Agora Outlook


February Expiration January 30th 1998

The market had a great week overall but is still having to deal with the Federal reserve chairman Alan Greenspan’s warning of further trouble ahead in the U.S. economy from the Asian financial crisis. He thinks the crisis could lead to a moderation of U.S. growth from its "recent brisk pace." Today it was reported that the U.S. economy accelerated in 1997 to its fastest pace in nine years, helped by a burst of production in the final quarter. The nation’s gross domestic product increased by 3.8%. That was the fastest pace since an identical rate in 1988. Testifying before the Senate Budget Committee, Mr. Greenspan suggested that current risks in the economy still appear evenly balanced given that potential price pressure from tight labor markets may be offset to some degree by lower import prices linked to the Asia crisis. He still cautioned about the need for vigilance against inflationary pressures but also said that some caution must also be taken in being too overaggressive in curbing domestic inflation. He also said that the U.S. economy has been "exceptionally healthy with robust gains in output, employment and income." At the same time, he said, "inflation has remained low. Indeed, declining by most measures over the past year." But Mr. Greenspan also said that the U.S. economy has so far "experienced only the peripheral winds of the Asia crisis." Before the end of the spring, he expects "the abrupt current account adjustments that financial difficulties are forcing upon several of our Asian trading partners will be showing through here in reductions in demand for our exports and intensified competition from imports."

Another concern for the market is Iraq. U.N. weapons inspectors are convinced Saddam Hussein is hiding chemical weapons behind the walls of a half-dozen presidential palaces. And Secretary of State Madeleine Albright won’t return empty-handed from her mission seeking support for a military strike to block Iraq’s deployment of weapons of mass destruction. Saddam Hussein’s defiance of the United Nations and attempt unilaterally to escape from the Gulf-war resolutions is not just a U.S. affair. At this point, it appears that the only way of preventing a military strike will be for Baghdad to back down, which it has said it won’t do. In recent months Iraq has blocked inspections and harassed inspectors, engaging in what Richard Butler, the chief U.N. arms inspector, calls a campaign of "abuse and denigration." Albright has repeatedly said the United States prefers a diplomatic solution. But she stressed Wednesday, "We cannot allow Saddam Hussein once again to brandish weapons of mass destruction and use them to intimidate Iraq's neighbors and threaten the world." She then held talks with British Foreign Secretary Robin Cook, whose government strongly backs the U.S. stand and has sent its own aircraft carrier to the Persian Gulf. U.S. officials have said a military strike could be launched "in weeks."

Economic Effects

On Monday Existing home sales for December slipped slightly to end an overall stellar year for the housing market. According to analysts this marginal downturn was inevitable given the high level of sales in 1997. Sales dipped 2.1% in December to an annualized rate of 4.29 million units compared with a 4.38 million rate in November.

On Tuesday Consumer confidence slid sharply in January from December’s record high as Asia’s financial crisis raised concerns about the U.S economy’s future. Consumer confidence fell to 127.3 from a revised 136.2 in December. The drop exceeded economists’ expectations. Consumer sentiment is a significant indicator since consumer spending accounts for 2/3rds of the nation’s overall economic activity. The continuing uncertainties generated by the Asian crisis, plus the volatility of worldwide financial markets, may very well have consumers concerned about both the short and long term repercussions for the U.S. economy. In the bond market, prices recovered slightly after the report was released. Prices had fallen earlier in the day after the Labor Department reported labor costs increased 3.3% in 1997. Wages and benefits rose 3.3% in 1997, the fastest pace in four years, indicating that the tight labor market may finally be showing signs of wage pressures. The Labor Department report Tuesday showed that the increase for the entire year was a significant acceleration from a 2.9% rise for 1996 and a 2.7% increase in 1995. While rising wages and benefits are good news for workers, economists worry that if those gains are not accompanied by productivity increases, inflation pressures could mount quickly, spelling an end to an economic expansion. Alan Greenspan has frequently mentioned the danger of wage inflation as one of the primary factors that would prompt the Federal Reserve to begin raising interest rates. The absence of wage inflation so far in this recovery, which will soon enter its eighth year, has puzzled economists who formerly believed that any time the unemployment rate fell below 6%, wage pressures would inevitably begin to increase. Unemployment currently stands at its lowest levels in a quarter of a century, 4.7%. Also out on Tuesday were weekly chain store sales reports. The BTM Schroeder number was unavailable but the Johnson Redbook number that comes out one hour before the close was a strong 1.8%. This number took a lot of steam out of the bond market and the 30 year bond closed down -20/32nds on the day to see the yield rise to 5.94%. On Wednesday durable goods orders slid 6.1%. It was the largest decline in six years, pulled down by a slump in demand for aircraft. Everyone must be buying used jets. Orders fell 6.1% to a seasonally adjusted $183.6 billion. That followed a 5.1% surge the month before, the best in almost five years. Quite volatile readings the past couple of months! Purchases of durable goods expected to last three or more years, such as computers and cars, are an important indicator of the economy’s strength. Taking out the volatile transportation category, where the timing of just a few orders for airliners can swing the total widely, orders rose 0.4% in December. It was the first increase in three months and followed drops of 0.3% in November and 2.1% in October. On Thursday jobless claims fell by 27,000, the lowest level in three months. Government figures showed 300,000 new applications for benefits throughout the country in the week ended Jan. 24, down from 327,000 a week earlier. Economists had forecast 324,000 claims for the week. It was the lowest number of initial jobless claims. (This number gives an early reading of the resilience of the labor market), since Oct. 25, when applications measured 299,000. The four week average, viewed as a more accurate indicator, reached 324,750. The U.S. help wanted advertising index fell five points to 87.0 in December versus 92.0 in November. The index read 86.0 one year ago. The labor market is in good shape, with high employment growth, no drop off in the demand for labor and some slight decline in layoffs. The National Association of Purchasing Managers (NAPM) index of New York area business conditions fell to 50.4 in January from 62.1 in December. The manufacturing conditions index fell to 50.4 this month from 63.7 last month, while the non manufacturing component also fell to 50.4 from 61.9. A reading of more than 50 means that there is growth in the economy. Indicators were ignored this day by both bonds and stocks as Allan Greenspan was speaking before the senate budget committee. He said that because the Asian crisis is causing lower prices for goods this is healthy for our inflation pressures, yet our economy remains healthy. His speech lifted stocks and bonds strongly on the day. On Friday growth in the U.S economy accelerated in 1997 to the fastest pace in nine years, helped by a burst of production in the final quarter. The nation’s gross domestic product increased by 3.8%. That is the fastest pace since an identical rate in 1988, when the Federal Reserve was stimulating the economy to cushion the impact of the 1987 stock market crash. Growth hasn’t been stronger since 1984 when Reagan administration tax cuts helped produce a 7% increase in output. The economy finished 1997 by growing at a brisk 4.3% in the fourth quarter, much better than the 3.6% average of private economists’ predictions. We should slow down in the future, though. This year, with Asian financial turmoil threatening to slash U.S. export sales and send a wave of cheap imports across U.S. borders, economists expect growth to slow to a moderate 2.5%. In 1997, inflation was incredible. A price measure linked to the GDP rose 2%, the smallest increase since 1965. In the final quarter of the year, it only increased 1.5% annual rate. Also out was the University of Michigan's final index of consumer sentiment for January which rose to 106.6 from 102.1 in the December final. The current conditions component rose to 113.5 in the final January survey from 111.4 in the December final. Consumer expectations index rose to 102.2 in the January final report from 96.1 in the December final. The Chicago Purchasing Management index fell to a seasonally adjusted 57.7 in January from a revised 58.0 in December. The number helped to relieve pressures from the strong GDP number out earlier. The Chicago PM report is considered a good gauge of the overall National Purchasing Managers Report. An index below 50 signals a slowing manufacturing economy, while a reading above 50 suggests expansion. The prices paid index fell to 51.5 in January from a revised 59.6 in December which was good news for bonds. Indicators this week actually had an overall good effect on the market. There is no inflation in sight even though it appears the economy is still expanding.

Next week’s Economic data

On Monday we get Personal Income and Spending, Construction Spending, and the National Association Purchasing Managers report. All three of these indicators are very important and could have a strong effect on the market. There is also the possibility that if they are all different they may balance each other out. It could end up being a very bad Monday. Tuesday we get Weekly Chain Store sales. Leading Economic indicators and New Home Sales. These indicators will probably not have much of an effect on the market since they have been low the past few months. It would take some strong numbers to move the market. On Thursday there is Jobless Claims and Factory orders. Factory orders always have the chance of moving the markets so if this number is far from the consensus we could see the market move strongly one way or the other. On Friday we get the most important report of all economic indicators, the Unemployment report. This report is sure to move the market either up or down. Even though inflation appears that it is going to be low this year there is still the concern of wage inflation, the worst of all types of inflation. The economic indicators this week are very important and have a strong chance of moving the market.

Technically

The market has again moved into overbought territory according to some of our indicators. They have been whipsawed lately. Stochastics are showing a strong overbought condition and the market is testing the upper band of Bollinger bands. The 5 & 10 day Arms index is neutral, though. It wouldn’t take much to get it into overbought territory. The Mclellan Oscillator is not really showing anything now but about 200 days after a major peak in the McClellan Summation Index, there is usually an important bottom in the stock market. There was a major peak in July 1997, so there could be an important bottom around April 30. Until then, we may remain in a sideways trading range. Many analysts think the market may take off from here but the market seems to be reacting more to fundamental news than technical indications. If we do move higher from here the market could become quite overbought quickly.

Mclellan Oscillator: 31 100 oversold +100 overbought
Summation Index: 1612

Five day arms: .90 .80 and below, overbought 1.00 and above, oversold
Ten day arms: .93 .80 and below, overbought 1.00 and above, oversold

Bulls: 44.3 previous week 43.5 50% plus overbought/bearish
Bears: 35.5 previous week 36.3 50% plus oversold /bullish
Correction: 20.2 previous week 20.2

Five day Qvix: 22.12 10-15 bullish, low volatility 15-40 bearish, high volatility

Davidson’s View

Well, January has come and gone and so have the final indicators for this month’s views on what may happen for the entire year. Each indicator spells trouble for stocks in 1998. The first available observation came from the first week of the new year's trading where stocks began with a whimper. The first full week's trading saw the Dow over 100 points below the 1997 close. The Super Bowl, with the Bronco’s win, falls in line with that indicator's bearish predictions. And now with the end of January comes consideration of the often true indicator that dictates, "whither goes January, goes the year". On that last score, it was only by Friday's selling that the Dow managed to nudge under its 1997 closing price. In fact, the broader-based S&P 500 managed a slight gain on the month. This would indicate at least that the entire year should be flat. Regardless, these are interesting only in their historical correlation, and not in their true predictive values.

We sure received a lot of comments on the new "Ultra Conservative" trade strategy that we presented on Thursday night. I thought that I would take a little more time here to talk about it. We have had it going since the beginning of the Agora Outlook but we have not put it into internet trading as we didn’t think anyone would be interested. It is so much easier now to communicate and get better returns. Back then we did them as it was a type of trade that you could make and leave alone no matter what happens. With mail outs it is hard to be able to make any changes to trades if needed. It is a very conservative way to trade the market with much lower returns but the trades have a much higher chance of return. The program must give a reading of 96% plus accuracy to be able to place the trade. The average return on a trade is anywhere from 5-20%. An average year will see a 60%-90% return. We have changed the program a little to adjust to any extra volatility so in time it may turn out to be even more accurate. The idea of this type of trade is to place a credit spread way out of the money. For example, on calls right now we have the 1010/1015 long trade on. An "Ultra Conservative" trade would have been placed at the end of the January expiration. It would have been to sell the 1050 call and buy the 1075 for a credit of .63. Currently the 1050 level is 7.1% away from the S & P 500’s 980 level and there are only 14 trading days left. This is not the best "Ultra" out there. We would normally be finding spreads that are much lower; 5-10 points. This would lower the margin considerably.

Many people asked why we don’t just sell outright. We have watched this type of trading for 5 years and our observations have not seen a loss yet. The best way we noticed to protect the investment was with stops. Selling outright would save a lot on commissions and give even better returns. The only problem is that to outright sell options a person needs an account of at least $50,000 to trade an average 10 contracts. Different brokers may require more or less. It may be more profitable to go after futures selling. We have been watching the S & P 500 mini’s. For futures trading we would use them since the margin is much lower but we’re not sure we like all the selling aspects. You have to deal with possible assignments and futures expiration numbers. If you sell an option for an average $1.00-$2.00, your return would be 2-4% per trade, possibly higher depending on your margin requirements. The benefit though is that you could make more trades as the premiums go down. There are so many options out there that expire worthless its almost a tragedy to miss out on selling them as long as you do it with great safety and use stops. For example, a person would be crazy to sell puts outright now unless you went all the way out to the February 850’s and sell them for $1.00. That is 13% below the present S & P 500 level with 14 trading days to go. Our program says the likelihood of that level being hit is only 3% but with the threat of war etc. we wouldn’t make that trade. On Friday we decided to begin this program and sold the February 1050 for $1.00 in the morning. If we had bought it back in the afternoon we would already be seeing a .25 profit. If you’re interested in the "Ultra Conservative trades" or the outright "Selling Program" let us know. This type of trading is risky though, so please talk to us about it. In the next few weeks we will continue to discuss this strategy. Please let us know what you think about it.

MARKET CLOSES

Index

Last Week

This Week

Change

Percent

Dow Jones

7700.74

7906.56

+205.82

2.7

S & P 500

957.59

980.28

+22.69

2.4

S & P 100

455.07

468.79

+13.72

3.0

Nasdaq

1575.95

1619.36

+43.41

2.8

30 Year bond

5.95%

5.81%

We will continue to show the 1997 chart plus the 1998 chart until we get further into year.

Current Trades

This week the market had had a pretty good move going higher. It had brought the premiums on our call spread up pretty good but with the sell off late Thursday and Friday the premiums came back to our trade levels. The program is showing that the 1010 level has a 11% chance of being hit. The 900 level only has a 7% chance of being hit by Feb. 16th.

Program Trades

Average Entry price

 

bid

ask

last

1010 sold Call $5.00

long trade

5.50

6.00

5.50

1015 bought Call $4.00

long trade

4.25

5.00

4.25

900 sold Put $23.00

long trade

1.88

2.25

2.00

895 bought Put $21.82

long trade

1.63

2.13

2.00

1050 Call sold $1.00

short trade

.63

.75

.75

         

Copyright c 1996. 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 Track record  

Short Trades

 

Long Trades

1998 0.0%

current

1998 35%

1997 108%

 

1997 188%

1996 163%

 

1996 169%

   

1995 93%

   

1994 79%

   

1993 177%

   

1992 112%

   

1991 162%

   

1990 166%

 

Agora Outlook


February Expiration February 6th 1998

So much for the sell off we were expecting today! The market shook off more revelations about President Bill Clinton’s alleged sexual escapades and rising tension in the Middle East this week. Both stocks and bonds climbed despite a stronger than expected employment report, which provided more evidence that inflation fears cannot be put to rest. The jobless rate remained at 4.7%, a 24 year low, as payrolls surged to 358,000 in January. The Dow climbed 72 points and the S&P 500 climbed back into record territory, up nearly 9 points. The Labor Department said 358,000 new jobs were created in January, well in excess of the 225,000 forecast by economists. Offsetting that strength, in traders minds the unemployment rate was unchanged at 4.7% and average hourly earnings rose 0.3%, as expected. The average work week rose only slightly to 34.8 hours.

The Dow Jones climbed nearly 50 points in its opening move, brushing aside the jobs data and reports that Bettie Currie, Clinton’s personal secretary, testified in federal court that Clinton and Monica Lewinsky were sometimes alone together in the White House. The index dipped briefly from its initial advance, then redoubled its advance. By 10:30est, the Dow was up more than 80 points and then mostly leveled off for the rest of the day. Its high for the day was +95 points. In the last hour of trading, when the Dow dipped below the 50 point level, it looked as if it was going to sell off into the close but then again leveled it off. For the week, the Dow climbed 3.6%. The Nasdaq index moved cautiously higher in the early going, weighed down by the recent advance of many of its biggest components and a steep drop in shares of Qualcomm (QCOM). The tech heavy index spent much of the morning in a range between up 5 and 9 points, before moving cautiously higher into the afternoon. By 2 p.m. tech traders decided that the profit taking was over and moved it into solid double digit figures. The index jumped 17.43 points on the session, closing at 1,694.33, culminating a week in which it rose 4.6%. The S&P 500 notched yet another record close, rising 8.91 points to 1,012.45. For the week, the broadest of indexes climbed 3.3%. Many analysts have been watching the small caps to see if they are going to join the party. The Russell 2000 added on to its recent gains, climbing 1.43 points to 445.49. The small cap index rose 3.6% for the week. The market is behaving amazingly well. Fundamentals don’t appear to be of any importance at the moment. The steadiness of the world markets this week helped to steady ours. Reflecting on the market’s ability to withstand the ongoing developments in the White House sex scandal, it shows that American people are more worried about the economy than what the President allegedly does in his spare time. Despite the market’s impressive gains in the past two weeks, many observers say there is more room on the upside. This probably means the move is over. The Dow is now 70 points off of its record high close of 8,259.31. When will it close above that level?

Economic Effects

On Monday it was revealed that the U.S. economy continues to grow at a healthy pace, with current expansion in the manufacturing sector suggesting 3.0% overall Gross Domestic Product (GDP) growth for 1998. The number, which gauges industry activity in the U.S., fell to 52.4 in January against 53.1 in December. The financial crisis in East Asia has, as expected, been taking a toll on U.S. exports and could be the reason behind the slide in the NAPM survey's price component in January. The price index stayed at 44.7 in January against 50.8 the previous month. The price index was the key for this number as the cheaper goods are the better. Spending on new construction barely rose in December as a drop in spending on government projects largely offset continued strength in home building. Total spending on all types of construction work, including residential, commercial and government projects, edged up 0.1% in December to a seasonally adjusted annual rate of $611.8 billion after a scant 0.1% decline in November. Economists had expected a 0.8% increase in construction spending for December. The small rise in monthly activity in December was led by an ongoing boom in residential construction which is being fueled by low mortgage rates hovering around 7%. Consumers seemed happy about their paychecks in December but also showed caution by slowing their rate of spending down a notch during the holiday shopping season. There is’nt much to indicate consumers are putting away those credit cards. Personal incomes rose 0.4% in December following a revised 0.7% increase in November. Economists had expected take home pay to be 0.3%. December's savings rate was 4.1%, up from 3.9% in November and October's 3.6%. At 3.8% the savings rate for last year was the lowest since 1939. Although the savings rate is starting to look respectable, by historical standards it is still ridiculously low, indicating Americans' disposition to buy now rather than stash money away for emergencies, retirement, and other future needs. Stocks chose to ignore the strong income number and continued to rally. They may have chosen to wait until this Friday’s unemployment report for a true reading. Bonds continued to diverge from stocks and moved lower. On Tuesday U.S. new home sales ended 1997 with a surprisingly sharp December drop, though the overall trend remained healthy. U.S. new home sales fell 9.3% to a 777,000 annual rate in December. The December home sales decline was the largest since August 1995, when sales fell 10.4%. The December declines were broad based, with the Northeast experiencing an 11.8% dip, Midwest sales off 11%, sales in the South down 7.9% and the West suffering a 10%%. According to analysts, said several factors will continue to support a brisk sales pace into 1998: low borrowing costs, confident consumers and a strong jobs market. Weekly chain store sales reports showed that Johnson Redbook retail sales were up a strong 1.9% in the first four weeks of January versus December. Retail sales rose 5.8% compared to the same month a year ago and rose 6.2% versus the same week a year ago. Sales rose 0.5% versus the previous week. Seasonally adjusted BTM/Schroeders weekly chain store sales index has been above its rolling 16-week trend for the last five weeks and on a year/year basis, the adjusted index rose 4.9% the same as the prior week. In times past the market has reacted negatively to such strong numbers but it appears the market is in rally mode. On Thursday

jobless claims edged higher in the last week of January, but remained at levels that indicate a robust labor market. They reached a seasonally adjusted 303,000 in the week ended Jan. 31, up 3,000 from 300,000 a week earlier. The four-week moving average for claims fell for a second consecutive week, dropping 7,500 to 317,250 from the 324,750 the previous week. It was the lowest since Dec. 27, when it measured 314,250. Since weekly figures are highly volatile, the average rate is considered a more reliable indicator of trends. Orders received by U.S. factories recorded their steepest decline in more than five years in December as aircraft demand faltered but shipments of finished manufactured goods rose. Orders dropped 2.5% to $336.2 billion after a 2.4% gain in November. It was the first decline since May and the sharpest since August 1992, when orders also fell 2.5%. Excluding the volatile transportation sector, however, factory orders increased 1.2% in the final month of 1997 after a decline of 0.6% in November. Despite the sag in December new orders, 1997 was a strong year for manufacturing. Last year, factory orders climbed 5.3%, stronger than the 4.6% increase of 1996 but more modest than a 7.4% jump in 1995. Bonds didn’t like the number very much and sold off a bit while stocks began to struggle. On Friday the much awaited unemployment report came out revealing that strong job growth in January, particularly in construction and real estate, held the unemployment rate at 4.7%, near a 24 year low. The seasonally adjusted unemployment rate, the same as December, was just a little above November’s 4.6% rate, lowest since 1973. Jobs created were larger than expected at 358,000 jobs last month. Construction accounted for 92,000 new jobs, the largest monthly gain in the category in nearly two years. There were 43,000 manufacturing jobs created revealing that the Asia crisis still has not had any effect in this area. Only 9,000 of the new jobs came in government, the rest in private companies. Real estate services had an unusually strong month, adding 10,000 jobs. Computer and data processing services and engineering and management services continued their rapid growth. However, health services grew more slowly than usual. Department stores added 31,000 jobs. The economy and labor market are very strong. This number does not give the Federal Reserve much breathing room. It’s not so strong that it poses a problem at the moment, though. Average hourly wages rose 4 cents to $12.51. Over the past year they’re up 46 cents, or 3.8%. The average workweek increased from 34.6 hours to 34.8 hours, seasonally adjusted. But the manufacturing workweek edged from 42.2 hours to 42.1 hours. Factory overtime held at 4.9 hours. The market originally dipped on the news but then came back to rally as hourly wages were in line with expectations. This was really the only report all week that the market recognized and even after about an hour it forgot about it.

Next week’s Economic data

On Tuesday we get weekly chain store sales, productivity & costs and wholesale inventories. The wholesale number is the most important of all the numbers out as it will reveal if there is a buildup in the pipeline. This number has moved markets in the past and will be looked at with great scrutiny as everyone is still looking for the "Asian effect"! On Thursday we get weekly jobless claims and the Atlanta federal reserve survey. This number will be ignored unless it reveals wage pressures growing. On Friday we get business inventories. Just like the wholesale number that was out on Monday this number will be watched closely. There is not much out this week so the market will probably concentrate more on technical or fundamental matters.

Technically

Well, I guess you can say the market is overbought! Stochastics are screaming a sell signal. 5 & 10 day arms indexes have also gone onto sell signals. Dick Arms himself says that the 5 & 10 day arms indexes are looking the same as they did last October just before the big break down. He expects a pullback from here. The put/call ratio is giving a strong signal also. It is usually one of the last indicators to move into overbought condition. Most indicators are actually overbought in some degree. As you look at the chart below, we ourselves also believe that the market is overbought and believe that we’re in an up market but as we said before a choppy grinding market. We have drawn a channel line showing the direction of the market. Currently the S & P is on top of the channel line and should break back below this channel as soon as the recent enthusiasm dies down. Another interesting note is that futures traders, the technical analysts of all technical trends, say there is a top in the S & P 500 futures around 1020-1025. This means that the top for the cash market would be 1015-1020.

Mclellan Oscillator: 120 100 oversold +100 overbought
Summation Index: 2171

Five day arms: .78 .80 and below, overbought 1.00 and above, oversold
Ten day arms: .84
.80 and below, overbought 1.00 and above, oversold

Bulls: 41.6 previous week 43.5    50% plus overbought/bearish
Bears: 38.2 previous week 35.2
50% plus oversold /bullish
Correction: 20.2 previous week 23.2

Five day Qvix: 21.45 10-15 bullish, low volatility 15-40 bearish, high volatility

Davidson’s View

Well it’s been a while since I’ve been able to actually talk about the market and trades because the market has been so ok. Right now I only wish we werestill in a boring market as we’re seeing pressure in our long trades. The program is going to go to work to figure out where this market is going. I’m actually glad that the market has come up and bumped up against our long trades here. A perfect world would have had it happen next Wednesday or Thursday but thats okay. Timing is everything in the option world. I thought I would take a look at what could happen in the market up to expiration and then tell you which way I think it is going to pan out.

1. The market continues to rally.

The market has been moving an average of 2% per week so we could see the S & P move to 1025-1030 by the end of next week. That would put pressure on both our Long and Short trade. If the market were to continue to rally to the 1025-1030 area the odds of that level holding to expiration are only 5%. If the market is this strongly overbought here, it will have a strong sell off from that level. For this reason I would not close either the long or short trades.

2. The market corrects here. If the market were to start correcting early next week this would make me nervous as there would be too many days left to push the market higher once again. What we want to see here is a continuing flatness at least until Wednesday. If we can close out the week on a good down note the program will be able to give us more accurate numbers on what the odds are of the market moving back to the 1010 level. If the market starts retreating early in the week we will have to close out the sell side of the long trade.

3. The market just stays flat.

This would be the worst case scenario as it would most likley just be building a base to continue higher. Premiums would sink so we would have to be really smart in order to catch the swing upward by buying back the sell side of the trade at the right place. It is unlikely that the market will hold flat anyhow, as traders would expect this to be a top and would want to get out so they would sell it down.

4. My view.

If you look at the chart pattern we’ve had since last summer the market has gone up, down, and all around. Sounds like a song doesn’t it. Anyhow, I mentioned a long time ago about a "slow grinding market upwards". The market to me is still looking that way. (Note the chart below) We’re just now at the top of the channel and I expect a pull back from here to a higher low, around 950-960. Short term I would expect at least to see the 980 area touched or 8000 on the Dow. This will set us up for a nice short put trade. The only problem is that we may hit that level before expiration so we may have to adjust the long trade. It will depend on how far down the market moves. We have had a 10% move since we hit the low last November. In my view, it’s just about finished. The market has ignored all bad news as it has’nt really been that bad. Something will surprise the market to send it lower. There is a rising ascending triangle almost complete and that represents a down trend that should start in the next day or two.

MARKET CLOSES

Index

Last Week

This Week

Change

Percent

Dow Jones

7906.56

8189.49

+282.93

3.6

S & P 500

980.28

1012.44

+32.16

3.3

S & P 100

468.79

483.72

+14.93

3.2

Nasdaq

1619.36

1694.33

+74.97

4.6

30 Year bond

5.81%

5.91%

We will continue to show the 1997 chart plus the 1998 chart until we get further into year.

Current Trades

We have alot of trades on this month. The only trade that is of any worry is the 1010 long trade. The program is showing that the 1010 level has a 13% chance of a loss for this coming expiration. The 900 level only has a 4% chance of being hit by Feb.16th. Our short trade 1025/1030 only has a 9% chance of taking a hit and the ultra trade, 1050/1055 is only showing a 3% chance of a loss. Odds are still good for none of them being hit. There are only 8 trading left before expiration. Next Monday is a holiday so there will be no trading and S & P 500 options last day for trading is Thursday.

Program Trades

Average Entry price

bid

ask

last

1010 sold Call $5.00

long trade

5.50

6.00

5.50

1015 bought Call $4.00

long trade

4.25

5.00

4.25

1025 sold Call $6.00

short trade

8.00

8.50

8.00

1030 bought Call $4.75

short trade

6.25

6.50

6.00

1050 sold Call $2.00

ultra trade

2.00

2.38

2.13

1055 bought call $1.50

ultra trade

1.44

1.92

1.25

900 sold Put $23.00

long trade

.25

.44

.50

895 bought Put $21.82

long trade

.38

.44

.38

1050 Call sold $1.00

sold short trade

2.00

2.38

2.13

Copyright c 1996. 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 Track record  

Short Trades

 

Long Trades

1998 0.0%

current

1998 35%

1997 108%

 

1997 188%

1996 163%

 

1996 169%

   

1995 93%

   

1994 79%

   

1993 177%

   

1992 112%

   

1991 162%

   

1990 166%

 

Agora Outlook


February Expiration February 13th 1998

So has the Dow’s record setting run its course for now? The Dow seemed to be teetering at its all time high on Friday. When traders return Tuesday from the long holiday weekend, they’ll have had three days to ponder whether the market’s historic climb has reached its apex or if there are more mountains to climb, more records to be set. They will have had three days to think about the continued unrest in Asia, as well as further developments in the White House sex scandal and the unsettled debate over whether military action will be taken against Iraq or not. By week’s end the rally was showing signs of sputtering and there are plenty of reasons for concern heading into the coming week in addition to the "big three" of Asia, Iraq and Clinton. Chief among them is the law of gravity. The Bank of Japan’s Tuesday report on that nation’s financial and economic condition is one "known" event capable of shocking global equity markets next week. The "good news", however, is that the Japanese market is already bracing for a disappointment from the economic stimulus package set to be released by the government Friday, so it might be set up for an upside "surprise." There are no great economic reports due next week, but players will keep an eye on Tuesday’s industrial production and capacity utilization figures and Wednesday’s producer price index report. In addition, Treasury Secretary Robert Rubin is holding a news conference Wednesday morning in advance of next weekend’s Group of Seven meeting. His statement could have some interesting words for the market to digest. Earnings have slowed considerably but several big names are expected to report next week. Topping the list is Dow component Hewlett-Packard (HWP), scheduled to release earnings Tuesday. Wednesday brings reports from Dell Computer (DELL), Data Dimensions (DDIM) and Analog Devices (ADI), while WorldCom (WCOM) is slated for Thursday. The Dow started the long weekend with a fourth straight record close Friday. (Broader stock measures, met with profit taking.) The Dow rose a half-point while the Nasdaq and S&P 500 both dipped about four points. The market is starting the week overbought with all time highs. Is it time for more highs or for profit taking?

Economic Effects

On Tuesday, reports showed business productivity grew briskly in the final three months of 1997 but slowed from its sizzling rate earlier in the year. Productivity, or output per worker hour, rose at a seasonally adjusted annual rate of 2.0% in the fourth quarter, slower than the incredible 3.6% rate recorded in the third quarter. However, the fourth-quarter productivity rate easily exceeded the 0.6% rate expected by economists. Healthy growth in productivity is seen as key to maintaining steady, non-inflationary economic growth as it helps business boost production without raising costs. Unit labor costs, a closely watched inflation gauge, accelerated in the fourth quarter, rising by 3.0% after a slight increase of 0.2% in the third quarter. The increase was smaller than expected. Economists had been looking for an acceleration in labor costs to 3.5%. During 1997, productivity increased overall by 1.7% after upwardly revised growth in 1996 of 1.9%, making the past two years among the strongest for productivity growth during the economy's seven year expansion. Although the unit labor costs were high the stock market decided to ignore the warnings. Bonds reacted poorly to the report as inflation is beginning to pick up. Stocks and bonds are currently diverging from one another. Inventories of unsold goods on wholesaler’s shelves rose a bit in December, as sales pulled out of a two month slump. Total wholesale inventories rose 0.9% in December to a seasonally adjusted $272.49 billion, a gain of 6.4% from December 1996. The build up included both costly and long lasting durable goods such as cars, furniture, metals, electrical goods and machinery, as well as more quickly used non durables like paper, drugs, apparel, gas and alcohol. Total sales rose 0.8% in December to a seasonally adjusted $212.53 billion after falling 0.7% in November. Wholesaler’s inventory to sales ratio, a measure of how long it would take to deplete existing stocks at the current sales pace, stood at 1.28 month’s worth in December, unchanged from November. The last time the ratio was as high as 1.28 was in June, 1996. The market barely glanced at this report. Also out today was weekly chain store sales reports. BTM/Schroders chain store sales were up 0.3% in the week ended February 7 versus the prior week. Johnson Redbook sales rose 1.8% in the first week of February. Retail sales rose 6.5% compared to the same month a year ago. January was a nice month, and the first week in February has continued that favorable trend. It appeared to be a clearance month! When the Johnson Redbook number came out one hour before the close, stocks were more interested in getting the Dow to a new high so they ignored the number. Bonds trended a bit lower on the news. Thursday showed weekly jobless claims fell by 2,000 to 303,000 last week, the latest sign of a strong job market. The four week average fell to 308,750 for the latest week from 317,750 in the prior four-week period. The four-week average is at its lowest level since early November when it averaged 308,500. Retail sales rose 0.1% this morning while sales excluding autos increased 0.5% in January. This was below market expectations. Prior to the data's release, bond prices were down more than a quarter point. But with so many players having created short positions in recent sessions, the weaker data forced them to cover, quickly pushing bonds higher. The January report's breakdown contained few surprises. Economists had expected a low or negative auto component that would partially offset the impact of sizable gains in building materials and general merchandise. The weaker than expected retail sales data suggest a small downward revision to fourth quarter Gross Domestic Product and a slower than expected start to the first quarter. On the surface, that seems to be good news for the bond market, but given the drop in jobless claims and continued strength in the labor market, it may suggest that productivity gains might not be as favorable as previously thought. To the degree that GDP comes in weaker than expected, it has negative implications for productivity. On Friday the University of Michigan's preliminary index of consumer sentiment for February rose to 110.1 from 106.6 in the January final. At 110.1, the index posted a new all time high. The current conditions component rose to 119.0 in the preliminary February survey from 113.5 in the January final. Four of the past five years have seen a lower number in February but this month the number went against the odds and was much stronger. The number didn’t have any effect on bonds or stocks. Business Inventories were up for the18th straight month, despite relatively strong sales. Total business inventories increased 0.4% in December to a seasonally adjusted $1.048 trillion after gaining a revised 0.3% in November. All the increase was at the retail and wholesale level while manufacturer's inventories were down slightly from November. The inventory to sales ratio, a gauge of how long it would take to sell existing stocks at the current pace fell to 1.37 month’s worth in December from 1.38 month’s in November. The numbers helped to lift bonds as they are looking for a slowdown. Stocks slipped a bit but were already on the downside from profit taking and the weakness in Asian markets overnight. The best news for bonds today was the record breaking decline in the price of goods from Asia. The economic turmoil in Asia is driving prices down even faster than expected in the U.S. Total import prices slid 1.3% in January after dropping 0.9% the month before.  Excluding a 9.9% plunge in volatile oil prices, import prices fell 0.6% for the month, the steepest such drop in five years. Economists have been predicting that the devaluation of Asian currencies would cause a flood of cheap goods from there to the U.S. Competition from these goods has been counted upon to keep inflation in check here. But January's overall 1.3% decline was even greater than expected. Economists were predicting a decline in the neighborhood of 0.4%. Prices for imports from Asian newly industrialized countries fell 1.2%, the largest fall off since 1993, when the Labor Department began publishing the data on a monthly basis. The measure which includes import costs from Hong Kong, Singapore, Sough Korea, and Taiwan declined 3.1% in the past three months alone and was down 5.8% for the year ended in January. The market so far hasn’t given much regard to the possible economic meltdown whcih could come from Asia.

Next week’s Economic data

There is no data Monday due to the holiday. Tuesday has weekly chain store sales and Industrial Production & Capacity Utilization. This number is becoming more and more important since the Asian crisis is expected to affect our production levels and because rising wages capacity utilization is peaking. This number could have a great effect on the market if there are any surprises. Wednesday has Housing Starts and the all important Producer Price index. The PPI number has been very low the past few months and this number is expected to be low so a big number would not be taken lightly as commodity prices have been creeping back up. On Thursday we get weekly jobless claims and the Philadelphia Federal reserve survey. Also out is the Merchandise Trade number. This is the important number of the day. No one really knows the slowdown that may be forming because of the Asian problems and numbers like this one are already showing effects so this number could be important. Indicators aren’t that important this week unless there are some big surprises!

Technically

The market is continuing to become even more overbought. On Friday it appeared we were starting to see the effects of this situation to reveal itself. There isn’t an indicator that hasn’t started to turn down which shows that the upside may be limited short term. Longer term, the market is not that overbought and the rally should continue. Although the Mclellan Oscillator is registering a short term overbought signal the summation index continues to gain strength showing the rally is not finished yet. The Arms indexes are both overbought but appear to be showing that this also is short term. If the market retreats from here it will probably not be a major correction but enough to give a strong oversold condition. We like to look around the internet to see what is out there and we found a nice technical site you may want to look at! You can find it at: http://www.coolhistory.com/ChipsCharts/CCMarkets.html

Mclellan Oscillator: 60 100 oversold +100 overbought
Summation Index: 2640

Five day arms: .85 .80 and below, overbought 1.00 and above, oversold
Ten day arms: .82 .80 and below, overbought 1.00 and above, oversold

Bulls: 43.7 previous week 41.6 50% plus overbought/bearish
Bears: 32.5 previous week 38.2 50% plus oversold /bullish
Correction: 23.8 previous week 20.2

Five day Qvix: 21.45 10-15 bullish, low volatility 15-40 bearish, high volatility

Davidson’s View

History is most revealing so I thought a look at February expirations of the past might shed some light on what could happen the final week of this expiration cycle. The market appeared to move a lot more in the 80’s than it has in the 90’s. The biggest move in the 90’s occurred in 1991 but this was just after the completion of a big correction so we’re not going to even consider it as this rally started near the top of the market. The market was so low before the rally began we never traded any calls for that time period. 1996 was most similar to what we’re in now. The market was up 7.2% and then lost 1.4% in the final week. Were now up 7.2% so if we lost 1.4% next week that would put the S & P 500 at 1006. There are 3 full days of trading left before expiration and we expect to be on the edge of our seats the whole time. The market should start off the week lower and then we will have to decide what to do with the 1010/1015 long call trade. If the market collapses on Tuesday or Wednesday it will depend on the distance down the S & P moves to see if we buy back the trade or sell short puts. If we’re up those two days we’ll have to wait it out and depend on the program numbers to see what happens. Personally, I think the 1010/1015 call trade will expire worthless no matter what happens, but we can only wait and see.

Date

In the final 2 weeks the market moved

In the final week the market moved

Overall % change from last expiration

1984

-3.1%

-.05%

-7.5%

1985

+1.9%

+0.2%

+5.1%

1986

+4.8%

+2.4%

+7.6%

1987

+2.1%

-0.2%

+5.9%

1988

+5.1%

+2.0%

+2.3%

1989

-0.4%

+1.5%

+3.9%

1990

+0.8%

-0.3%

-2.5%

1991

+7.8%

+3.0%

+11.0%

1992

+0.8%

+0.4%

-1.7%

1993

-2.2%

-1.4%

+.77%

1994

-2.5%

-1.0%

-1.1%

1995

+0.9%

+0.5%

+0.9%

1996

+1.1%

-1.4%

+6.1%

1997

+0.9%

-0.8%

+2.4%

1998

+1.0%

 

+7.2% so far

MARKET CLOSES

Index

Last Week

This Week

Change

Percent

Dow Jones

8189.49

8370.10

+180.51

2.2

S & P 500

1012.44

1020.09

+7.65

0.8

S & P 100

483.72

488.74

+5.02

1.0

Nasdaq

1694.33

1710.42

+16.09

1.0

30 Year bond

5.91%

5.84%

We will continue to show the 1997 chart plus the 1998 chart until we get further into year.

 

Current Trades

Most trades are looking good as we approach the final week of trading on this expiration. The ultra trade, 1050/1055 is looking great. The program gives only a 2% chance of this level being hit next week. It is the same amount for the 900/895 long put trade, 2%. The short call trade is a little bit higher but so far still registering success. The chance of a hit on the 1025/1030 call trade is 14%. The odds are a little high so we will watch it closely. The trade that we’re most concerned with is the 1010/1015 call long trade. The trade is now showing a possible 20% hit rate. That is mostly because the S & P 500 index is currently above the 1010 level. Basic rules dictate that the trade is held until expiration but if there is a possibility to get out we will take it to conserve our capital.

Program Trades

Average Entry price

bid

ask

last

1010 sold Call $5.00

long trade

13.38

14.88

13.50

1015 bought Call $4.00

long trade

10.13

11.50

10.25

1025 sold Call $6.00

short trade

4.75

5.50

4.75

1030 bought Call $4.75

short trade

3.00

3.25

3.00

1050 sold Call $2.00

ultra trade

.25

.38

.38

1055 bought call $1.50

ultra trade

.13

.25

.38

900 sold Put $23.00

long trade

.06

.25

.13

895 bought Put $21.82

long trade

.06

.13

.06

1050 Call sold $1.00

sold short trade

.25

.38

.38

Copyright c 1996. 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


February Expiration February 20th 1998

Economic Effects

Tuesday showed weekly chain store sales rose 2.0% in the second week of February versus January, according to Johnson Redbook retail sales. Retail sales rose 6.8% compared to the same month a year ago. BTM Schroeder retail sales were unavailable this week. The Johnson Redbook number was very strong and pulled the bond market down a bit. Industrial production remained flat in January, offering a hint that the economy's growth might be slowing. Output was flat in January after rising a revised 0.4% in December. December's output was originally measured at up 0.5%. The production rate was more subdued than economists had anticipated. Capacity utilization was 83.3%. Capacity use fell to 83.0% in January from a revised 83.3% in December, showing that the nation's industrial output was not straining against resource capacity. A sharp decline in utility output tied to unseasonably warm weather across much of the country put downward pressure on the total output figure. Manufacturing output was also subdued, up just 0.3% after a 0.4% December gain, the smallest rise since September's 0.1% increase. Bonds staged a brief rally on the news. It was up 20/32 before the report was released and rose another 1/8 of a point immediately after the news came out. Profit taking slowed the gain for the rest of the day. It was certainly a bond friendly report, lower than expected and revisions were downward as well. If you're looking for signs of inflation pressures, don't look in the manufacturing sector because you're not going to find them there. The rates of capacity utilization remain distinctly non-threatening. On Wednesday a steep decrease in energy costs pushed prices at the wholesale level down by 0.7% in January, the biggest one month drop in more than four years. The Producer Price Index, which measures prices before they reach the consumer, was held down by a 3.7% fall in energy prices, the biggest drop since a 5% decline in February 1991 at the end of the Persian Gulf War. Everyone expected a 0.2% fall. This number will help the belief that the Fed will feel no need to boost interest rates anytime soon. Inflation measured by the PPI and the more closely watched Consumer Price Index have been well behaved. For all of 1997, wholesale prices fell 1.2% while consumer prices were up just 1.7%. Both showed the best performance since 1986. Many economists believe inflationary pressures will remain moderate this year as the U.S. economy is flooded with Asian imports made cheaper by steep declines in Asian currencies. There was a 3.7% decline in energy prices but this was the biggest drop in four months. Analysts have noted that the energy price declines have continued even with growing worries of a possible outbreak of war with Iraq. Housing starts fell 0.3% to a seasonally adjusted annual rate of 1.534 million in January after a steeply revised 1% gain to 1.538 million in December. The January building rate was roughly in line with economists forecasts for a 1.54 million unit rate. The permits figures suggested continuing growth ahead for housing, which has benefited strongly from booming job growth and rising incomes. On Thursday the U.S. trade deficit last year rose to its highest level in nine years after jumping 24.3% in December to $10.79 billion. There was a sharp deterioration in America’s trade performance in December pushing the deficit for all of 1997 to $113.7 billion, the worst showing in nine years. The politically sensitive trade gaps with Japan and China both soared with the Chinese imbalance climbing to an all-time high of $49.7 billion, the worst ever with any country other than Japan. U.S. exports of goods and services climbed 9.9% to a record $932.3 billion. But imports were a record as well, rising 9% to $1.05 trillion, the first time imports have topped the $1 trillion mark. The overall deficit was up 2.4% from the 1996 imbalance of $111 billion and was the worst showing since a $115.9 billion in 1988. Bonds were lifted by the number and stocks struggled all day as this could be the start of higher deficits because of the Asian turmoil. America’s deficit in goods climbed to an all-time high of $198.9 billion, up 4.1 percent from last year’s $191.2 billion deficit. This shortfall was offset slightly by an increase in America’s surplus in services trade, such as airline fares and royalty payments, which climbed 6.3% to an all time high of $85.2 billion. Steep devaluation’s of many Asian currencies will make those products cheaper in the American market while making it harder for U.S. exporters to sell into what is one of their major markets. Jobless claims fell in the latest week, the latest sign of a strong job market and a strong economy. The number of people filing new claims for state unemployment insurance fell to 301,000 last week from 303,000 the prior week. The latest reading was the lowest since Jan. 24 when new jobless claims stood at 300,000. Claims have hovered between 300,000 and 304,000 for the last four weeks and the four-week average, which economists consider a more accurate gauge, fell for the fourth consecutive week, to 302,000 from 308,500. The Philadelphia Fed's monthly survey which gauges local business conditions, fell to 12.8 in February against 17.3 in January. The Philadelphia Fed’s manufacturing activity slowed a bit in January to more moderate levels, but businesses remained optimistic about the region's future economic conditions and employment plans are still optimistic. This number brought bonds down a bit as there was strength in the wage component of this report. Reports this week seemed to have more of an effect on the bond market than on the stockmarket.

Next week’s Economic data

This is a pretty quiet week for indicators. On Tuesday we get weekly chain store sales, real earnings and the consumer price index. The CPI number will probably not see any reaction from the market at all as inflation is so low now. The real earnings number may see a continuing rise in earnings and that could pressure the market as Allan Greenspan will be talking to congress today and Wednesday specifically just about this part of the economy. On Wednesday we get existing home sales. This number has been strong the past few months with interest rates falling. On Thursday we get weekly jobless claims and durable goods report. This number could move the market. However, it is hard to read how the market will react to a weak or strong number. Friday has gross domestic product and the Chicago purchasing managers report. Both numbers could move the market as GDP may be slowing and the purchasing managers report may show price pressures in the pipeline. All of these numbers won’t be nearly as important as Allan Greenspan’s speech on Tuesday and Wednesday. That speech will set the tone for the week.

Technically

Don’t you love technical analysis. For 3 weeks everything has been showing that the market is strongly overbought but it continues to rally. The market is still overbought short term and is now starting to peak in some weekly indicators. Longer term though it is still neutral. Usually when this situation is in place you will see a smaller correction and then a retest to bring the longer term indicators into overbought territory. From there you usually get a stronger correction to then start all over again. It was a quiet week for any announcements but Arch Crawford said that he was surprised by the current rally. He feels the market is going to begin running into major problems on February 26th.

Mclellan Oscillator: 60 100 oversold +100 overbought
Summation Index: 3928

Five day arms: .93 .80 and below, overbought 1.00 and above, oversold
Ten day arms: .86 .80 and below, overbought 1.00 and above, oversold

Bulls: 45.9 previous week 43.7 50% plus overbought/bearish
Bears: 30.3 previous week 32.5 50% plus oversold /bullish
Correction: 23.8 previous week 23.8

Five day Qvix: 20.23 10-15 bullish, low volatility 15-40 bearish, high volatility

Davidson’s View

Well, this past expiration showed us that there is definitely momentum in the market! It has basically gone straight up for the past 2 weeks. This straight up move has made the market strongly overbought but that doesn’t mean the rally will quit right away. I would suspect that we should have a small correction, 2-3%, then a test of the highs and then probably a lower move. Unlike previous rallies, the market has a lot to contend with and like previous rallies you can’t go straight up forever. In this last month we just ran out of time. No matter what anyone says, economic indicators are starting to reveal that the slowdown from the Asian crisis is on the way. Some analysts believe that it won’t affect the U.S. very much but when all of Asia (where most of the people in the world live) is moving into at least a recession, it is going to have some kind of effect on the market. We will start to get pre-announcements from companies that their earnings may not be up to par starting March 1st. Since earnings are already expected to be a high 10% plus on average we should see some surprises. Of course, there will be a few that have good earnings, like Dell, but overall earnings should start to be flat. This doesn’t mean that the rally will end, it just means that a good correction should be forthcoming. You can already see advancing issues starting to flatten out. Many think Iraq could have an effect, but I doubt it. Maybe an initial sell off, but then the market will probably come right back. The attack is not to be as broad based as the last one and Saddam really can’t be that stupid. His act is a good one but when push comes to shove I think he’ll give in. The Clinton "affairs" haha will likely not affect the market much either. Last night I was watching a biography on Richard Nixon and when his impeachment was front page news I saw in the corner of the newspaper a heading that read: Stock market rallies! I don’t think the market cares about what Clinton does. We could be in the middle of a blow off in the rally, though, so we should be careful. Next week traders may not want to make any large bets before Fed Chairman Alan Greenspan speaks to Congress on Tuesday and Wednesday. Investors will want to hear the Chairman's outlook on GDP growth, inflation, and unemployment and what impact Asia is likely to have on U.S. economic growth. Last time when Mr. Greenspan hinted that the economy might slow down on Jan. 29, bonds rose 1 1/2 points, driving yields down 10 basis points to 5.84%. If stocks and bonds continue their divergent ways stocks should fall while the 30 year bond rallies. A big factor last week was that investors pulled -430 million out of equity funds. The public has been good the past couple of years at predicting short term tops so this also may be it.

The way we’re going to play the trades this month is as follows: The program gave us levels that represent the current rally in the S & P 500 this month. The upside is only 1070 and the downside is way down at 930. You can tell that a lot of it must have come from the recent rally and that the momentum is peaking. We had a short trade given on Thursday that confirms this. However if we don’t have a good correction coming up, it would be wise to play it safe so we’re going to place the long trade at 1075 call level. The long trade for puts will be the 930/925 options. I don’t think this trade should be placed just yet as the market should correct, thus lifting the put premiums. We have an ultra trade at the 1100/1105 level. The short sell trade is also at 1100. We were thinking of doing the 980 level but I think it would be better to do the 1100 and then buy it back to place another trade around the 1090 level when it comes on line.

 

1. The Long call trade is to SELL THE 1075 MARCH S & P 500 CALL AND BUY THE 1080 MARCH S & P 500 CALL FOR A CREDIT OF $1.06.

2. The Ultra call trade is to SELL THE 1100 MARCH S & P 500 AND BUY THE MARCH S & P 500 1105 CALL FOR A CREDIT OF .50. This is a high credit for this trade but we’re thinking that the premium on the 1105 should drop first thing Monday morning and maybe the trade will be caught. If there are no fills we will wait until this area is filled in with other options before we place a trade.

3. The short sell will be to SELL THE MARCH 1100 S & P 500 FOR A CREDIT OF $1.25. Place a stop at $3.25

MARKET CLOSES

Index

Last Week

This Week

Change

Percent

Dow Jones

8370.10

8413.94

+43.84

0.5

S & P 500

1020.09

1034.20

+14.11

1.4

S & P 100

488.74

494.69

+5.95

0.1

Nasdaq

1710.42

1728.13

+17.71

1.0

30 Year bond

5.84%

5.86%

We will continue to show the 1997 chart plus the 1998 chart until we get further into year.

 

Current Trades

Well we got hit pretty hard on our short and long call trades this month but we made gains on our long puts, ultra’s and outright short position. Unfortunately they didn’t make up enough to counter the short and long trade loss. We do expect this month to be a better month of course. Now that the trend of the market has switched from flat to up we will be watching the rally closely. The program gave a signal for a short trade on Thursday so the momentum may be ending in this rally.

Program Trades

Average Entry price

bid

ask

last

1010 sold Call $5.00

long trade

21.68

1015 bought Call $4.00

long trade

16.68

1025 sold Call $6.00

short trade

6.68

1030 bought Call $4.75

short trade

1.68

1050 sold Call $2.00

ultra trade

.00

1055 bought call $1.50

ultra trade

.00

900 sold Put $23.00

long trade

.00

895 bought Put $21.82

long trade

.00

1050 Call sold $1.00

sold short trade

.00

March 1025 Call $24.50

short trade

26.00

27.00

26.13

March 1030 Call $21.82

short trade

22.00

23.50

23.00

Copyright c 1996. 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 Sells

1998

Current

-75%

1998

Current

-21%

1998

Current

10%

1998 Current

4%

1997

108%

1997

188%

1997

82%

1997

1996

163%

1996

169%

1996

99%

1996

1995

1995

93%

1995

76%

1995

1994

1994

79%

1994

89%

1994

1993

1993

177%

1993

long

1993

1992

1992

112%

1992

long

1992

1991

1991

162%

1991

long

1991

1990

1990

166%

1990

long

1990