February 99

The letters displayed start with expiration and work backwards to the start of the expiration cycle.

Agora Outlook

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

February Expiration February 19th 1998

Davidson’s View

When the market made its new high in November 1998, over 80% of all stocks were trading above their 50-day moving average. As of last Friday, only 41% of all stocks were trading above their 50-day moving average. This is highly unusual when the Nasdaq Composite and the S&P 500 are within a whisper of their all-time record highs. In addition, when you look at the advance/decline line for the NYSE you see that they are very close to the low level reached during the dramatic decline last August. This is a very unhealthy set of conditions that reveal that the 4-month bull market was largely a result of a small group of large-cap stocks moving up.

The question is, which way is the market about to head then? With 30% of all NYSE stocks below their 10-week moving average it would normally be a buy signal for the market. If these stocks now begin to rally while the big caps are correcting, we should expect the market to stay neutral. But, we could see the movement in the smaller stocks get the big caps going once again resulting in new highs. It will be important to see if the advance/decline moves to a new low. That would likely bring the whole market lower. We should know by next week as the a/d line is already so close to its October’ 98 low.

With the market still undecided about economic conditions, interest rates and earnings slowdowns, we’ll likely continue to see daily volatility. We have been relatively flat for two months so a break to the upside or downside is likely to transpire this coming expiration cycle. If we don’t move sharply lower in the next couple of weeks, we’re even more likely to break out to the upside. However, even if we do move higher I still don’t think that it would be as sharp as other breakouts have been because traders are starting to realize that there is a high probability of an interest rate increase in the spring. Overall, it looks like another grinding month with an upward tilt after we finish forming the base. Technicals, (see below) are pointing to being oversold which means we’re more likely to move higher than lower although we probably will continue to be flat until after Mr. Greenspan, the Federal Reserves Chief, is finished giving his testimony to congress next week.

Technically

Stochastics and momentum indicators are still giving a neutral reading on a daily basis and almost overbought short term but most indicators are giving mixed readings for the coming week.

The Mclellan Oscillator is still oversold and the summation index is deeply oversold. The summation index collapsed this week and is approaching the Oct’. 98 lows, which indicates that a bounce, may be near. This indicator follows both the 5 and 10 day Arms indexes, both being deeply oversold. The Arms indicators have been good predictors of the market so we should take note of their readings.

One indicator that is remaining high is the volatility index. It is sitting over 30, indicating that the market may still see some downward pressure before it starts to move higher yet. It also looks like the bulls are starting to pull back now that the market has been flat for a while now but the indicator is still giving a bearish reading. Overall, indicators are very mixed and the market is confirming that as it will continue in its sideways action at least for the coming week.

Mclellan Oscillator: -58 -100 oversold +100 overbought
Summation Index: -865

Five day arms: 1.19 and below, overbought 1.00 and above, oversold
Ten day arms: 1.10 .80 and below, overbought 1.00 and above, oversold

Bulls: 55.7 previous week 60.7 50% plus overbought/bearish
Bears: 28.7 previous week 28.2 50% plus oversold /bullish
Correction: 15.6 previous week 11.1`

Five day Qvix: 31.85

Economic Effects

Wednesday
Sluggish demand abroad for U.S. manufactured goods put a damper on industrial activity in January. Production at the nation's mines, factories and utilities remained flat in January after a 0.2% gain in December. Industrial output was up a modest 1.7% on the year, even as the broader economy was zipping along at a rapid clip.
The industrial output data highlighted the toll that economic crises in Asia, Russia and Latin America have taken on the U.S. factory sector, damage that has not spilled over to the rest of the economy even though many analysts thought it would. Some economists took heart from the fact that U.S. industrial output was only flat in January, instead of declining, as it reinforced a sense that manufacturing may stabilise after hitting bottom. Manufacturing companies raised output by 0.1% in January, the same rate as in December. Utilities boosted output by 0.2% after a 2.4% surge in December. A steep 1.8% drop in mining output, however, led to a big drag on overall industrial output. Industry was operating at 80.5% of its full capacity in the month, the weakest rate since 80.4% in September 1992 and a drop from the December rate of 80.8%. Economists had projected, on average, a flat production reading and capacity use at 80.6%.
The manufacturing sector continues to be the weakest area in the economy but it continues to do fairly well considering everything it is up against the strong dollar and weak exports. The economy remains quite strong as evidenced by today's housing starts report.

Construction starts of new homes soared in January to their highest level in more than a decade, in a report suggesting the U.S. economy lost none of its steam at the start of the year. Total starts jumped 3.8% in January to a seasonally adjusted annual rate of 1.804 million, following an upwardly revised 5.1% rise to 1.738 million in December. January's building rate was the highest since 1.833 million recorded in December of 1986.
The gain was far above analysts' expectations of a 1.68 million annual rate for January starts and the data's release caused a momentary dip in inflation sensitive bond prices and a slight firming in the value of the dollar. Just as in the previous month, the January housing start spurt was concentrated in apartments, where starts shot ahead at a 13.9% rate to 410,000.
Starts on single-family homes rose 1.2% to 1.394 million in January, their highest level since February 1984, following a modest 0.2% gain in December. Housing starts were strongest in the South, where they rose 22.3%, while the West saw a 3.7% gain. But in the Midwest, starts were down 25.3%, and they fell 3.2% in the Northeast.
The brisk overall building pace showed no sign of cooling off in the future. New applications for building permits, an indicator of future housing starts, were up 2.8% in January.

Thursday

Soaring food and energy prices pushed up wholesale prices to their fastest rate in more than two years, the government said today, but inflation in other major sectors remained mild. The Producer Price Index jumped 0.5% in January after a 0.4% increase in December. January's was the biggest one-month gain since a matching increase in October 1996.

It was also well above the 0.1% rise forecast by economists in a Reuter’s survey. There was very little reaction in financial markets as traders saw the gain in producer prices outweighed by a fall in the core rate. The core PPI, which strips out volatile food and energy costs, eased by 0.1% in January after a 1% rise in December. Economists had expected the core index to increase by 0.1%.

Food and energy prices have been extremely soft over the past year because economic problems in Asia, Russia and Latin America have depressed global demand for farm products, oil and an array of other commodities.

Prices of food products, which make up nearly one-fourth of the PPI, surged 1.6% in January, their biggest gain since a matching rise in April, 1993. Prices of energy goods rebounded from two straight months of steep declines, climbing 1.8% last month. Soaring gasoline and heating oil costs helped drive the gain, but costs for residential electric power and natural gas also grew. Helping to offset those strong price gains was a 1.2% drop in the cost of passenger cars. While stressing that the latest PPI data did not set off any inflation alarm bells, some economists said it might be an indication the best news on prices is in the past.

The Labor Department said the number of people filing first-time claims for unemployment benefits rose slightly last week, but remained at levels suggesting a strong labor market. Initial jobless claims rose by 4,000 to 288,000 in the week ended Feb. 13 from 284,000 in the prior week. The four-week average of initial claims, viewed as a more accurate barometer of the job market, fell to 292,000, the lowest since 1989.

Friday

Consumer prices rose less than expected in January, another sign that inflation remains quiet despite robust economic growth. The Labor Department said its Consumer Price Index rose just 0.1% last month, both overall and in the closely watched core index, which strips out volatile food and energy costs. That was below the 0.2% gain for both indices forecast by economists in a Reuters survey.

The CPI, the government's main inflation gauge, had risen by 0.1% in December with a 0.3% gain in the core that month. In the 12 months ended in January, the CPI was up 1.7%. The CPI numbers look good. There are no danger signs of inflation. The mild CPI rise in January came despite a 0.5% jump in food costs, which make up a sizable 15% of the total CPI Index.

Many other major categories of goods and services showed little or no inflation in the month. Energy costs eased 0.2%, with fuel oil, electricity and natural gas costs down but gasoline prices up slightly. Housing prices dipped 0.1% in January, showing their first monthly decline since February 1986. Apparel prices slid 1.1%, the steepest drop in a decade. But medical care costs firmed 0.3% and the volatile airline-fare category surged 1.8%.

The meagerness of the January CPI gain should relax any worries raised by the report released Thursday showing an unexpectedly high increase in the Producer Price Index for January. The PPI, which measures wholesale inflation as opposed to the retail prices tracked by the CPI, rose 0.5%, driven up by higher food and energy costs. The CPI and the PPI often differ, especially on a month-to-month basis, because they are computed differently. While the PPI is based on a survey of businesses, the CPI is calculated from prices observed in stores and other retail outlets.

January marked the first month the department began calculating the CPI based on a new method called ``geometric mean.'' The change aims to take into account ways that consumers insulate themselves from inflation by substituting among similar items. For example, they could switch to Granny Smith apples if the price of Red Delicious apples goes up. The change is expected to reduce the CPI's annual growth rate by two-tenths of a percentage point, but officials said the impact for a one-month time frame would be so small, it probably wouldn't be noticeable in the January figures.

The U.S. trade deficit jumped to a record $168.59 billion last year as the robust domestic economy sucked in imports from countries trying to export their way out of economic turmoil. The gap narrowed unexpectedly in December to $13.79 billion from $15.26 billion in November. Analysts had been expecting a $15.8 billion trade gap in December.

The record deficit for 1998, up 53% from $110.21 billion in 1997, had been predicted for the last several months by U.S. trade officials as economic turmoil gripped Asia, Russia and Brazil. Financial markets greeted the lower-than-expected December trade gap as a positive sign for the U.S. economy, and it helped trigger a rise in the value of the dollar.

There was a fairly sharp drop in imports but exports, in general, remain weak as the dollar remains relatively strong and many economies are experiencing softness. Economists said the surprise December data could prompt them to revise upwards their estimates for economic growth in the last quarter of 1998. Some said it could mean the economy grew by about 6% instead of the government's 5.6% advance estimate.

The 1998 record trade gap reflected the overall strength of the U.S. economy and weakness among its many trading partners including Japan. The deficit with Japan rose to $5.88 billion in December from $5.78 billion in November and totaled $64.1 billion in 1998, the highest since 1994 when the deficit was $65.7 billion, the department said. The deficit totaled $56.1 billion in 1997. The U.S. deficit with China fell in December to $3.98 billion from $5.03 billion in November. The 1998 deficit of $56.9 billion was a record, widening from $49.7 billion in 1997. In December, the U.S. trade gap with Canada rose to $2.18 billion from $1.75 billion in November. The deficit with Mexico rose to $1.26 billion in December from $1.25 billion in November.

U.S. workers' real average weekly earnings, after adjusting for inflation and seasonal factors, fell 0.1% in January. The January drop followed a revised 0.4% climb in December’s real average weekly earnings, which was previously reported as up 0.5%.

The January decrease resulted from a 0.3% fall in average weekly hours and a 0.2% rise in the Consumer Price Index for Urban Wage Earners and Clerical Workers. These were partially offset by a 0.5% rise in average hourly earnings. Real average weekly earnings in January were up 0.5% from January 1998.

In constant 1982 dollars, weekly earnings for nonsupervisory private workers outside the farm sector averaged a seasonally adjusted $270.20 in January, versus $270.39 in December and $266.42 in January 1998. In current dollars, weekly earnings averaged a seasonally adjusted $449.88 in January, compared to $449.11 in December and $436.39 in January 1998.

Next Week’s Economic Statistics

On Tuesday we get Consumer Confidence figures. The numbers have been high the past few months so there is no reason for the number to move the market. On Thursday we get Jobless Claims, Durable Goods Orders, and Existing home sales. The durable goods orders could move the market a bit if it is out of the estimates of the economists but its not likely. On Friday we get Gross Domestic Product numbers. This number will help analysts figure out if this quarter’s earnings are going to be in-line with expectations or if they will be able to raise or lower estimates. The number could move the markets if it is quite weak causing analysts to become worried about an upcoming recession. If it is too strong, it may indicate that inflation is on the way with no possibility of the Fed lowering interest rates.

MARKET CLOSES

Index	Last Week	This Week	Change	Percent
Dow Jones	9274.89	9339.95	+65.06	0.7
S & P 500	1230.14	1239.16	+9.02	0.7
S & P 500 Futures Dec.	1238.50	1243.00	+4.50	0.3
S & P 100	615.33	620.25	+4.92	0.8
Nasdaq	2321.94	2283.44	-38.50	1.7
Russell 2000	398.24	392.30	-5.94	1.5
30 Year bond	5.42%	5.38%

Program Trades

This month we had 10 cash trades on and 6 futures options trades, all of which turned out good profits this month. This was the highest number of trades we have ever placed in an expiration cycle. It was a difficult month to get into Long Cash Call Trades on the S&P 500 but we did get a few on the S&P 100.

The coming month should be interesting as March has always been a mixed month, but we’re confident that our Program Numbers will steer us in the right direction for our 3^rd profitable month of 1999!

Cash Option Profits for February: Short Sells

Outright Sells

Long Trades

Ultra Conservative Trades

1200/1190 SPX Puts $1.00 credit, $100.00 per contract 10% profit
Sold 1200 SPX Puts $7.75 credit, $775.00 per contract 10% profit

1185/1180 SPX Puts $1.00 credit, $100.00 per contract 20% profit

1100/1075 SPX Puts $2.75 credit, $275.00 per contract 11% profit

1220/1215 SPX Puts $2.00 credit, $200.00 per contract 40% profit
Sold 1100 SPX Puts $8.50 credit $850.00 per contract 11% profit

585/580 OEX Puts $1.38 credit, $138.00 per contract 28% profit

670/ 680 OEX Calls $1.25 credit, $125.00 per contract 25% profit

650/655 OEX Calls $1.63 credit $163.00 per contract profit 33%

560/555 OEX Puts $.63 credit, $63.00 per contract 13% profit

Total 50%. Short trades are calculated separately because they can be placed at anytime. Total 21%. Outright Sells are calculated separately because they can be placed at anytime. Total 81%. Long trades are averaged for the record sheet as we normally place both up and down trades. Average 28% Total 49%. Ultra trades are averaged for the record sheet as we normally place both up and down trades. Average 18%

Cash option outright sells margin is calculated with an average margin of $7500.00 per contract and spreads with a $500.00 per contract basis. We do not include interest profits on credit taken. (Margin estimates are based on the average subscribers account requirements.)

Futures Option Profits for February

Short Trades	Outright Sells	Long Trades	Ultra Conservative Trades
1200/1190 S&P 500 Puts $1.00 credit, $250.00, 10% profit	Sold 1200 S&P500 Puts $7.75 credit, $1937.50 13% profit	1185/1180 S&P 500 Puts $1.00 credit, $250.00 profit 20%	1350/1360 S&P 500 Calls $1.00 credit, $250.00 10% profit
	Sold 1100 SPX Puts $8.50 credit, $2125.00 profit 11%.		1100/1090 S&P 500 Puts $1.50 credit, $375.00 15% profit
Total 10%. Short trades are calculated separately because they can be placed at anytime.	Total 23%. Outright Sells are calculated separately because they can be placed at anytime.	Total 20%. Long trades are averaged for the record sheet as we normally place both up and down trades. Average 20%	Total 25%. Ultra trades are averaged for the record sheet as we normally place both up and down trades. Average 13%

Futures Outright Sells are calculated with an average margin requirement of $15,000. Credit Spreads for 5 points = $1250.00, 10 points = $2500.00. We do not include interest profits on credit taken in. (Margin estimates are based on the average subscribers account requirements.)

Average Entry price		Bid	ask	last

	S&P 500 Cash Trades:
Sold 1200 Put $7.75	Outright Sell $11.25	0	0	0
	Bought back $3.50 giving a 10% profit

1200 sold SPX Put $8.25	Short trade	0	0	0
1190 bought SPX Put $7.25	$1.00 credit spread	0	0	0

1100 sold SPX Put $8.50	Outright sell $8.50	0	0	0
	Stop at $15.00

1185 sold SPX Put $20.00	Long Put Trade	0	0	0
1180 bought SPX Put $19.00	$1.00 credit spread	0	0	0

1100 sold SPX Put $9.75	Ultra Put Trade	0	0	0
1075 bought SPX Put $7.00	$2.75 credit spread	0	0	0

1220 sold SPX Put $25.50	Short trade	0	0	0
1215 bought SPX Put $23.50	$2.00 credit spread	0	0	0

	S&P 100 Trades:

585 sold OEX Put $8.50	Long trade	0	0	0
580 bought OEX Put $7.13	$1.38 credit spread	0	0	0

560 sold OEX Put $5.25	Ultra trade	0	0	0
555 bought OEX Put $4.63	credit spread $.63	0	0	0

650 sold OEX Call $7.00	Long trade	0	0	0
655 bought OEX Call $5.38	credit spread $1.63.	0	0	0

670 sold OEX Call $2.50	Ultra trade	0	0	0
680 bought OEX Put $1.25	credit spread $1.25	0	0	0

	S&P 500 Options Feb. Futures Trades	Low	High	Close

Sold 1200 Put $10.75	Outright Sell $10.75	0	0	0
	Bought back $3.00 giving a 13% profit
1200 sold Put $8.00	Short trade	0	0	0
1190 bought Put $7.00	$1.00 credit spread	0	0	0


Sold 1100 Put $8.50	Outright Sell $8.50	0	0	0
	Stop at $15.00

Sold 1350 Calls $2.00	Ultra Trade	0	0	0
Bought 1360 Calls $1.00	$1.00 Credit	0	0	0

Sold 1185 Puts $13.50	Long Trade	0	0	0
Bought 1180 Calls $12.00	$1.50 Credit	0	0	0

Sold 1100 Puts $8.00	Ultra Trade	0	0	0
Bought 1090 Puts $6.50	$1.50	0	0	0

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

Short Trades		Long Trades		Ultra Trades			Outright Short Sales
1999 Current	67%	1999 Current	68%	1999 Current		39%	1999 Current	22%
1998	66%	1998	43%	1998	79%		1998	71%
1997	108%	1997	188%	1997	82%
1996	163%	1996	169%	1996	99%
		1995	93%	1995	76%
		1994	79%	1994	89%
		1993	177%	1993	long
		1992	112%	1992	long
		1991	162%	1991	long
		1990	166%	1990	long

Futures Trades

Outright Sells & Strangles	Long Trades	Ultra Trades
1999 Current 37%	1999 Current 53%	1999 Current 33%
1998 130%	1998 93%	1998 16%

Agora Outlook

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

February Expiration February 12th 1998

Davidson’s View

Thursday and Friday’s performance was a very positive indicator for me. I believe this is going to be a great year for trading. In the past whenever the market has seen such a run up as it did on Thursday it usually had a follow through rally. A day trader would have gotten killed in this kind of trading but if you were a seller as we always are, it was a good thing.

This type of volatility is great for placing Credit Spreads or Outright Sells and it looks like this will continue all year or at least until the market has a huge correction.

On Friday when the 30-year bond collapsed and blew out long term support, the stock market almost gave up all of its Thursday gains. For months, stocks and bonds have been diverging but with the 30-year closing at 5.42%, stock valuations are probably looking pretty high to traders. For the near term, stocks will have a hard time making any progress as long as bonds remain around these levels.

Another difficulty the broader market has to deal with are the new problems the technology sector is experiencing. Thursday's record point move in the Nasdaq Composite and particularly the technology sectors made the headlines. Technology has been the leader of the big explosive moves in the Nasdaq and the S&P 500 during the last six months.

This seemed to change on Friday with the big sell off in Dell taking the entire tech sector lower. The Nasdaq Composite fell –83.61 points or 3.5%. Dell fell $12.00 alone on the day. This was due to some vague comments made by a couple of analysts implying that Dell might have competition. Isn’t that surprising! It appears that there is now vulnerability in the tech sector as a whole.

I wouldn’t expect the big tech stocks to drop like a stone however. As Thursday's big advance revealed, weakness still draws buyers. And the bigger the drop, the more aggressive the buyers. If this goes on too long, though, we’ll see a definite top in place and possibly a bigger decline. Since it was the strength in technology stocks that carried the market up from the lows on October 8^th 1998, it will probably be those stocks that bring it lower. If those stocks are now faltering, the implications for the overall market, to state the obvious, are less than great.

The coming week will probably be just as volatile as this last one but I don’t expect the market to go down very much or move much higher. The reason being that it’s an expiration week. If a big decline does start it will probably be in the following week but we’ll wait until we get to that juncture!

Technically

The bull/bear indicator is now at its highest level since January of 1987 and continues to go up. It was surprising to see bulls increase this week considering the spill that the Nasdaq took the prior week. It is important to note how many bears there are, as they will give the final outright sell signal. In 1987 there was also low 20’s levels from the bears.

Both the Mclellan Oscillator and the summation index have moved into an oversold condition although the summation index could move increasingly into negative territory before the S&P 500 begins to move higher.

The 5 and 10 day Arms indexes are remaining in oversold territory even with the sharp move higher on Thursday. The sell off on Friday also helped. The position of the Arms indexs will help to hold the market steady for the short term. If the 10-day arms indicator continues to move lower we may get a buy signal.

Volatility is still indicating that the market’s recent sell off will not be that strong. We are hovering around the 30.00 level which indicates a mixed feeling on the market although if it continues to hold around this level or move even lower, the market could be setting up for a sharp sell off.

One concern that may cause problems longer term is that for the first time, stocks such as IBM and Intel are showing visible signs of weakness. The chart action of Intel, for example shows it making a lower high and a lower low. Dell fell strongly on Friday as BancBoston Robertson Stephens expressed concern that the PC maker's fiscal fourth-quarter revenues will come in on the light side. Dell expects to report results after the close of trading Tuesday.

On Thursday, the S&P 500 closed just under the 61.8% retracement level at 1256, but with the way the futures closed, it could gap above this level. In fact, looking at history, the day following an initial surge has opened up but closed down or flat. This is what happened today. With Monday being a holiday next week there are only 4 days until expiration. The market is likely to bounce around during expiration week with a slight upward tilt. Although the sell off on Friday was mostly due to the sell off in bonds they are now oversold so we should see any bond rally help the market to move higher.

Mclellan Oscillator: -130 -100 oversold +100 overbought
Summation Index: -516

Five day arms: 1.02 and below, overbought 1.00 and above, oversold
Ten day arms: .96 .80 and below, overbought 1.00 and above, oversold

Bulls: 61.2 previous week 60.0 50% plus overbought/bearish
Bears: 25.9 previous week 26.7 50% plus oversold /bullish
Correction: 12.9 previous week 13.3

Five day Qvix: 30.78

Economic Effects

Tuesday

The productivity of U.S. workers grew at the fastest rate in nearly three years in the final quarter of last year, showing the U.S. economy is in great shape as it heads toward its ninth year of expansion. According to the Labor Department, productivity, a measure of output per worker hour, climbed an annualized 3.7% for workers outside the farm sector, the biggest gain since a 4.2% increase in the first quarter of 1996. Productivity grew 2.5% in the third quarter, a downward revision from the previously reported gain of 3.0%. The fourth-quarter performance helped make 1998 one of the best years of the decade for productivity growth.

This shows that there's good reason for inflation to be well contained and that the Federal Reserve doesn't have to worry about inflation right now. Productivity is crucial to sustained, non-inflationary economic growth. When workers can produce more goods and services per hour, companies can grant them pay increases without incurring higher costs, or cutting into their profit margins. The efficiency of the work force has become a particularly important issue over the past few years, as unemployment has steadily fallen and companies have had to scramble to find new workers. Some economists have worried about the possibility of wage inflation that could increase price pressures in other areas of the economy.

However, productivity rises, fueled by investment in computers and other laborsaving technology, have kept labor costs in check. This has contributed to the staying power of the current economic growth period, which is already the longest peacetime expansion on record and will enter its ninth year in April.

The report on fourth-quarter productivity was close to expectations. Economists had expected a 3.9% increase. Unit-labor costs, a closely watched gauge of wage inflation, fell 0.2%. Overall, productivity in 1998 recorded a 2.2% rise, almost double the 1.2% increase of 1997, and close to the 2.4% gain of 1996. Fourth-quarter productivity surged as the gross domestic product of the overall economy boomed at a rate of 5.6%. Productivity wasn't a surprise given the recent strong GDP report. Productivity is typically strong when the economy is robust.

Thursday

The pace of spending at retail stores slowed modestly in January, growing just 0.2% to a seasonally adjusted $202.7 billion. It was the smallest gain in retail sales since August's 0.1% gain. The increase matched the expectations.

Excluding the sometimes-volatile auto sector, sales rose 0.2%, a bit below the 0.5% expected. December's increase in sales was revised to a 1% gain from the 0.9% previously reported. November's sales were also revised up 0.1% points. The slowdown in sales could just be a pause in the relentless consumer spending that has been the main engine of global economic growth in the past 18 months. Or it could signal that consumers are finally cutting back on their purchases, especially of the big-ticket items that have become so affordable.

January's sales gains were led by nondurable goods which rose 0.3% to $119.4 billion compared to the 0.2% gain in durable goods to $82.3 billion. In nondurables, sales at general merchandise stores rose 1.5% (the biggest gain since February 1998) and sales at apparel stores rose 1%, a confirmation of the stellar results reported by most chain stores.

A drop in initial jobless claims to an 18-month low in the latest week shows that the economy is still moving along at a robust pace with a very tight labor market. The Labor Department said initial state jobless claims benefits fell to 281,000 in the week ended February 6, down from a revised 294,000 in the prior week. Jobless claims were at their lowest level since hitting 276,000 in the July 26, 1997 week, and came well below the 302,000 forecast. Claims are strong evidence that the economy continues to move along strongly. The data came just after the release of a much larger than expected 245,000 gain in nonfarm payrolls and a very low 4.3% unemployment rate in January.

Friday

Total inventories held by retailers, wholesalers and manufacturers were unchanged in December as business sales shot up at the fastest rate in more than a year. Business inventories held steady at a seasonally adjusted $1.088 trillion in December after rising by 0.4% in November. Sales by all levels of business jumped 1% to $793.55 billion, the strongest rise since 1.1% in September 1997 after a 0.6% November jump.

The figures showed a healthy balance between sales and stocks of goods on hand. This implies room for higher production rates in coming months to build up stocks of goods to meet booming consumer demand. The monthly inventory-to-sales ratio, which gauges how long it would take to deplete existing inventories at the current sales pace, dipped to 1.37 months' worth in December from 1.38 months' in November. This was the lowest ratio since a matching 1.37 months' worth in September, 1997. Economists had anticipated that December inventories would decline by 0.1% instead of remaining unchanged.

The University of Michigan's preliminary consumer sentiment index for February rose to 107.4 from a final reading of 103.9 in January, according to sources. The current conditions component fell to 115.2 from a final reading of 116.8 in January. The consumer expectations index jumped to 102.4 versus 95.7 in January. These numbers were not surprising considering the recent strong reports.

Next Week’s Economic Statistics

President’s day gives us a holiday on Monday, ironically good timing since President Clinton's impeachment case is now finished. On Wednesday we get Housing Starts, Industrial production and Import Export Prices. The only number of any significance for the market will probably be the industrial production number and even that won’t be significant unless there is a surprise in the number. On Thursday there is Jobless Claims, Producer Price Index. Last month these numbers came in surprisingly higher. Many analysts believe that commodity prices have bottomed so this number could move the market if it is strong. On Friday we get International Trade numbers and the Consumer Price Index. Once again, the CPI number could move the market. Inflation has been very quiet for the past few years so it would be surprising to see any strength in the CPI. If we do, it could shake the market.

MARKET CLOSES

Index	Last Week	This Week	Change	Percent
Dow Jones	9304.24	9274.89	-29.35	0.3
S & P 500	1239.40	1230.14	-9.26	0.7
S & P 500 Futures Dec.	1243.00	1238.50	-4.50	0.3
S & P 100	617.67	615.33	-2.34	0.4
Nasdaq	2373.64	2321.94	-51.70	2.2
Russell 2000	412.72	398.24	-14.48	3.5
30 Year bond	5.34%	5.42%

Program Trades

As we move into expiration this week, all trades are still looking very good. Our Long and Ultra trades remain at a high 95% probability of successfully seeing all of the options expire worthless. The only trade under any pressure is the Short 1220/1215 S&P 500 put trade. We are only seeing a 76% probability rating but that may change after Tuesday’s close.

It was a great week for placing another Short trade for Outright Sells on the February 1200 cash and futures puts. The market moved perfectly for us to fill these trades and then get out of them on Friday. We still have the spreads on them and they are looking good for expiration next Friday. We sold the Futures Outright sell on the 1200 Feb. Puts for an average price of $10.75 and the Cash Outright Sell saw an average price of $11.25. After the big run up on Thursday we said to lower stops to $5.00 or get out and everyone decided to get out with average buybacks of $3.00 for futures and $3.50 for the cash trade giving us a great profit in only a couple of days.

For spreads we saw the Futures average price for the 1200 Feb. S&P 500 option sold at $8.00 and the 1190 Feb. S&P 500 option bought at $7.00 for an average credit of $1.00. The cash 1200 S&P 500 Feb. option saw an average sold price of $8.25 and the 1190 S&P 500 February bought option for $7.25 giving the average credit a $1.00 value.

Current Trades Cash

Average Entry price		Bid	ask	last

	S&P 500 Cash Trades:
Sold 1200 Put $8.50	Outright Sell $11.25	4.50	5.25	5.75
	Bought back $3.50 giving a 4% profit

1200 sold SPX Put $8.25	Short trade	4.50	5.25	5.75
1190 bought SPX Put $7.25	$1.00 credit spread	3.63	4.38	4.38

1100 sold SPX Put $8.50	Outright sell $8.50	.38	.50	.38
	Stop at $15.00

1185 sold SPX Put $20.00	Long Put Trade	3.00	3.75	1.50
1180 bought SPX Put $19.00	$1.00 credit spread	2.50	3.00	3.00

1100 sold SPX Put $9.75	Ultra Put Trade	.38	.50	.38
1075 bought SPX Put $7.00	$2.75 credit spread	.18	.38	.18

1220 sold SPX Put $25.50	Short trade	8.63	9.63	9.50
1215 bought SPX Put $23.50	$2.00 credit spread	7.25	8.25	9.25

	S&P 100 Trades:

585 sold OEX Put $8.50	Long trade	1.25	1.32	1.25
580 bought OEX Put $7.13	$1.38 credit spread	.88	1.00	1.00

560 sold OEX Put $5.25	Ultra trade	.38	.50	.44
555 bought OEX Put $4.63	credit spread $.63	.32	.38	.38

650 sold OEX Call $7.00	Long trade	.25	.32	.32
655 bought OEX Put $5.38	credit spread $1.63.	.13	.18	.18

670 sold OEX Call $2.50	Ultra trade	.06	.13	.06
680 bought OEX Put $1.25	credit spread $1.25	0	.06	.06

	S&P 500 Options Feb. Futures Trades	Low	High	Close

Sold 1200 Put $8.50	Outright Sell $10.75	8.00	2.00	3.60

1200 sold Put $8.00	Short trade	8.00	2.00	3.60
1190 bought Put $7.00	$1.00 credit spread	4.00	2.00	3.60

	Bought back $3.00 giving a 13% profit
Sold 1100 Put $8.50	Outright Sell $8.50	.50	.20	.35
	Stop at $15.00

Sold 1350 Calls $2.00	Ultra Trade	.10	.10	N/t
Bought 1360 Calls $1.00	$1.00 Credit	N/t	N/t	N/t

Sold 1185 Puts $13.50	Long Trade	N/t	N/t	3.10
Bought 1180 Calls $12.00	$1.50 Credit	4.50	1.20	2.70

Sold 1100 Puts $8.00	Ultra Trade	.50	.20	.35
Bought 1090 Puts $6.50	$1.50	.40	.20	.25

Agora Outlook

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

February Expiration February 05th 1998

Davidson’s View

Technology stocks got hit pretty hard last week, while many depressed manufacturing and energy stocks advanced in another volatile stretch of trading. The market seems to be correcting by sector as it is mostly grinding sideways instead of moving sharply lower. Traders seem to be waiting for that little bit of good news to push the market higher.

The Dow held up better than the Nasdaq but the Dow Jones index is still lagging behind the Nasdaq so far this year. The Dow is up 1.3% in 1999, way behind the Nasdaq's 8.3% increase. The S&P 500 was off 3.1% last week, cutting its year to date gain to 0.8%.

This week AMG data reported that about $2.9 billion was withdrawn from mutual funds. The past few weeks has revealed that in-flows have seemed to plateau. I continue to believe that most of the money is in the market so it will take something else to move the market. Without the momentum of the money coming in, one must look at fundamentals.

With the 30-year bond backing up to 5.34% this week it indicates that the S&P 500 is about 15% overvalued with current earnings estimates and even more overvalued if earnings start to back up. It suggests that the market will have a tough time moving forward unless bonds rally. But, poor earnings have not been the chief cause of a lower stock market in the past century. So what if interest rates continue to back up?

Rising interest rates and inflation have triggered bear markets in the past. Data suggests that the market has largely shrugged off earnings drops as temporary spills but has reacted negatively to changes in inflation and interest rates. Interest rates are indeed important and their ability to influence the stock market was shown last year when the Fed, faced with a free falling stock market, dropped interest rates to ensure that the U.S would not be dragged down by the economic crisis overseas. The cuts did work and also sent the market to record highs. This past week, traders waited patiently to see if the Federal Reserve was going to change interest rates and monetary policy. They decided to leave keep rates unchanged, even though the economy expanded at the fastest pace in two and a half years, which heightens the risk of inflation.

The last time interest rates had any type of an impact on stocks was in 1994, when the Fed doubled rates from 3% to 5.75% in a preemptive strike against what it saw as the threat of inflation. This sent stocks plummeting. Inflation never did show up and the Fed never lowered rates back to their old levels. They have been maintaining them until they lowered them this past spring because of the economic worries.

As long as there is still a chance that the economy may slow down, it should prevent the Fed from raising or lowering interest rates. We also have to watch the Year 2000 computer bug since it could cause problems. With interest rates at current levels, we’re not likely to see much progress in either direction in the near future. However, if rates start to go down, the Dow could see 10,000! Or, it could see 8,000-8,500 if they back up to 5.50%. Most likely, the market will continue its sideways action, going nowhere too fast so our type of trading is going to be perfect for this scenario.

Technically

We have seen the daily S&P 500 chart forming a sideways triangle formation this past week. This usually indicates a breakout to the upside. On Thursday and Friday, the S&P 500 touched the bottom of the uptrend triangle line that started on October 8^th. There is still a possibility of a breakout higher but with the index touching the bottom of the lower trendline it makes us cautious as we could still see a break to the downside. The formation will end around Feb. 10^th so we should have a better indication then of what may happen.

The Mclellan Oscillator is hovering around the oversold area but the summation index continues to move lower indicating there may be more downside movement left in the market.

The 5-day Arms indicator has pushed into oversold territory while the 10-day Arms indicator is now near overbought levels. For the time being this indicates a neutral reading, but if the market rises too fast without the broader market following, we could move into an extremely overbought situation.

The Bull/Bear indicator has gotten worse on the bear side this week as bears are approaching the low 20’s area making it possible to see an outright sell for the market fast approaching. We are dealing with the same numbers that were coming out in 1987. With the market spill this week, hopefully bulls will retreat a bit. (This is a contrary indicator.)

With the whipsaws that occurred this week it was surprising to see little change in volatility. That could be bad in the end as were still not seeing enough fear out there as people buy puts. The last 4 equity call/put ratios were at or very close to topping values. Multiple days, 4 or more, very often lead to declines. With the closing tick on Wednesday being a high +894 we may see further corrective action but Thursday and Friday may have been enough to remedy the situation.

Stochastics are remaining near overbought levels and momentum is stalling both daily and weekly. With half of the indicators in oversold territory and the other half still overbought, the most one should expect for the downside I think is a grinding sideways motion.

Mclellan Oscillator: -98 -100 oversold +100 overbought
Summation Index: +30

Five day arms: .79 .80 and below, overbought 1.00 and above, oversold
Ten day arms: .88 .80 and below, overbought 1.00 and above, oversold

Bulls: 60.0 previous week 60.7 50% plus overbought/bearish
Bears: 26.7 previous week 28.2 50% plus oversold /bullish
Correction: 13.3 previous week 11.1

Five day Qvix: 29.25

Economic Effects

Monday

According to the National Association of Purchasing Management, overall manufacturing activity jumped to 49.5 in January from 45.3 in December, putting the index just below 50, the threshold indicating that industrial output is expanding. The index has been below 50 for the past eight months. The survey showed that new orders for factory goods made a strong comeback in January, rising to 51.3 from 46.4 in December, while production jumped to 53.1 from 46.8. Those readings indicate that at least some parts of the manufacturing sector are back on their feet.

Though overall export orders didn't grow last month, five industries an increase: wood products, paper, printing and publishing, food, and fabricated metals. When truck orders increase, that is a sign of market confidence.

Bonds didn’t like the strength of the report as it indicated a very slight chance that the Federal Reserve would lower rates at their upcoming meeting this week. Stocks also lost much of their gains on the news, as it appears manufacturing is picking up once again.

The public ended 1998 with a spending spree, giving the economy momentum as it entered the New Year. Still, economists wonder how long consumers can sustain the pace. Incomes grew strongly, but consumers spent every bit of the increase, and more.

Personal income jumped 0.5% in December, the best gain in 10 months. Spending surged an even stronger 0.8%, the most since May. Consumers are ready and willing to spend. Strong stock market gains, low interest rates and strong wage gains are supporting consumer spending, which accounts for 2/3rds of the nation's economic activity.

The problem is that people spent more than they earned in December. Their personal savings rate went negative to minus 0.1% for the second time last year. The measure of savings as a percentage of after-tax income has fluctuated around zero for four months. Spending was bolstered in December by two factors, a surge in holiday shopping and very strong auto sales. For the year, Americans saved just 0.5% of their income, the least since 1933, compared to 2.1%in 1997 and 2.9% in 1996. But, the figure is not as grim as it appears. It reflects the fact that prosperous people spent a portion of their stock market gains and tapped their home equity during a wave of refinancing spurred by the lowest mortgage rates since the 1960s.

Construction spending surged 1.7% in December, the largest gain in six months helped by unseasonably mild weather for most of the month. For the year, it ros

Short Sells	Outright Sells	Long Trades	Ultra Conservative Trades
1200/1190 SPX Puts $1.00 credit, $100.00 per contract 10% profit	Sold 1200 SPX Puts $7.75 credit, $775.00 per contract 10% profit	1185/1180 SPX Puts $1.00 credit, $100.00 per contract 20% profit	1100/1075 SPX Puts $2.75 credit, $275.00 per contract 11% profit
1220/1215 SPX Puts $2.00 credit, $200.00 per contract 40% profit	Sold 1100 SPX Puts $8.50 credit $850.00 per contract 11% profit	585/580 OEX Puts $1.38 credit, $138.00 per contract 28% profit	670/ 680 OEX Calls $1.25 credit, $125.00 per contract 25% profit
		650/655 OEX Calls $1.63 credit $163.00 per contract profit 33%	560/555 OEX Puts $.63 credit, $63.00 per contract 13% profit
Total 50%. Short trades are calculated separately because they can be placed at anytime.	Total 21%. Outright Sells are calculated separately because they can be placed at anytime.	Total 81%. Long trades are averaged for the record sheet as we normally place both up and down trades. Average 28%	Total 49%. Ultra trades are averaged for the record sheet as we normally place both up and down trades. Average 18%