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S& P FORECAST: After topping out on 10/11 at 1586.50 and retracing to 1407.00 on 11/26 for an 11.0% ‘correction’, traders looking for ‘bargains’ or less negative news from the financial sector received it from Federal Reserve Vice Chairman Donald Kohn on 11/28. In a speech to a New York audience Kohn bolstered expectations for another rate cut, possibly as soon as the December 11^th FOMC meeting. The equity markets rose to a Hi of 1474.80 and closed at 1470.60, up 33.30 pts.

I’m looking at another possible ‘reversal swing’ and a retacement to possibly test the previous swing Lo of 1387.0 on 8/16. We need to see at least one more lower close to give us a better confirmation. Keep in touch. If you are not a ‘client’ you may receive the signal after my clients. Want in, become a client. We accept ‘Related Accounts’ from existing Alaron Clients. Call for details.

U.S. Treasuries Forecast: Traders looking for a ‘safe-haven’ from falling equity prices tend to ‘park’ funds in the Ten Yr. Note or Thirty Yr. Bond until the equity markets look more attractive. Prices have topped out in the March T-Bond at

118-27 on 11/26 and closed today at 117-26. Should equity markets retrace, look for Bonds to test the previous Hi of 118-27. In addition, since bonds move inversely to interest rates, anything more than a 25bp rate cut or need for another rate cut in January would dictate higher prices.

Dollar Index Forecast: The Dollar Index has fallen from its January Hi of 84.34 to its recent Lo of 74.65 on November 23^rd, a drop of 11.5%. Prices have bounced to a Hi of 75.70, as traders believe the credit woes and sub-prime problems with major financial institutions is easing. I believe this is ‘premature’ and the short-covering rally should end once traders look at the need for further rate cuts and the effect that another one of two 25bp rate cuts will have as the yield-gap extends against higher yielding major foreign currency markets. A failure to break through the previous ‘swing Hi’ of 76.23 on 11/12 would set-up for lower prices. In the mean time, move aggressive traders should look to sell the DX below today’s Lo of 75.32, on a ‘stop’. Example, Sell 1 DXZ7 @ 75.20 stop, GTC (Good til Cancel). More conservative traders should look at options, either ‘puts’ or ‘put-spreads’. Look at the previous option recommendations from 10/29 and call me.

Related Dollar Index Trades: As the DX has lost value over the last 11 months, other major foreign currency markets have risen to record levels, making the purchase of Dollar based assets in commodity markets less expensive and more attractive to purchase. Take a look at the appreciation of precious metals, energies, grains, etc. Should the Dollar retrace from the recent levels, those commodities that have seen some profit-taking as funds reduced exposure, could present buying opportunities. Look at the strong correlation between what ‘equity prices’ do vs. what ‘currency markets’ do! When equity traders increase their ‘risk-appetite’ and move prices ‘higher’, carry-traders tend to follow and buy higher-yielding currencies, shorting JY and pressuring the DX. Observe, recognize and capitalize. Call me for updates.

THE EQUITY MARKETS CONTINUE TO RECOVER OFF THE SEPTEMBER LO’S. DECEMBER S&P FUTURES HAVE REBOUNDED OFF 1387.00 AND TRADING AT 1539.00, DOW JONES FUTURES CROSSED THE 14000 LEVEL, HITTING 14010. HOPEFULLY, ANY OF YOU WHO DID NOT ‘HEDGE’ YOUR EQUITY PORTFOLIOS HAVE RECOVERED A GOOD PORTION DURING THIS REBOUND.

DON’T LET THIS HAPPEN AGAIN! READ ‘THE INVESTMENT SURVIVAL GUIDE FOR THE ‘NEW’ MILLENNIUM’ ON THIS SITE AND PREPARE FOR MORE MARKET TURMOIL.

THE Q2 GDP WAS REVISEDLOWER FROM 4.0% TO 3.8%. LOOK FOR 2.5% - 3.0% FOR THE REST OF 2007.

AUGUST NEW HOME SALES REPORT DECREASED 8.3%, DOWN 21.2% OVER THE LAST 12 MONTHS.

RISK HIGHER ‘INFLATION’ TO AVOID ‘RECESSION’ COULD SEE FURTHER INTEREST RATE CUTS AND LOWER DOLLAR.

FORMER FEDERAL RESERVE CHAIRMAN, ALAN GREENSPAN SEES THE LIKELIHOOD OF A ‘RECESSION’ INCREASING’.

THE ABOVE ‘OUTLOOK’ IS ‘BEARISH’ AND DESIGNED TO TAKE A HARD LOOK AT THE ECONOMY AND PREPARE FOR THE ‘WORST’ AND HOPE FOR THE ‘BEST’.

A FAILED ATTEMPT IN THE DECEMBER S&P FUTURES TOCLOSE ABOVE THE 1552 ‘SWING HI’ ON 9/19, COULD TRIGGER SOME ‘PROFIT-TAKING’ AND START THE NEXT ‘OCTOBER SELL-OFF’.

COST APPX. 16PTS X $250./PT =$4000. MAXIMUM UPSIDE IF S&P’S CLOSE AT OR BELOW 1450 ON EXPIRATION, DEC.20^{, 2007}.

CONCERNS OVER ‘RECESSION’ WILL SEE EQUITY TRADERS HEADING FOR THE RELATIVE SAFETY OF U.S. TREASURIES. THE 2-YEAR, 5 YEAR AND 10 YEAR NOTES WILL GET MOST OF ATTENTION OF TRADERS. LONG TERM HEDGERS WILL LOOK TO THE 30-YEAR BOND.

WITH THE DEC. TEN YR. NOTE TRADING AT 109-13 AND THE MARCH TEN YR. NOTE TRADING AT 109-01, YIELDS ARE ATTRACTIVE AT THE 4.5% LEVEL, WHILE AWAITING PRICES TO MOVE BACK TO SEPTEMBER’S PRIOR 114-00 LEVELS.

PRESSURE FROM THE FED TO LOWER RATES FURTHER SHOULD WEIGH ON THE DOLLAR INDEX, CURRENTLY TRADING AT THE 77.88 LEVEL, BASIS DECEMBER.

THE G-7 MEETING COULD INFLUENCE OR ADJUST THE PLAYING FIELD. THE EURO CURRENCY IS TECHNICALLY ‘OVER-BOT’ AT THE 1.4270 LEVEL AND IS LIKELY TO SEE SOME PROFIT-TAKING AHEAD OF THE OCTOBER ECB RATE MEETING. LONGS SHOULD TIGHTEN ‘STOPS’ OR BUY ‘PUTS’ TO REDUCE EXPOSURE AHEAD OF THE MEETING.

YES, WE ARE STILL LONG DEC. GOLD FROM $674.50. TIME TO TIGHTEN ‘STOPS’ TO $740.00 AND LOCK IN ANOTHER $1000.00. WE ARE LOOKING FOR A RUN TO $800.00, BUT CONSOLIDATION AT THESE LEVELS IS LIKELY. ENJOY THE ‘RIDE’ AND KEEP SOME CASH READY FOR THE NEXT ‘PULL-BACK’.

OUR PROFIT HAS INCREASED. IF YOU HAVE MORE THAN ONE POSITION, LEG OUT OF AT LEAST ONE POSITION AND REWARD YOURSELF. FUNDS ARE BUYING AND $750.00 IS A VERY ATTRACTIVE 'TARGET'. TIGHTEN 'STOPS' TO $730.00 TO ASSURE YOURSELF OF $5500./ CONTRACT PROFIT. WE WILL LOOK TO TAKE ADVANTAGE OF 'PULL-BACKS'.

On August 23, 2007 we sent out a recommendation to Buy December Gold. Even if you Bought it at the High of the day, $674.50, at the close of business on Tuesday, September 11, 2007, the price was $721.10, up $46.60 = a gain of $ 4660.00 / contract.

I suggest tightening your ‘stop’ to $711.00, ahead of the FOMC meeting next Tuesday. You can also Buy an ‘at the money’ Put for $2700.00 as an alternative to a ‘stop’ loss order.

Those who purchased a $700/$750 Bull Call Spread are ‘intrinsic’ and can hold to expiration or ‘close’ the spread for a hefty ‘profit’.

Hypothetical performance results have many inherent limitations, some of which are described below.No representation is being made that any account will or is likely to achieve profits or losses similiar to those shown throughout this website.In fact, there are frequently sharp differences between hypothetical performance trading results and the actual results subsequently acheived by any particular trading program. One of the limitations of hypothetical performance trading results is that they are generlly prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading.For example, the ability to withstand losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.

If you purchase or sell a commodity future or sell a commodity option, you may sustain a total loss of the initial margin funds and any additional funds that you deposit with your broker to establish or maintain your position. If the market moves against your position, you may be called upon by your broker to deposit a substantial amount of additional margin funds, on short notice, in order to maintain your position. If you do not provide the requested funds within the prescribed time, your position may be liquidated at a loss, and you will be liable for any resulting deficit in your account.

The Dollar Index opened the year on January 2^nd at 83.19 and enjoyed a run to what would be the High of 2007 of 85.25 on January 25^th. Burdened with a Record Deficit of $763.6B in 06’, about 7% of GDP and a $9 Trillion National Debt, the borrow and spend attitude would continue to weigh on the Dollar. The attractive low interest environment that led to the housing boom over the last few years would face sixteen 25bp rate increases into 06’ and lead to a slow-down in the housing industry. As the economy continued to weaken and the trade deficit, especially with China, continued to expand, the Dollar’s stature as the World’s Reserve currency came under scrutiny. While the Dollar made up about 64% of Central Bank foreign reserves and the Euro Currency 25%, talk of diversification away from the Dollar weighed on prices. Further concerns from former Federal Reserve Chairman Alan Greenspan about an ‘inverted yield-curve’ suggesting a 30% chance of a recession led to more central banks reducing Dollar positions as pressure to lower rates increased. Lower housing prices, unsold inventory of home-builders and increasing defaults by ‘unqualified’ or ‘uninformed’ home-owners who had ‘sub-prime’ mortgages would balloon into the worst housing slump in 16 years. Wells Fargo CEO, John Stumpf said it was the worst slump since the Great Depression.

In an attempt to revive the economy and ease the possibility of a recession, the Fed reduced the Fed Funds rate on September 18^th by 50bp and the Discount rate by 50bp. This would be the first of three rate cuts that eventually would lead to the December 11^th decision to lower rates on Fed Funds 25bp to 4.25% and the Discount Rate 25bp to 4.75%. The equity markets stated the displeasure of traders by selling-off and ending the early December rally. Traders who were looking or hoping for 50bp were pleased to see the Fed announce on December 12^th a plan with other money center banks, including the Bank of England, Bank of Canada, European Central Bank and Swiss National Bank to inject liquidity through a series of auctions to ease the tight credit conditions in financial markets.

The Fed’s balancing act of trying to keep the economy from entering another Recession and putting the Inflation problem on the ‘back-burner’ will definitely effect the volatility of the Dollar Index. Unless the credit crisis is resolved and consumers and businesses have access to necessary capital at lower rates, the slowing economy may not be able to recover quickly enough to combat inflation. Sounds like ‘Stagflation’! Should the Fed keeps rates ‘unchanged’ at the January FOMC meeting, the DX, basis March, could continue its rebound to 79.10 or 1.4150 Euro, while a need to lower rates would see the March DX contract retrace against most major higher yielding foreign currencies, depending on the size of the rate cut. A Fed Funds rate of 3.75% would see the DX at 1.4600 Euro.

While the Dollar Index was falling to record lows against most major foreign currencies, the rapid rise in the Euro of 9.5% put pressure on exports and future economic growth. The rebound of the Dollar Index during December, along with a surprising decline in the German ZEW Indicator of Economic Sentiment and a greater than expected drop in the Euro Zone PMI composite to a 2 year low of 53.3 would normally put pressure on the ECB to consider a rate cut at the next meeting. Earlier in the month the ECB left rates ‘unchanged’ at 4.0%, based on mixed data of lowering economic growth in 2008, from 2.3% to 2.0%, while increasing their inflation outlook for next year from 2.0% to 2.5%. Sound familiar? Stagflation II. We will see how the current Credit Crisis is progressing in the U.S. and if the global slowing will take as large a toll on the Euro. Lower interest rates in the U.S. should benefit the Euro as long as the yield gap increases or remains close to parity, as a slowing U.S. economy should see sector rotation out of the Dollar by Central Banks, OPEC countries and China, weighing on the Dollar and pushing the EC up to the 1.4600 level. A rate cut by the ECB, without a matching rate cut by the Federal Reserve could see the EC fall to 1.4100 by rear end.

The Canadian Dollar would open 2007 at 86.02 and retrace to its Low on February 8^th, before beginning a historic climb to a High of 110.09 on November 7^th, the strongest level since the Bank of Canada floated it in 1950. With the U.S. purchasing about 80% of Canadian exports and Oil prices approaching $100. /bbl, Gold topping $850. /oz and Wheat topping $10.00/bu, the CD gained about 16% against the U.S.Dollar, trailing only the Brazilian Real in 2007. Concerns that the U.S. economy would head into a recession under the ‘sub-prime’ woes and weak housing sector lessened after the BoC Governor David Dodge expressed the banks’ concern that the CD’s rise was ‘unwarranted’ and could hinder exports outside the U.S. Rate cuts by the Federal Reserve helped relieve pressure that the U.S. economy would fall into Recession and data showing inflationary pressures from higher retail sales, PPI, CPI and a strong labor pool would send the March CD down to 97.55 against the DX, before rebounding on the optimistic outlook. As the U.S. economy goes, so goes the Canadian economy. A rebound in the U.S. would see Canada’s trade surplus rebound from the 2007 low of C$6.2Billion and send the CD to 102.00, while a U.S. recession and further U.S. rate cuts would see the CD retrace to 94.00 by year-end.

The British Pound opened 2007 trading at 1.9714 and retrace to its yearly Low of 1.9192 on March 9^th, before a weakening DX, a strong housing market and the highest yield of 5.75% of the G-7 countries would send it to a yearly and 26 year Hi of 2.1095. Problems from a weaker housing market and sub-prime mortgages have found its way into the U.K. Financial institutions have had to write down about $7.5B in this quarter alone, after the Bank of England had to bail out the Newcastle-based Northern Rock Plc, after it was unable to raise debt financing. Prices have retraced to 2.0159 in the March contract after the BoE reduced rates to 5.5% on December 6^th as economists reduce growth rates from 3.1% in 2007 to 2.0% in 2008. The BoE may have to reduce rates at least another 25bps to 5.00% or lower to help falling housing markets after a third consecutive month in November and falling –3.2% in December. Lower rates may make U.K. financial assets less attractive and weigh on prices. Similar to the U.S., inflation fears and a strong labor market may keep rates attractive for a short period, before the BoE needs to act. Should the housing sector and banking sector continue to see cracks in their foundations, the BP could collapse under its own weight. I look for the BP to see a low of 1.9500 against the Dollar.

The Japanese Yen opened 2007 trading at .8498 and retraced to a low of .8140, before recovering to a high of .9302 on November 27^th. The JY has played an integral part in the volatile ‘carry-trade’ business, where traders will borrow from a bank with a relatively low interest rate and volatility and purchase a higher yielding currency, hoping to ‘carry’ the difference in yield over a period of time and then repaying the lending bank. Since the BoJ kept their short-term lending rates near 0% to combat domestic deflation, until an increase of 0.5% in July 2006, recent volatility of equity markets has seen an increase of ‘risk aversion’. Sub-prime related problems in the U.S. has seen traders unwinding carry-trades and buying back short JY positions. As the U.S. lowered rates to help the credit markets, Japanese exporters were pleased that one of their largest trading partners would have the access to ‘cheaper’ funds to purchase more product. Governor Toshihiko Fukui told policy makers on December 3^rd that keeping interest rates too low might make economic growth unsustainable, implying a basis for further rate hikes. While the latest Tankan index for major manufactures fell to +19 in December from +23 in November, traders are looking for the JY to appreciate, as carry-trades are reduced and potential for rate increases. Look for the JY to reach .9800 by the end of 2008.