2% last month, following a rate of minus 0.1% in September, it was the worst since 1959, when the government began tracking the figure on a monthly basis. On an annual basis, the rate hasn’t been negative since 1933, at the depth of the Depression. But the reoccurrence of a negative savings rate doesn’t mean the country is sinking into recession, economists said. More likely, it shows people are spending some of their gains from the strong stock market. Negative savings also occurs when spending is financed by borrowing and people withdraw savings or cash out part of their home equity when they refinance a mortgage. But that can’t go on forever either, analysts warn. Sooner or later, growth in consumer spending must slow to match income growth. Since consumers account for roughly 2/3rds of economic activity, U.S. economic growth should slow significantly next year, they believe. So far this year, economic growth has remained strong thanks to the consumer, even though the U.S. trade deficit has been climbing toward a record. Some analysts had feared the sharp stock market drop from mid-July through September would dampen consumer spending but the market has recovered and the Dow set a new record on Monday.

In October, spending grew at a moderately strong 0.5% rate, after solid gains of 0.7% in September and 0.4% in August. Spending in the last month was fueled by a 2.2% jump in spending on big-ticket durable goods, reflecting brisk auto sales. Incomes rose 0.45 in October after a weak 0.2% increase in September. The most closely watched component of income, wages and salaries, rose 0.5%. Wages edged down 0.1% in manufacturing, which has been hurt by loss of export sales to Asian and other countries undergoing slumps. But they rose 0.9% in services.

The University of Michigan's consumer sentiment index for November rose to 102.7 in a final reading from 97.4 in the final October index. The current conditions component rose to 115.9 in the final reading for November, from 112.8 in the final reading for October.   The consumer expectations index rose to a final 94.3 versus 87.5 in the final reading for October.

Jobless claims dropped abruptly last week to the lowest level in nearly two months. Claims fell –39,000 to 300,000 in the week ended Nov. 21, citing fewer layoffs in the auto industry and better weather. Initial claims were at their lowest level since the 290,000 reported for the week to Sept. 26. The four-week moving average, a better indicator of job market strength because it smoothes out weekly fluctuations, dipped to 318,500 in the Nov. 21 week, slightly down from 318,750 in the previous week.

Sales of U.S. existing homes rose 2.1% to a seasonally adjusted annual rate of 4.79 million units following downturns in August and September. We should close out 1998 at a record-setting level. The lowest mortgage interest rates in more than three decades will continue to drive first-time buyers into the market, allowing many trade-up buyers to make their move. The housing market is the most interest rate sensitive sector in the U.S. economy. Consumer confidence has also contributed to this year's housing boom. Happy consumers will have a more positive outlook in the future and that will make them more likely to buy a big-ticket item. A house is the biggest ticket item the family is going to buy.  The median price for an existing home was $130,900 in October, down from $131,200 in September but up from $124,400 in October 1997. Half of homes sold above the median price and half below.

Next week’s Economic Indicators

Tuesday we get Construction Spending and the National Association of Purchasing Managers report. The NAPM number could be a market mover if it is fairly strong as were starting to get signals from the bond yield curve that there will be no more rate cuts this year. This number could help to confirm that. On Wednesday we get New Home Sales. Instead of wondering if it will be strong we should be wondering if it will be another record high! Thursday has Jobless Claims, Overall Chain Store Sales and Productivity and Costs. The PC number could be quite important as businesses are slowing and productivity levels are important. On Friday we get the all-important Unemployment report. This number has always been a market mover and this one could really rock the market if it doesn’t like the way it turned out.

Technically

Every market sell signal has been laughed at by the market. The current market action is pure blow-off and unpredictable so we are just waiting for reversal signals. Technicals have been overbought for some time so the entire strength in the market can be summed up in one word: Momentum. Average volume has contracted as relentlessly as prices have risen; advance/decline indicators have flattened and are rolling over along with the Mcllelan summation index; new highs have been lackluster; and the tick indicator has only rarely attacked the +1000 level. Even more rarely approaching the -1000 level that would usually be a springboard for the sustainability of such a strong rally. Sector rotation is all but nonexistent. But momentum is momentum, and we are getting signs that it is waning. The Hourly momentum chart has been going down all week so even this indicator is losing steam.

Short-and-intermediate-term technical indicators are overbought and have been so for the past few weeks. We still need a catalyst for sellers to push the market substantially lower, otherwise we’ll just see a modest pullback. The Dow has run up so fast that even if it pulls back to 8900-9000, no technical damage would be done. Besides momentum moving lower, the 5 and 10-day ARMS indicators have moved into overbought territory.   Longer term, you can also see that sentiment has moved to the extreme with a count of 59% bulls indicating there are to many bulls out there so the market will likely turn down soon.

Mclellan Oscillator: +34 -100 oversold +100 overbought
Summation Index: +2087

Five day arms: .78 .80 and below, overbought 1.00 and above, oversold
Ten day arms: .78 .80 and below, overbought 1.00 and above, oversold

Bulls: 59.8 previous week 57.0 50% plus overbought/bearish
Bears: 29.8 previous week 31.6 50% plus oversold /bullish
Correction: 10.7 previous week 11.4

Five day Qvix: 21.53

MARKET CLOSES

Index

Last Week

This Week

Change

Percent

Dow Jones

9159.55

9333.08

+173.53

1.9

S & P 500

1163.55

1192.28

+28.73

2.5

S & P 500 Futures Dec.

1167.50

1194.19

+26.69

2.3

S & P 100

574.97

590.78

+15.81

2.7

Nasdaq

1928.19

2016.15

+87.96

4.6

Russell 2000

394.29

402.09

+7.80

2.0

30 Year bond

5.20%

5.16%

 Program Trades

This was an active week for trades as all of our futures trades were filled but we are still waiting to fill the Call cash trades. We still have the Short call trades on but we will continue to hold them on as the market will likely pull back this week as it is overbought, at new highs and fundamentals are pointing to a lower market. Premiums fell strongly this week even thought the market advanced once again.

Current Trades

Average Entry price

Bid

ask

last

1100 sold SPX Put $5.00

Long trade

2.63

3.25

2.88

1090 bought SPX Put $3.75

$1.25 credit spread

2.13

2.88

2.25

1060 sold SPX Put $3.00

Ultra trade

1.38

1.88

1.38

1050 bought SPX Put $2.50

$.50 credit spread

1.18

1.38

1.18

1175 sold SPX Call $18.00

Short trade

30.63

32.63

32.00

1200 bought SPX Call $10.00

$10.00 credit spread

1220 sold SPX Call $7.57

Long trade

7.88

8.88

8.50

1225 bought SPX Call $6.25

$1.32 credit spread

6.25

6.50

6.25

S&P 500 Options Futures Trades

Low

High

Close

Sold 1210 Call $10.50

Strangle

10.80

12.00

10.80

Sold 1100 Put $6.00

Total sold $16.50

3.00

2.70

2.70

Sold 1190 Call $11.00

Short Trade

20.50

21.70

20.50

Bought 1200 Call $8.00

$3.00 credit

16.00

16.20

15.00

Sold January 1210 Call $35.00

Outright Short sell

32.50

32.50

32.50

$35.00

Sold 1100 Put $4.50

Long Trade

2.63

3.25

2.88

Bought 1095 Put $3.62

$.88

2.40

2.40

2.40

Sold 1220 Call $7.50

Long Trade

7.88

8.88

8.50

Bought 1225 Call $6.00

$1.50

6.25

6.50

6.25

Sold 1250 Call $1.90

Ultra Trade

1.88

2.38

2.00

Bought 1260 Call $$1.10

$.80

1.20

1.20

1.20

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

Short Sales

1998

Current

52%

1998

Current

-08%

1998

Current

69%

1998 Current

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

2nd month of trading

Outright Sells Long Trades
1998 Current 29% 1998 Current 45%