To save time on reading we are cutting back on the archived letters of this expiration cycle by taking out the Economic effects, Next Weeks economic effects sections as they are very large.  We also took out the track records section as you can find it in another part of the site.  This expiration cycle contains 4 letters. 

                                                           April Expiration          March 27th 1998

Technically
On all points the market continues to be overbought but is starting to roll over. We expect to see only a small decline in the market because we have seen such a huge advance the past two months. It will be small because, a sharp, short decline after big gains always causes the market to become oversold very quickly. This occurs because the bulls are just plain tired out, and will sell stocks outright causing them to crash in price instead of descend. Usually, you will then see a retest of the highs and if the market turns back down it will take more time and lower readings to see an oversold condition. This may cause a sideways pattern. Just what we want. The summation index continues to be overbought but as we said last week, the market usually doesn’t react right away so it could remain overbought for some time yet. Relative strength has turned down now from an outright sell signal given at the start of the week. The volatility index this week actually began to move up again as the market has started to move lower. This is a good sign showing that the market is coming back to earth in its movement. An interesting indicator this week has been the ARMS index. With each sell off this week the market saw the ARMS index close the day at overbought levels, under .80 instead of an oversold condition. This indicates that the bears are now in control as bulls try to buy the market up but sellers overpower them and drive the market lower at the close. We are only .4% away from a sell signal on the bull/bear indicator. This is a longer term indicator. Many people believe that whenever there is more then 50% bull newsletter writers that the market is very near a longer term top. It is a contrary indicator. The last time bulls were this strong was just before the 1994 market top.

Mclellan Oscillator: -14 -100 oversold +100 overbought
Summation Index: 3232

Five day arms: .86 .80 and below, overbought 1.00 and above, oversold
Ten day arms: .85 .80 and below, overbought 1.00 and above, oversold

Bulls: 49.6 previous week 48.0 50% plus overbought/bearish
Bears: 26.4 previous week 27.6 50% plus oversold /bullish
Correction: 24.0 previous week 24.4

Five day Qvix: 22.40 10-15 bullish, low volatility 15-40 bearish, high volatility

Davidson’s View

The Dow has soared 1,533 points, from its intraday low on Jan. 12 to its peak on Wednesday. That’s 20.6%, in just 2 months! Although I think we’re in a short term corrective phase I still think we’ll continue higher from here. It will be interesting to see what the market does after this quarter ends. The key I think is going to be interest rates. With the downturn in the market it appears that stocks are back on track with the movement in bonds. Bonds moved all the way back to 5.95% this week and stocks backed up with them. I think partly because it makes stocks look expensive at these levels. There were rumors flying around saying it appears that the Fed may have to raise rates now because the economy is getting a little too strong. Oil, commodities and gold have all rallied this past week indicating that inflation could be on its way back. John Liscio from the Liscio report also helped to move bonds lower on Friday when he said that there is a chance the Fed may have to raise rates soon. This is largley due to the huge speculation in real estate and rising wages. He doesn’t think, though, that they will raise rates next week at Tuesday’s meeting. He also believes the market is acting irrationally since company profits for the first time in years fell in the fourth quarter and the market has still moved to new all time highs. I have to concur and wonder if we’re going to enter a blow off phase later in the summer. This quarter’s earnings reports which start next week should tell all. If they’re even lower than the fourth quarter numbers and the market continues higher, look out below! Before that though, we could see 10,000 on the Dow because of a blow off. But for now, the 30 year bond is looking like we’re going to see higher rates and this is a good sign for the market short term. If rates remain around 6.00% the market’s advance should be held in check. Perfect for this month’s trades! This graph is the 30 year T-bonds futures prices. When bond prices go down yields go up and vice-versa.

 

MARKET CLOSES

Index

Last Week

This Week

Change

Percent

Dow Jones

8906.43

8796.08

-110.35

1.2

S & P 500

1099.18

1095.44

-3.74

0.3

S & P 100

525.24

525.16

-.09

.01

Nasdaq

1789.16

1823.58

+34.42

1.9

30 Year bond

5.88%

5.95%

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

 

Program Trades

This was a busy week for trades but we were able to fill most of our put trades and our out right sells on both puts and calls. This coming week we hope to finish filling our call trades and then we’ll be set for this expiration. The important thing that involves our trades is that the market looks like it has returned to normal trading. Were not going straight up as we have been the past couple of months. Next week should test the lower rising trendline and then we’ll know exactly how the market is going to move. With the action this past week it looks like the odds are low that we’ll continue rising straight up.

Current Trades

Average Entry price

bid

ask

last

500 sold OEX Put $3.75

long trade

3.38

3.50

3.63

495 bought OEX Put $2.87

$.88 long trade

3.00

3.13

3.13

485 sold OEX Put $2.50

ultra trade

2.00

2.25

2.13

480 bought OEX Put $2.00

$.50 ultra trade

1.69

1.82

1.82

1005 sold SPX Put $3.00

$3.00 sold short

3.25

4.00

3.75

1050 sold SPX Put $8.50

long trade

7.50

8.00

7.50

1045 bought SPX Put $7.25

$.75 long trade

6.50

7.25

7.00

1175 sold SPX Call $1.00

$1.00 sold short

.81

.88

.75

 

                                                             April Expiration            April 3rd 1998

Since everyone is interested in the web we thought you may be interested in this article we found. A new statistical survey estimates that the World Wide Web contains at least 320 million pages, far more than previously thought. What's more, the researchers say their results suggest that any one Internet search engine covers "just a fraction" of the Web. Gauging the World Wide Web is like trying to corral a mushroom cloud: Some say the Web could grow by 1,000% in just a few years. Even the researchers behind the new study published in Friday's issue of the journal Science acknowledge that their results are merely a snapshot of a fast-changing phenomenon. Although the Web now serves as the world's greatest information resource, the biggest challenge is finding the precise information you need or want, leading to a lucrative boom in Internet search engines. Since their inception, search-engine sites have ranked among the most frequently visited spots on the Web. Lawrence and Giles analyzed the coverage of six full-text search engines - AltaVista, Excite, HotBot, Infoseek, Lycos and Northern Light - not only to see how they compared to each other but also to derive their figures for total Web size. Yahoo, a well-known search engine, did not figure directly in their calculations because its much smaller index is constructed manually rather than by using "crawler" software. However, Yahoo also returns results from AltaVista. The researchers analyzed results from 575 search-engine queries made in December under a rigorous set of constraints. For example, only documents that could be downloaded and actually contained the query terms were counted. Then Lawrence and Giles looked at the overlap between pairs of search engines. By comparing the proportions of overlap, they could derive an estimate for the total size of the "indexable Web" - which would not count documents hiding behind search forms, password-protected pages or other documents excluded from Web indexing. Comparing the two biggest search engines AltaVista and HotBot yielded the estimate of 320 million pages. The actual number is probably even higher, Lawrence and Giles said, because of the limitations under which they conducted their analysis and because some Web pages are probably not indexed independently. Previous estimates of the Web's size ranged from 100 million to 200 million pages. Using the new figures, Lawrence and Giles estimated that HotBot covered 34% of the indexable Web, with AltaVista at 28%, Northern Light at 20%, Excite at 14%, Infoseek at 10% and Lycos at 3%. Most people seem surprised to find that the coverage of the search engines is smaller than they thought. So now when your looking for something on the web you can understand what the problem is but you know which search engine will produce the best results!

Technically
We indicated at the start of this April expiration period that the market would become oversold without much of a move lower and that has occurred short term. The market was down last week and had only a slight upward bias this week. The Mclellan Oscillator is moving towards an oversold level short term but continues in an overbought situation within the summation index. The Arms index is neutral long term but approaching oversold levels short term. Momentum and relative strength continues to fall however which is not a good sign for future progress. Another important longer term indicator has now flashed an outright sell. It is the bull/bear indicator. It has been over 3 years since we had a reading over 50 on the bull side of the indicator and that was when we started the 1994 correction. The bear reading in the indicator is at a 6 year low. From a contrary standpoint that means the market should move lower. Gann trading is also registering a sell on the Dow at 9000 give or take 180 points. Fibonacci levels indicate that the peak in the Dow should be Monday. We don’t give much merit to the fibonacci or astrological indicators but they should be recognized.

Mclellan Oscillator: 13 -100 oversold +100 overbought
Summation Index: 3174

Five day arms: .92 .80 and below, overbought 1.00 and above, oversold
Ten day arms: .89 .80 and below, overbought 1.00 and above, oversold

Bulls: 53.2 previous week 49.6 50% plus overbought/bearish
Bears: 22.6 previous week 26.4 50% plus oversold /bullish
Correction: 24.2 previous week 24.0

Five day Qvix: 23.33 10-15 bullish, low volatility 15-40 bearish, high volatility

Davidson’s View

Well, so far, this expiration has been turning out as we expected. The advance has continued within the channel but the market is now moving up and down with greater volatility. We have only 9 full trading days to expiration and we have only moved about 1.8% so far in this cycle. Most of it was this week alone. I said at the beginning of this expiration that the market has never made three strong months in a row due to the fact that it is becomes strongly overbought and momentum begins to dwindle. If this was’nt the case, the Dow would be making 120% a year. The volatility that we’re seeing now is giving us signs that a top is near a top that could see the S & P break the bottom trend line. The worst case scenario for our trades is that we’ll continue in the upward channel with even greater volatility as we finish this expiration. The 1160 level on the S & P 500 is at the top of the channel at the day of expiration so it will be hard for the S & P to reach that level. The good news is that the last couple of weeks bonds have also started working in synch with stocks again. The strong move up in bonds this week, and especially today, saw a failure of the old highs being broken in bonds. With bonds being overbought and poor sentiment after the failure, they will likely be lower next week, pulling stocks with them. This also gives us another clue that the market has come back into rational thinking once again, except of course the internet stocks. They’re still flying out of this world! This week the market will likely start higher but we don’t expect it to hold by week’s end and we’ll even go as far as saying that we’ll probably have a down week.

MARKET CLOSES

Index

Last Week

This Week

Change

Percent

Dow Jones

8796.08

8983.41

+187.33

2.1

S & P 500

1095.44

1122.71

+27.27

2.4

S & P 100

525.16

538.75

+13.59

2.6

Nasdaq

1823.58

1855.40

+31.82

1.7

30 Year bond

5.95%

5.78%

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

 

Program Trades

Currently we are in the most trades we have ever had at any one given time. It’s getting, a little confusing to follow actually but the good thing is that not every person follows every type of trade. The idea of having all of these choices is that a person will follow certain types of trades only. Some people like the ultra’s and outright sells. Some like the longs and a very few like the shorts. It would be nice to be able to report all of the profits that we’ll make after this expiration period is finished but instead we’ll have to take the average of all the long, short, ultra and outright sells and give you the total. As it looks right now, we’ll have a 31% profit on the longs. 20% on the ultra’s, 20% on the short trade and finally 4% on the outright sells. We ran the numbers to see what the possibilities of taking a hit are on our trades by expiration. The long OEX 500/495 or SPX 1050/1045 puts only have a 4% chance of being hit by expiration. The ultra OEX 485/480 or SPX 1025/1020’s puts only have a 2% chance of taking a hit by expiration. The short 1140/1150 calls are showing that there is a 25% chance of a hit so we will look at closing the position this week on a down market. The 1160/1165 long calls and the 1165/1175 ultra calls are showing that there is only a 7% chance of taking a hit by expiration. We are very surprised at the low numbers on the long and ultra trades but it is most likely due to the extra volatility were seeing.

Current Trades

Average Entry price

bid

ask

last

500 sold OEX Put $3.75

Long trade

1.00

1.06

1.06

495 bought OEX Put $2.87

$.88 long trade

.81

.93

.93

1160 sold SPX Call $1.75

Long trade

2.25

1.88

1.75

1165 bought SPX Call $1.00

$.75 long trade

1.25

1.63

1.63

1050 sold SPX Put $8.50

Long trade

2.25

2.13

2.00

1045 bought SPX Put $7.25

$.75 long trade

1.56

2.06

2.00

485 sold OEX Put $2.50

Ultra trade

.63

.68

.68

480 bought OEX Put $2.00

$.50 ultra trade

.50

.56

.50

1025 sold SPX Put $5.50

Ultra trade

1.25

1.50

1.25

1020 bought Spx put $5.00

$.50 ultra trade

.81

1.32

1.50

1165 sold SPX Call $1.08

Ultra trade

1.25

1.63

1.63

1175 bought SPX 1075 Call $.50

$.58 ultra trade

.50

.75

.75

1005 sold SPX Put $3.00

$3.00 sold short

.88

1.18

1.06

1175 sold SPX Call $1.00

$1.00 sold short

.50

.75

.75

1140 sold SPX Call $6.00

Short trade

7.50

8.38

6.88

1150 bought SPX Call $4.00

$2.00 short trade

4.25

4.75

4.50

 

                                                                 April Expiration       April 9th 1998

Davidson’s View
Well it looks like were going to have a successful expiration next week. The SPX closed today right at where we thought it might. Last night I was plugging the numbers to see what the Program had calculated the odds were for any of our remaining trades to be hit. It found that were well into the 90% range that we’ll be successful on our trades. The 1160 level on the SPX only has a 4.5% chance of being reached by next Friday. It would take an incredible rally next week to move that far. With 12 or 40% of the Dow stocks reporting earnings next week that will probably hold back any great moves upward in the Dow. The other factor that will likley hold back the market is the growing concern in the U.S dollar. If more traders begin to think that the Yen will strengthen the more pressure there will be on bonds and then on stocks.

Our long puts are at the 1050 level on the SPX and 500 on the OEX. These levels are 6.5% and 6.1% away from the close on Friday. Most people in general think that when the markets has a strong advance it will turn and move strongly down in a correction. History reveals that its has never happened before. So the odds of seeing a 6.5% correction in one week will most likely not occur. None the less it should be an exciting week as we set up for the May expiration cycle!

Technically
The market has moved from an overbought level to a neutral area but is fast approaching an oversold level so we will probably see a short term bottom in the market next week. The markets move lower has been healthy for it and should get it back on track to moving both up and down. In general many technical analysts still think there is room for the upside. It will probably continue to rise but with a much lower ascent and small corrections along the way. Perfect for credit spreads!

Mclellan Oscillator: -83 -100 oversold +100 overbought
Summation Index: 2984

Five day arms: .93 .80 and below, overbought 1.00 and above, oversold
Ten day arms: .94 .80 and below, overbought 1.00 and above, oversold

Bulls: 53.2 previous week 49.6 50% plus overbought/bearish
Bears: 22.6 previous week 26.4 50% plus oversold /bullish
Correction: 24.2 previous week 24.0

Five day Qvix: 22.88 10-15 bullish, low volatility 15-40 bearish, high volatility

MARKET CLOSES

Index

Last Week

This Week

Change

Percent

Dow Jones

8983.41

8994.86

+11.45

0.1

S & P 500

1122.71

1110.67

-10.71

1.0

S & P 100

538.75

533.20

-5.55

1.0

Nasdaq

1855.40

1820.24

-35.16

1.9

30 Year bond

5.78%

5.88%

Program Trades

When we closed out the short trade today it had made an average $1.60 or 16%. The trade had already showed a profit of $1.06 or 11% on Thursday as the ask price on the 1005 was .93. The original spread placed was for $2.00 so $2.00-.93=$1.06 profit. The average buy back today was .82 on the 1140 sell side increasing the profit to $1.18. Everyone could have held the 1150 as a free option but decided to close the position for an average sell of .42.short trade. With one week to go before expiration it looks like we’ll have a 31% profit on the longs. 20% on the ultra’s, and finally 4% on the outright sells. We ran the numbers to see what the possibilities of taking a hit are on our trades by expiration. The long OEX 500/495 or SPX 1050/1045 puts only have a 2% chance of being hit by expiration. The ultra OEX 485/480 or SPX 1025/1020’s puts only have a 1% chance of taking a hit by expiration. The 1160/1165 long calls are showing that there is only a 5% chance of taking a hit. The 1165/1175 ultra calls are showing that there is only a 3% chance of taking a hit by expiration.

Current Trades

Average Entry price

bid

ask

last

500 sold OEX Put $3.75

Long trade

.50

.56

.56

495 bought OEX Put $2.87

$.88 long trade

.44

.50

.44

1160 sold SPX Call $1.75

Long trade

.13

.18

.13

1165 bought SPX Call $1.00

$.75 long trade

.06

.13

.13

1050 sold SPX Put $8.50

Long trade

.13

.18

.25

1045 bought SPX Put $7.25

$.75 long trade

.06

.13

.13

485 sold OEX Put $2.50

Ultra trade

.25

.32

.25

480 bought OEX Put $2.00

$.50 ultra trade

.18

.25

.25

1025 sold SPX Put $5.50

Ultra trade

.50

.75

.63

1020 bought Spx put $5.00

$.50 ultra trade

.13

.50

.75

1165 sold SPX Call $1.08

Ultra trade

.06

.13

.13

1175 bought SPX 1075 Call $.50

$.58 ultra trade

0

.06

.06

1005 sold SPX Put $3.00

$3.00 sold short

.25

.44

.44

1175 sold SPX Call $1.00

$1.00 sold short

0

.06

.06

1140 sold SPX Call $6.00

Short trade

7.50

8.38

6.88

1150 bought SPX Call $4.00

$1.60 profit

4.25

4.75

4.50


                                   April Expiration      April 17th 1998                                         

This past expiration cycle was well within bounds of being average. For the month we were only up 3.4%. Were now well outside of the upper band when looking at the expirations chart. Percentage wise, we’re now well past the high of 1987 when you look at the rally since 1990. Interestingly, even if we do include the 1994 correction, we’re now above (in percentage terms) the `87 high. Twice last year the overall market has had a 10% "correction". Since the market’s old high in August, the market had mostly gone sideways. It corrected about 10% just after the October expiration period but immediately came off its lows with a sharp 6% rally. As we already said, we believe that a genuine correction in the market lasts longer than a few days or hours. Also, the market needs to consolidate the decline as in 1987 and 1990. We believe that a good correction will endure through an expiration period and be at least 10% lower at expiration. We have not seen such a correction since 1990. It has always been our view that with the multiple of derivative strategies being employed it is not to the benefit of institutions for an expiration period to be too low or too high since institutions are now big sellers of options. They prefer to keep 82% of all options expiring worthless since it’s a great cash grab for them. The past few years have seen volatility die down around expiration as the institutions now complete their strategies before expiration finishes. This past expiration period was a great example of that. This past month we saw expiration with a 3.5% gain. It appeared from all angles economic, fundamental and technical, that the market was going to plane out this past month. So, what will happen next month? Read Ken’s outlook?

Technically
The market remains in the neutral area but is fast approaching the overbought level on the weekly indicators. Most of our indicators are in the neutral area except the bull/bear indicator that is looking very overbought. The market is still not giving any real indication that this rally is going to stop. The S & P 500 could possibly reach the 1055-1060 level. The daily graph on the S & P 500 still looks like it could be developing a head and shoulders pattern even though we made a new high on Friday so we need to watch that closely. This coming week could reveal a lot from a technical standpoint as the market has little else to trade off of except technical factors. Most of the earnings reports for the coming week are not important enough to move the market except maybe IBM on Monday and there are no important economic indicators out.

We found an interesting article in the "Marketwatch" section of Barron’s this past week. It said that Carl Ruhle from Prudent Market Decisions timing model has just given a major sell signal. This is the first signal from their timing model since it gave a buy signal on November 2, 1990, at Dow 2480. The sell signal implies that the Dow is at a momentum peak. They don't rule out the possibility of new highs in the Dow after first selling-off, but probability suggests that not as many stocks will be participating.

Mclellan Oscillator: -48 -100 oversold +100 overbought
Summation Index: 2629

Five day arms: .85 .80 and below, overbought 1.00 and above, oversold
Ten day arms: .89 .80 and below, overbought 1.00 and above, oversold

Bulls: 52.8 previous week 52.4 50% plus overbought/bearish
Bears: 23.6 previous week 24.2 50% plus oversold /bullish
Correction: 23.6 previous week 21.4

Five day Qvix: 22.46 10-15 bullish, low volatility 15-40 bearish, high volatility

Davidson’s View
Well, this expiration turned out quite well with good profits on all of our trades. It was the busiest month we have ever had for trades. We ended this past expiration at a new high on the S & P 500 and the Dow. It’s nice to see the market back into a normal trading pattern once again. Although many people see May as a strong month it has been a neutral month when you look at expirations in the past. I’m expecting it to be an up month with volatility increasing on both the upside and the downside. Sometime during the expiration cycle we could experience the first leg down of a correction but it will unlikely be that deep. Possibly 2-3%, but then the market will most likely come back to retest old highs and then correct deeper. The actual May expiration should finish somewhere in between. The market may become quite mixed, as many analysts are starting to talk more and more about the valuation of the market and this recent rally. The 30-year bond has started to back up towards 6.00% and that level with high valuations does make the market look scary. Analysts say the smart money is selling bonds because they think there could be an interest rate increase by the Fed sometime later in the year. Of course, everything takes time so we’ll just get time working for us and get good trades this month.

MARKET CLOSES

Index

Last Week

This Week

Change

Percent

Dow Jones

8994.86

9167.50

+172.64

1.9

S & P 500

1110.67

1122.72

+12.05

1.1

S & P 100

533.20

542.87

+9.67

1.8

Nasdaq

1820.24

1866.60

+46.36

2.5

30 Year bond

5.88%

5.87%

S & P 100 Expiration 542.87
S & P 500 Expiration 1109.76

  Current Trades

With the market closing up on Friday it was great to see our risk adverse club make 12% in profits in 6 hours on the 530/525 OEX put short trade today. The OEX closed the day and expiration at 542.87. This month in total brought in 80% profits on trades. It would have been nice if we could have done all of the trades but unfortunately everyone can't so the break down is as follows:

Long trades on calls and puts were 31% average for the total.
Ultra trades were total 17% on average.
Short trades were total 28%
Out right Sells were 4% total.

Average Entry price

Bid

ask

last

500 sold OEX Put $3.75

Long trade

0

0

0

495 bought OEX Put $2.87

$.88 long trade

0

0

0

1160 sold SPX Call $1.75

Long trade

0

0

0

1165 bought SPX Call $1.00

$.75 long trade

0

0

0

1050 sold SPX Put $8.50

Long trade

0

0

0

1045 bought SPX Put $7.25

$.75 long trade

0

0

0

485 sold OEX Put $2.50

Ultra trade

0

0

0

480 bought OEX Put $2.00

$.50 ultra trade

0

0

0

1025 sold SPX Put $5.50

Ultra trade

0

0

0

1020 bought Spx put $5.00

$.50 ultra trade

0

0

0

1165 sold SPX Call $1.08

Ultra trade

0

0

0

1175 bought SPX 1075 Call $.50

$.58 ultra trade

0

0

0

1005 sold SPX Put $3.00

$3.00 sold short

0

0

0

1175 sold SPX Call $1.00

$1.00 sold short

0

0

0

1140 sold SPX Call $6.00

Short trade

0

0

0

1150 bought SPX Call $4.00

$1.60 profit

0

0

0

 

Short Trades

Long Trades

Ultra Trades

Short Sells

1998Current

-14%

1998Current

-13%

1998Current

30%

1998Current

12%

1997

108%

1997

188%

1997

82%

1996

163%

1996

169%

1996

99%

1995

93%

1995

76%

archives.htmhttp://archives

1994

79%

1994

89%

1993

177%

1993

long

1992

112%

1992

long

1991

162%

1991

long

1990

166%

1990

long

Copyright c 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.