Dear Futures Trader,

What follows is the first issue of FutureSource's newest service,
"FAST BREAK." Each weekly issue contains a discussion of the
markets between two well known analysts and contributors to
FutureSource, Jim Wyckoff and Dave Hightower. In this issue, Jim
and Dave explore stock indexes and bonds and share their views
of where those markets are headed.

David Hightower is editor of the "Hightower Report" (avail-
able on FutureSource Professional and ProNet). Jim Wyckoff is a
regular contributor to FutureSource.com.

You are receiving this because you are a customer of
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________________________________________________________________

        F U T U R E S O U R C E ' S   F A S T   B R E A K
Volume I                December 20, 2001               Issue #1
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The major U.S. stock index futures defied many so-called "market
experts" this fall and exhibited solid rebounds from the
September lows. Meantime, traders looking for action have
certainly found it in the U.S. Treasury bond futures the past
several weeks. Indeed, in November, nearby T-bond futures prices
hit a new all-time high, only to come crashing back down. What's
next for these major markets in the coming days and weeks? Let's
get the opinions of these two seasoned and respected market
analysts:

To see news on the stock index futures, click below:
http://www.futuresource.com/news/news.asp?search=stock,index

To see news on bond futures, click below:
http://www.futuresource.com/news/news.asp?search=bond

FUTURESOURCE.COM: David, let's start out with the U.S. stock
index futures. Give us the lowdown.

HIGHTOWER: One has to be impressed with the stock market action,
as prices gained while a number of commodity markets simply
discounted the chain of better than expected U.S. economic
reports. Even with the Congress doing everything they can to
create ongoing recession conditions and the leadership of Al-
Qaeda apparently escaping, the stock market maintained a
positive tilt. However, we are concerned that the gains were
simply holiday-related and that the reality of slowing will
manifest itself in a consolidation of the S&P 500. We think the
S&P will be restrained in a range bound by 1115 and 1176 until
the corporate news or the layoff news begins to show consistent

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signs of improvement. The fact that the initial claims figures
have declined moderately could be a sign that the concern over
the recovery timing is overdone. However, it would seem to be a
tall order to get the US economy in position to recover prior to
the second quarter, which we think is needed in order to
surprise the market into a rally beyond 1176. If for some reason
the recovery is thrown back beyond the second quarter, that
could mean a temporary failure below the bottom of the expected
trading range. The fact that Congress failed to rise to the
occasion is a major failure, and with recent forecasts by the
IMF warning of global recession or worse in 2002, one must
continue to be skeptical toward the existing bull case. The
projected consolidation range in the Dow comes in at 9691 and
1016. Will Japan avoid financial collapse, thereby spoiling the
US recovery leadership?

FUTURESOURCE.COM: Jim, give us your views on the U.S. stock
indexes.

WYCKOFF: Price action in the U.S. stock indexes the past couple
weeks suggests they are "rolling over" from recent gentle
uptrends into more sideways and choppy trading ranges. I do not
look for dramatic rallies or dramatic sell-offs in the U.S.
stock indexes in the near- to intermediate term. I heard on a TV
business channel this week that traders can expect a "Santa
Claus rally," or the "January effect" to support the U.S. stock
market in the coming weeks. One analyst said this is one of the
easiest plays in stock trading. While there is irrefutable
evidence that there is in fact a Santa Claus rally or January
effect in stocks nearly every year, I do not believe that
catching and participating in these rallies is easy. Again, it
boils down to that all-important timing factor in trading
markets.  I've been in this business long enough to have seen
Santa Claus rallies that began in October and were finished
before Christmas even arrived. In fact, that may be the case
this year. I am not ruling out a January rally in the stock
market, but technical analysis does suggest Santa Claus made an
early visit to stock traders again this year with a moderate
rally that began in late September and just recently stalled
out. Stock index bulls will regain the initiative if they can
push their respective prices above the December highs. If that
does occur, then the fabled "January effect" could unfold right
on time this year.

FUTURESOURCE.COM: Okay, fellas, what about the T-bond futures
market?

HIGHTOWER: The rally in the U.S. T-bond market over the last
week might be explained as a rally in a bear market. It is also
possible that yields were high enough for some long-term players
to decide to pull down some supply and lock the high rates of
return. With the continued anxiety over the Japanese economy, it
is also possible that some of the recent buying was flight-to-
quality buying by investors concerned about a debacle there. The
U.S. economic numbers released last week continued to foster the
recovery mentality and that should eventually turn the bonds
back down. In the past two corrections against the downtrend,
bonds managed 3 to 4 points on the upside while the current
correction just barely managed 3 points on the bounce.
Therefore, one should not assume that the downtrend has been
altered unless of course upcoming economic numbers repeatedly
dash the theme of recovery. The bonds might end up being
buffeted by the events in Japan, as a wholesale failure in the
Japanese economy that resulted in repatriation could cause heavy
selling of US Treasuries. Keep in mind that Japanese entities
are massive holders of long term US Treasury debt. It is
possible that the December unemployment report released in early
January will not show as dismal of a condition as was seen in
the November figures. However, we would not be surprised if the
bonds launch another recovery bounce into that time frame, as
that has been the pattern over the last three months. The "V"
bottom recovery is not as likely, but recovery in the 2nd
quarter of 2002 is an accepted reality in bond prices.
Therefore, any serious charge against recovery could spark a
larger than expected bond bounce.

FUTURESOURCE.COM: Jim, give us your outlook for the bond market.

WYCKOFF: A couple weeks ago the T-bond market shed more than
five full points in three days! This week, the market tacked on
about three points in three days. Now that's some market
volatility! Indeed, this week, we did see a good short-covering
bounce in bonds. However, this week's rebound is still just a
good-sized technical correction in a strong bear market. A bear
flag recently developed and played out on the daily bar chart,

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basis March T-Bonds. The daily chart for the March contract
shows a steep seven-week downtrend line still in place. Also, on
a longer-term chart basis, a major double-top reversal pattern
on the monthly continuation chart for nearby T-Bond futures has
formed. March T-bond futures need to push above 104 even to give
the bulls a solid boost. The good news for the bulls is that the
monthly chart does reveal a strong support layer that did check
the recent price declines. Should prices jab down below that
support zone, however, the odds greatly increase that the bears
will do some feasting in the year 2002, and the bulls will be on
the run. My bias is that decent rallies in the bond market, like
we saw this week, will be good selling opportunities and that
the bear market will roll on--until technical considerations
signal the bulls have picked themselves up off the canvas.

FUTURESOURCE.COM: Thanks for your detailed analysis, Dave and
Jim. Next week, we'll be taking your pulse on two more important
futures markets. Stay tuned!


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