Agora Outlook
October Expiration Finish
October 17th 1997

1987 CRASH

August high (Dow) 2746.74

October 16th - 19th Crash low 1738

(508 points) 1008.74 =36.7% correction


October 15th close 8057.98

October 16th - 17th total intraday decline 7756.98

301.00 = 3.7% correction

Comparisons of then and now

1987...... 1997

Dow Jones Industrial Average close 10/16/97 2246.74....... 7938.88

Dow Jones Industrial Average dividend yield 3.07%....... 1.68%

Dow Jones Industrial Average P/E ratio 17.8...... 20.67

Standard & Poor's 500-stock index P/E ratio 21.17...... 23.56

New York Stock Exchange market cap. $2.5 trillion....... $9.4 trillion

30-year Treasury bond yield 10.22%...... 6.39%

Number of U.S. stock mutual funds 2,129...... 6,685

Assets of U.S. stock mutual funds $848.3 billion...... $4.2 trillion

Average daily volume, New York Stock Exchange 188.9 million...... 513.9 million

The market celebrated an anniversary this week. Just to make everyone think of the 1987 crash, traders drove the market down over 100 points on Oct. 16th. This equaled the point loss of Oct.16th 1987. On Friday traders drove the market down another -180 points at its low to give us all a recollection of that great day 10 years ago.

The media has been having a heyday all this week reminding us of the crash of 1987. Interestingly, an article released this past week revealed that 80% of today’s investors don’t even remember the crash of 1987. 71% said they wouldn’t change their investments even if they saw another crash. Today, 40% of Americans (220 million) own some type of financial instruments related to the stockmarket. This is the highest number in history. A poll taken by the Montgomery group surveys what people expect for returns in their mutual funds in 10 years. The last 15 years expectations have been at 15.7%. return. The last 50 years expectations have averaged an 11.8% return. At the beginning of January the poll was at 22.2%. The poll this month is showing that people expect to get a whopping 34% return on their mutual funds! As the public has become more involved in trading they appear to be getting wiser. According to AMG Data Services, mutual funds experienced inflows for a second week, following outflows the two weeks prior. Mutual funds saw inflows of $26.85 million in the week ending Oct. 15. In the previous week, those mutual funds saw inflows of $172.3 million. The latest outflow was $27 million, which followed a $150.8 million outflow the week before. It appears that as the market becomes weary or there are indications of a change in direction the public catches hold and pulls out their money. For instance this week had very low inflows. This may have been because of Allan Greenspans comments last week on the over valuation of the market. The public has slowly become more involved in the market. As baby boomers have aged they have bought homes and sent their kids to school. Now they can focus on retirement and put cash to work in the markets. With this occurring, financial service firms have responded by offering consumers a growing number of low priced investment vehicles such as index funds, which have now risen in number from about 35 in 1990 to 120 in 1996. Meanwhile, discount brokerages have fallen over themselves to pitch their services to small investors. The media has also played an important role. Personal finance magazines like Smart Money and Worth helped dispel the mystery surrounding the markets. And television networks like CNBC and CNNfn give us information in "real time." The combined effect of all this has been to make the markets more intelligible, more accessible, and more manageable to small investors. With the public now in the market so strongly one must ask themselves what would happen if there was another stockmarket crash?

Economic Effects

Tuesday Btm Schroeder weekly chain store sales came in down -0.5% and Johnson Redbook sales were down -.09% This is the fifth week in a row that has had weaker weekly chain store sales reports. These numbers are definitely showing a slowdown in consumer spending. Wednesday had retail sales up +0.3%. This number was a complete surprise as the weekly numbers have been down for so long. The number that caught the bond market off guard was the revision to the August numbers. It was changed from being down to being up +0.6%. On Thursday weekly jobless claims came in up +2000 to 306,000. Four week average 306,250. We have to look back to 1988 to get the same length of time for the unemployment rate being below 310,000. Also out today was the consumer price index rising by only 0.2% in September. Economists had expected a rise of 0.3%. The core rate of inflation, which strips out volatile food and energy costs, was also up 0.2%. Friday had a strong report out on housing. Housing starts for September were up a strong 7.9%, building permits up 3.4%. Analysts were expecting the housing number to be up only about 3%. The number didn’t help to lift bonds off their lows. 45 minutes after the release of these numbers industrial production came out up .07%, capacity utilization 84.4%. The numbers revealed a buildup of inventories. Consumers have been strong buyers. As companies have become more streamlined with their inventory levels, hence the strong capacity utilization number, you can see that inventory build ups don’t last long as the consumer gobbles up merchandise out there. The numbers confirmed the strength in housing and drove the futures 30 year bond market down 22/32nds. S & P 500 futures didn’t react much to the numbers since they were already low from Thursday’s big selloff. Economic indicators didn’t help to lift the market at all this week as they continued to be strong, confirming the last few week’s numbers.

Next week’s Economic data

This week looks like it will be the quietest week of the year. On Tuesday we get our weekly chain store sales reports. Even if these numbers move higher traders will probably ignore them. They have been moving lower for so long you would expect a rise. Thursday has weekly jobless claims. This number has also been on the low side. It may get a reaction if it moves even lower because there is nothing else out.


Last week Elaine Garzerelli came out with a new prediction for the market. She said that at current bond levels, 6.44%, the Dow will remain in the 7000 - 8500 point range. She is expecting corporate profits to only be 2-3% next year. She feels bonds could go to 5.80% as long as the deficit changes over to a surplus next year. Her models don’t indicate any big corrections on the horizon.

With the markets big corrections on Thursday and Friday, Ralph Acampora also came out with a surprising statement for traders. He said the market could have a "nasty correction" in the near term. Why? Because of all the talk on the street about the 1987 crash affecting people. Of course he still says the Dow will hit 10,000 by next June but says that we will have corrections in between. He believes the downside for the Dow is 7600 and "for now" the upside is 8300.

The market is still overbought even though we have had a sharp 2 day correction. Relative strength is neutral and heading lower. Stochastics are also continuing to head lower from the overbought level. The main thing we’re concerned with is the low numbers on the arms index, especially the 10 day arms number. These numbers are remaining low because the bears are beating down the bulls as they try to bring the market back up. Because of the indicators being neutral to overbought we don’t see an oversold condition in the market quite yet.

Mclellan Oscillator: -146 -100 oversold +100 overbought

Summation Index: 3756

Five day arms: .83 .80 and below, overbought 1.00 and above, oversold

Ten day arms: .81 .80 and below, overbought 1.00 and above, oversold

Bulls: 48.8 previous week 47.5 50% plus overbought/bearish

Bears: 29.7 previous week 30.3 50% plus oversold /bullish

Correction: 21.5 previous week 22.2

Five day Qvix: 22.92 10-15 bullish, low volatility 15-40 bearish, high volatility


Davidson’s View

There has been much talk this week about the 1987 stockmarket crash. On Sunday we will be celebrating it’s 10th year anniversary of it. I say that we should celebrate because it taught us many things that we can use to our favor today.

People have asked where I was on the day of the crash. I was actually celebrating the great buys for stocks that day. The only reason we were upset was because we didn’t know if we were getting our stocks cheap enough. Just around the close I started to watch the crowd that had gathered as the news spread about the collapse. It was unbelievable to hear people actually screaming to sell everything. I felt sorry for the receptionist as phones were ringing off the desk and people were demanding to see their brokers. I sat back and watched and the first thing that came to my mind wasn’t the friendliest of thoughts. I thought "You’re all idiots"! I know that’s frank but hey, they were. Didn’t anyone realize that this was going to happen, I thought. To me it seemed simple. All you had to do was read some newspapers, watch a couple of news programs once a week and that would supply you with enough information to at least make you cautious on the market. It was then that I determined to teach interested people what the market was all about, advocating that "if you’re going to invest, learn how to do it yourself." (My famous statement) "Its great to get advice but you should always make your own decisions." That was also the day I began to study index trading specifically and began to develop a program for trading it. Since then the program has been put in place and this newsletter is now being circulated. The Agora Outlook is soon to be on the net, a great new information source for investors. I have no plans of ever changing back to a stock trader as I still think that index trading is the best way to trade. 10 years ago I predicted that the public would in time come around to index trading and it’s great to see that prediction coming true!


Index Last Week This Week Change Percentage
Dow 8045.21 7847.03 -198.18 2.5
S & P 500 966.98 944.17 -22.81 2.3
S & P 100 930.70 904.94 -25.76 2.8
Nasdaq 1739.03 1666.88 -72.15 4.1
30 year bond 6.43% 6.44%  

S & P 100 Expiration 904.94

S & P 500 Expiration 947.83


Current Trades

This past expiration would have ended up for the period if it had occurred on Wednesday. At the close on Wednesday, October’s expiration was up 1.0%. With the steep two day decline we had on Thursday and Friday we ended up with an expiration down 1.3%. Either way it gave us another successful month of two sided trading. This month overall had a 47% profit. Not too shabby! The market has been following our prediction of staying flat with a slight upward tilt.

November expirations are generally down months. It may be because of the thought of the snow coming! It is also a 25 day trading period so we will have an extra 5 trading days to contend with. We’ll be sending out a trade "ALERT" Sunday night for next month’s trades.

Program Trades

Average entry price bid ask close
1010 call $2.69 0.0 0.0 0.0
1005 call $3.25 0.0 0.0 0.0
995 call $6.00 0.0 0.0 0.0
990 call $7.13 0.0 0.0 0.0
895 call $5.45 0.0 0.0 0.0

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

October Expiration
October 3rd 1997

Surprise Surprise! Everyone expected a big number to hurt the market this morning when the unemployment figure was released but the rate remained steady at 4.9% despite expectations it would fall. A total of 215,000 jobs were added last month, up from only 40,000 in August, but both months were distorted by the two week United Parcel Service strike in August. Economists had forecast 331,000 jobs would be created and that the jobless rate would fall to 4.8%. The surprisingly weak job growth created a buying spree in bonds that sent interest rates down as traders bet inflation would remain subdued. 30-year bonds were up nearly 2 points in early trading, knocking the yield down to 6.17%, its lowest level since February, 1996. The report also sent the stock market racing ahead. Shortly after the New York Stock Exchange opened, the Dow Jones industrial average was up more than 100 points at 8,127, S & P 500 + 13.95. All the job gains in September were in service producing industries, where 229,000 jobs were added. By contrast, there were 14,000 fewer jobs last month at goods producing companies. Several big auto making plants were closed temporarily and employees were laid off because of overstocked inventories. The biggest surprise was that there were no hints of inflation pressures in the September jobs report. Average hourly earnings edged up only $0.04, to $12.34, while the average work week declined to 34.5 hours from 34.6 in August. The strength in the markets came after the Dow closed above the 8,000 level for two straight sessions and with other indexes Nasdaq composite, the Russell 2000 all posting record highs.

The market had a surprise about 2 hours into trading when oil prices began to move sharply higher after the U.S. ordered an aircraft carrier to hurry to the Persian Gulf in the wake of cross-border air attacks by Iran into Southern Iraq. This spooked the bond market as it went from a 2 point gain to a 10/32nd loss by the close of futures trading at 3:00 pm est. Bond futures closed up 2/32nds to 166.22. These worries also took the stockmarket down. At its low at 2:30 pm est. the Dow was off -54.00 points and the S & P 500 was off -3.60. The hurry up apparently is linked to U.S. warnings to Iran earlier this week not to repeat its raids into southern Iraq. Iranian rebels at bases in southern Iraq said they were attacked by Iranian planes on Monday. In the attack Monday, Iranian warplanes struck a rebel base near the city of Kut, 105 miles southeast of Baghdad. One of the biggest fears for stocks and bonds is rising oil prices especially when there could be another war involved.

Economic Effects

We started out the week with a strong indicator out first thing on Monday morning. Personal Income was up +.06% and personal spending was up +0.3%. The personal income number was stronger than expected but the personal spending number was lower than expected so they balanced each other out, at least in the minds of the analysts. On Tuesday Btm Schroeder weekly chain store sales and Johnson Redbook sales were unavailable. The numbers must have been very flat. U.S. consumer confidence rose to 128.6 in September from August's revised 127.6 figure. The expectations component of the index, which has proven to be a key measure of future business activity, rose to 110.7 in September, versus a revised 108.7 in August. The outlook for the next six months remains positive, with 19.5 percent of respondents predicting the pace of business will improve, up from 18.4 in August. New home sales weakened more than expected in August, although the supply of homes on the market remained flat. Total sales declined -2.2% to a seasonally adjusted annual rate of 800,000 units after a revised +0.4% gain to 818,000 in July. The report suggests a possible cooling in housing markets. Economists had forecast August sales would slip to a rate of 811,000. While housing shows signs of losing some steam from earlier this year, lean inventories suggest construction companies have kept building in line with demand. Wednesday had three big indicators out. The national association of purchasing managers report came out lower than expected at 54.2 from 56.8 the previous month. Leading economic indicators were up +0.2% for the month, right in line with expectations. The best surprise for the market came when construction spending was also good news. Construction spending came in lower -0.3%. Analysts had expected a rise. Bonds took off for the entire day closing strongly up over a point bringing the 30 year bond yield down to 6.33%. Stocks finally rallied in the last hour but didn’t seem to have the conviction held by the bond market.

On Thursday weekly jobless claims came in up +1000 to 308,000. Despite last week's increase, claims have been on a downward trend in recent weeks, reflecting strength in the labor market. The closely watched four week moving average, which smoothes out weekly volatility, fell to 308,750 last week from 313,000 the prior week. New orders to U.S. factories for manufactured goods climbed in August, increasing 1.3%. New orders for electronic equipment and components posted a 28.4% increase. None of these reports seemed to do much for the market but everyone was probably waiting for the release of the unemployment report on Friday and it was a Jewish holiday. Friday gave us the all important unemployment report. The number didn’t let us down as it created a huge rally first thing in the morning, Dow +114. S & P 500 +13.95. Unemployment remained steady at 4.9% with 215,000 jobs added. Average hourly earnings were up .04, to $12.34, while the average workweek declined to 34.5 hours from 34.6 in August. The unemployment number and the NAPM numbers were the only economic indicators that had much of an effect on the market this week. It does seem that trading is being shifted to fundamentals thus economic indicators aren’t having as much of an effect on trading.

Next Week’s Economic Data

On Tuesday we get weekly chain store sales reports and the ever increasing consumer credit report. Last month was the first time in a long time that this number hadn’t hit a new record. The public is getting more and more in debt as each month passes. The market on Thursday gets to contend with weekly jobless claims and overall monthly chain store sales. The chain store sales figures have moved the market in the past but of late sales have been flat. When the Persian gulf war was on CNN everyday, retail sales dropped like a rock as everyone viewed the outcome. Many people feel that the death of Princess Diana is the reason why the past few weeks have seen flat sales. Friday has the only number of the week that has any significance for the market. The producer price index will be viewed with much interest as wholesale prices have been rising in the commodity indexes.


Well, were at a crossroads! The market needs to either make a solid new high here to continue its upward move onward or were building a top that could become a stronghold over the market. Short sellers are the key here. If they fold under the pressure and create a short squeeze we could be in a brand new game but if they really believe that momentum and fundamentals have changed they’ll hold their ground and the market will continue to struggle ahead. Sounds like a war doesn’t it! Overall, the market is climbing out of its neutral area and is moving to the overbought area once again.

There were some interesting comments out early this week from some of the most respected technical analysts in the field today. We thought you might be interested to hear what they think about the market right now. Gene Inger of the Inger newsletter is very cautious right now. He can’t find any stocks that are worth buying. He feels that we could get to a new high in the market. We could even get to 9000 on the Dow but he’s not confident about 1998. Bernie Schafer feels that people are too complacent. Everyone always thinks the market will pop back to a new high. He feels that volatility, which was high, came down too fast because of all the complacency. This has made him edgy and cautious on the market. Michael Jenkins of stock market cycles continues to be bearish on the market. He expected the market to continue to rise into Thursday but then turn down again. As we mentioned above he also feels that the market could be making a double top here and that is why he feels we’ll head downward.

Mclellan Oscillator: 93 -100 oversold +100 overbought

Summation Index: 3454

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

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

Bulls: 43.1 previous week 41.5 50% plus overbought/bearish

Bears: 32.5 previous week 34.1 50% plus oversold /bullish

Correction: 24.4 previous week 24.4

Five day Qvix: 23.63 10-15 bullish, low volatility 15-40 bearish, high volatility

Davidson’s View

We had an interesting development in the past 3rd quarter that ended on Monday.

Dow & S & P 500
+272.47 points, 3.6% +62.14 points, 7.0%

Year to date
+1496.99 points, 23.2% +206.54 points 27.9%

Of course those are pretty good numbers but it is quite apparent that small stocks have taken over in the 3rd quarter.

Nasdaq Russell 2000
+243.61 points, 16.9% +73.01 points, 19.1%

Year to date
+394.65 points, 30.6% +91.18 points, 25%

Overall small caps are doing better but if we just look at the third quarter figures small caps have made most of their yearly gains in the past three months. Even this past week saw more new highs on the smaller indexes before the S & P 500 hit its new high today. If this trend continues, spread trading is the place to be! We’ll continue to see volatility both up and DOWN which would bring a nice balance to the market. When the unemployment report came out this morning with incredible news, you would think that the market would have continued its gains all day. There were 2100 advancers to 300 decliners on the NYSE but the Dow and S & P were only up +114 and +13.95. At these levels that is barely 1%! I could just feel that the big caps were going to give it up after the first hour as we didn’t see any follow through. It was the small stocks within those indexes that pushed the market up, not the big caps! I think we’ll continue to see this rise but the rise won’t be as steep! The question is; if people don’t continue to make 10% a month on their indexed stocks, will they get edgy and start pulling out all together!


Index Last Week This Week Cnange Percentage
Dow 7922.18 8038.58 +116.40 1.5
S & P 500 945.20 965.02 +19.82 2.1
S & P 100 913.57 928.23 +14.66 1.6
Nasdaq 1682.16 1702.37 +20.21 1.2
30 year bond 6.37% 6.30%    

Current Trades

The market rose all week but the premiums on our call trades aren’t even at the level they were when the S & P 500 was at 950. We’re now at 960! We now have 15 days left to expiration and we’re still seeing a clear path to a profitable expiration! Premium decay is a great thing don't you think!

Program Trades

This week's bid, ask close

Average entry price bid ask close
1010 call $2.69 $1.13 $1.25 $1.38
1005 call $3.25 $1.68 $1.93 $1.56
995 call $6.00 $1.38 $3.50 $2.75
990 call $7.13 $4.38 $4.50 $4.13
900 put $6.13 $1.38 $1.63 $1.88
895 put $5.45 $1.32 $1.38 $1.50

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.