There is a substantial risk that the DJIA is going to plunge below Dow 9000 next week, possibly in association with a major international shock like an outbreak of war in the Balkans and/or the Middle East.

One warning sign that trouble lies on the horizon is that a bull appeared on a recent cover of Newsweek magazine . When a bull or bear has appeared on the cover of Time or Newsweek, the stock market has been lower or higher, respectively, a year later 80 percent of the time. In other words, this is a significant contrary indicator.

On top of the "Time Magazine Indicator", the DJIA has reversed from a top around the 9200 level and is heading toward the psychologically important 9000 mark. As I have pointed-out time and time again, reversals from psychologically significant thousand marks in the DJIA often involve major stock market drops, usually in association with negative historical shocks.

For instance, right after the DJIA failed at Dow 8000 in late- October of last year, a mini-crash occurred in association with a financial panic in Asia.

Finally, between 1966 and 1982, the DJIA reversed from the "Magic 1000" barrier several times. After each reversal, all kinds of troubles emerged ranging from OPEC oil embargoes, to the Vietnam War, to Watergate. One of the most notable cases occurred in October of 1973 when the DJIA rose to just below Dow 1000 as the Arabs launched a surprise attack against Israel which, in turn, led to a major East/West confrontation and an Arab oil embargo against the West. Consequently, the world economy entered a severe contraction and stock prices plunged.

Now, the DJIA appears poised to drop below the psychologically important 9000 mark and, consequently, there is reason to believe a new historical shock will occur.

Notably, a drop below Dow 9000 in the U.S. market is paralleled by the British FTSE reversing below 6000, the French CAC reversing from 4000 and the German DAX dropping below 5000:

This seems to reinforce the idea that any shock here will be international in scope.

What sort of international shock could occur now? There seems to be two regions of particular concern: the Middle East and the Balkans.

Baghdad is threatening a "new state of affairs" if the United Nations votes to continue economic sanctions against Iraq next week. Given the massive American military build-up in the Persian Gulf in response to prior Iraqi attempts to block U.N. weapons inspections, any sort of new provocations by Baghdad could be quickly met by potent Western military action. Clearly this could ignite the region into a new war that would send oil prices sharply higher and possibly trigger a global economic recession.

On top of the danger of war erupting in the Middle East, there is increasing signs that the Balkans might soon explode. In recent weeks Serbia has been massing forces in Kosovo, a dangerous Balkan flashpoint. This week Serb forces clashed with Albanian militants along Kosovo's border with Albania. Albania has subsequently placed its forces on alert. Any coflict that might erupt between Serbia and Albania would likely result in rapid NATO, or at least U.S., military intervention in the region- something that could lead to a war between the Western powers and Serbia proper.

As I have been warning, if the Western powers are drawn into conflicts with historical Russian allies like Iraq and Serbia, a major nationalist backlash will occur in Russia that would serve as a pretext for a nationalist coup in Moscow. Clearly, if this occurs one of the worst shocks in history will follow a drop below Dow 9000: World War Three.

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                           RELATED ARTICLES
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               "Iraq: Sanctions Will Bring Heavy Price"

                     Thursday April 23 5:11 PM EDT 

                           By Hassan Hafidh 

BAGHDAD  (Reuters) - Iraq's cabinet said on Thursday its enemies would 
pay a heavy price if sanctions were maintained,  the Iraqi news agency 
INA reported.  

A  cabinet statement issued after a meeting headed by President Saddam 
Hussein and carried by the agency said a "new state of affairs"  would 
be created if the embargo was kept on.  

"The  world  now  has  two  options  -  either  to lift the embargo or 
maintain it," INA quoted the cabinet statement as saying.  

"The first will lead to some sort of relationship, understanding,  and 
cooperation, while the second will lead to a new state of affairs.  

Iraq  has  been  under  trade  sanctions imposed by the United Nations 
since its 1990 invasion of Kuwait.  

The statement did not say what the  new  situation  would  be  but  it 
recalled  a  statement  issued  by the Revolutionary Command Council a 
week ago in which it warned there could be a new crisis if the embargo 
dragged on.  

"Iraq has offered all it  has,  or  in  fact  it  has  offered  things 
impossible for the Iraqi mind to accept in order to give an additional 
chance  to  its  partners  in  the  world  to  boost the just position 
pertaining to the embargo imposed against Iraq," it said.  

The U.S.  has threatened to strike Iraq if it continues to bar  UNSCOM 
inspectors  access  to  all  sites in Iraq,  including eight so-called 
presidential sites.  

A February deal with U.N.  Secretary General Kofi  Annan  defused  the 
crisis  and  averted  a military strike but U.S.  forces remain in the 
Gulf.  

The statement  accused  the  United  States  and  U.N.  chief  weapons 
inspector  Richard Butler of working to prevent the economic sanctions 
against Iraq from being lifted.  

"The aim of the U.S.  attempts is to maintain the embargo on the Iraqi 
people  in  order to facilitate its conspiratorial mission against the 
world, the Arab countries, and the Middle East," INA reported.  

"We have no alternative but to make our enemy feel that it has to  pay 
a  heavy  price  if it decides to maintain the embargo on our people," 
the statement said.  

The U.N.  inspectors,  accompanied by 20 senior  diplomats,  concluded 
earlier  this month the first round of inspections of the presidential 
compounds.  

Iraqi Deputy Prime Minister Tareq Aziz on Wednesday accused Butler  of 
being  a U.S.  "agent" over his latest report stating that no progress 
had been made in the past six months in scrapping  Iraq's  weapons  of 
mass destruction.  

Aziz,  addressing  a conference in Baghdad of Arab Labor Unions,  also 
urged Arab states collectively to break the U.N. trade embargo.  

Aziz was reacting to a report by the U.N.  Special Commission (UNSCOM) 
chief  on  Friday  that  Iraq's  repeated  disruption  of  the work of 
inspectors made it impossible for his experts to work in Iraq.  

In the report to be debated by the Security Council early  next  week, 
Butler  stated  that  "virtually no progress" was made in the last six 
months in verifying that  Iraq  has  destroyed  its  weapons  of  mass 
destruction.  

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                  "US to Milosevic: 'Change course'"

                      Friday April 24 3:48 PM EDT 

                          By JORGE A. BANALES 

WASHINGTON,  April  24  (UPI)  _ The Clinton administration has warned 
Serbian President Slobodan Milosevic to ``change course before  it  is 
too  late,''  in the conflict with the ethnic-Albanian majority in the 
province of Kosovo.  

State Department spokesman  James  Rubin  says  the  Serbian  military 
buildup in the region is ``quite troubling and extremely dangerous.'' 

Earlier,  the  Yugoslav army had announced in the capital Belgrade its 
troops had killed at least 23 ethnic Albanians during two  clashes  on 
the border between Albania and the Serbian province of Kosovo.  

Belgrade  said the troops chased away members of the Kosovo Liberation 
Army who were trying to cross the border from neighboring Albania.  

The Albanian news agency ATA  reported  Serbian  security  forces  had 
attacked ethnic-Albanian villages, forcing residents to flee.  

Rubin  said,  ``The situation in Kosovo is quite troubling,  extremely 
dangerous.'' 

He said: ``We believe the Yugoslav National Army has been engaged in a 
fire fight along the Albanian border, with myriad deaths involved. The 
reports of a significant military buildup in  the  Kosovo  region  are 
extremely  troubling,  given the disproportionate use of force against 
insurgents and civilians in Kosovo in recent weeks.'' 

Rubin said:  ``It is time for President Milosevic to  understand  that 
the  border problem that he is dealing with is a direct consequence of 
his failure to come to terms and his inaction in terms of developing a 
viable solution to the Kosovo crisis.'' 

Milosevic ought ``to change  course  before  it  is  too  late,''  the 
spokesman said.  ``The only solution is for President Milosevic to get 
the message and get with the negotiating track and  stop  thinking  he 
can solve this problem through the use of military force.'' 

Rubin said, ``He cannot.'' 

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           "Yugoslav Troops on Albania Border Worries NATO"

                    Wednesday April 22 5:08 PM EDT 

                   By Paul Taylor, Diplomatic Editor 

LONDON  (Reuters) - Yugoslavia has moved army units to its border with 
Albania amid concern that it may use arms smuggling as  a  pretext  to 
put  pressure  on Albania or stage hot pursuit raids against suspected 
Kosovo guerrillas, NATO diplomats said Wednesday.  

NATO's council of ambassadors were briefed on  the  development  at  a 
meeting  in  Brussels  with  U.S.  Deputy  Secretary  of  State Strobe 
Talbott, they said.  

The diplomats did not detail the size of the deployment  but  said  it 
coincided with signs that Serbian special police units were once again 
sealing off villages in the troubled province of Kosovo,  populated by 
a restive ethnic  Albanian  majority,  and  intimidating  people  into 
leaving their homes.  

"The  situation  still has the potential for major violence," a senior 
NATO official said.  

The United States won support from its NATO allies for  a  carrot-and-
stick  effort  to  coax  Yugoslav  leaders  and  ethnic Albanians into 
negotiations on autonomy for Kosovo, the diplomats said.  

But Talbott, ending a tour of European capitals,  reported that Russia 
was  resisting further sanctions against Belgrade if a deadline set by 
the major power Contact Group elapses next Saturday without progress.  

The visiting U.S.  envoy warned the council  that  Yugoslav  President 
Slobodan   Milosevic   would   disregard   outside   pressure  if  the 
international community  "maximizes  the  carrots  and  minimizes  the 
sticks." 

Talbott has been discussing what further action the six-nation Contact 
Group  can  take  if Milosevic does not meet its demands for an end to 
repression, the withdrawal of Serbian special police units and genuine 
negotiations on self-rule with the ethnic Albanian majority in Kosovo.  

Political directors from the United States, Russia, Britain,  Germany, 
France and Italy are to meet in Rome next Wednesday to discuss further 
measures.  

The diplomats said the United States, apparently responding to Russian 
and West European urging,  had softened its policy on Kosovo,  seeking 
to balance incentives with punishments and to put  equal  pressure  on 
both Belgrade and the ethnic Albanian leadership.  

Washington  was  now  prepared  to  offer  Belgrade the possibility of 
rejoining the 53-nation Organization for Security and  Cooperation  in 
Europe  (OSCE)  and  even  gradually beginning to dismantle the "outer 
wall" of international financial sanctions if it cooperated on Kosovo.  

These   sanctions   bar   economically   strapped   Yugoslavia    from 
International  Monetary  Fund  loans  and  effectively  choke  off all 
foreign credit.  

The sources said Talbott said U.S. conditions were that Milosevic open 
a good-faith dialogue with the Kosovars, end repression,  withdraw the 
special police, put their heavy weapons back into storage and allow an 
OSCE  mission  by  former Spanish Prime Minister Felipe Gonzalez to go 
ahead.  

It was pressing the Kosovars to accept the offer of negotiations  with 
Yugoslav  and  Serbian  leaders,  accept  the  OSCE  principle  of the 
inviolability of international borders,  guarantee the human rights of 
the ethnic Serb minority in Kosovo and stick to nonviolence.  

The  diplomats  said  the council agreed on an active role for NATO in 
beefing up security  on  the  periphery  of  Kosovo  through  training 
missions in Albanian and Macedonia.  But they ruled out any deployment 
of NATO forces in Kosovo, as a delegation of ethnic Albanians visiting 
Council of Europe headquarters in Strasbourg requested Wednesday.  

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                  "Yugoslavia Warns of War in Kosovo"

                         The Los Angeles Times

                           April 25th, 1998

Albanians in restive Kosovo province,  the Yugoslav army warned of war 
Friday unless the West pressures the separatists to "give up." 

The warning came as officials claimed a victory for President Slobodan 
Milosevic's  defiant policy.  Final figures from a referendum Thursday 
showed 95 percent of  Serb  voters  rejected  foreign  mediation  over 
Kosovo, where ethnic Albanians outnumber Serbs 9 -to-1.  

Serbia,  the  dominant republic in Yugoslavia,  is determined to quash 
rising independence sentiment in the southern province.  

This is the West's "last moment to put  pressure  on  the  leaders  of 
Kosovo Albanians to give up and denounce terrorism if they really want 
to see a peaceful and political solution of Kosovo problems," the army 
command said in a statement.  

The command,  after meeting with foreign military attaches,  also said 
the international community "should stop Albania in its activities  in 
training, infiltrating and illegally arming the terrorists." 

It  said it will "energetically" act against any further "provocations 
and armed attacks" from the Albanians.  

Albania has denied supporting the Kosovo insurgents. But at the 

United Nations Friday,  Yugoslav Ambassador Vladislav  Jovanovic  said 
Albania's  government  was  providing  shelter  and  support  to armed 
Albanian extremists.  

Jovanovic charged that Albania was trying to provoke the Yugoslav army 
and justify foreign military intervention as part  of  a  campaign  to 
break the province away from Serbia.  

Jovanovic  told reporters.  "We expect from the United Nations ...  to 
hold Albania accountable for the violation of those basic  principles" 
of international law.  

Jovanovic  said  the  United  States  and other Western countries were 
playing  into  the  hands  of  Albanian  separatists   by   pressuring 
Yugoslavia   without   taking   similar  steps  against  the  Albanian 
government and extremists in Kosovo.  

In fighting Wednesday and Thursday,  the Yugoslav army reported it had 
killed  23  ethnic  Albanian  militants  on  the country's border with 
Albania.  The toll was the highest since a March sweep by Serb  police 
against insurgents left more than 80 dead.  

The West fears a Kosovo war could engulf the Balkans.  

The  United  States said Friday it would push for a freeze on overseas 
Yugoslav assets  and  an  international  ban  on  foreign  trade  with 
Belgrade as punishment for the repression of Kosovo Albanians.  

The twin sanctions will be proposed by Robert Gelbard,  the chief U.S. 
mediator for  the  Balkans,  at  a  meeting  Wednesday  in  Rome  with 
officials from Germany, Britain, Russia, Italy and France.  

It  was  impossible  to  confirm independently the official referendum 
results released Friday,  as there were no foreign observers  present. 
Some  Serb opposition observers told independent radio B-92 of massive 
fraud.  But Serbs have long been wary of foreigners,  and the lopsided 
numbers were not a surprise.  

Milosevic  can  now  point to strong public backing in resisting world 
powers.  

Milosevic,  who revoked Kosovo's autonomy in 1989,  is  determined  to 
keep it under state control.  

The  Yugoslav  army  also said Friday that two Albanians were captured 
and a considerable amount of  weapons  and  ammunition  seized  during 
several border battles with the insurgents.  

Military footage showed a field strewn with guns, ammunition and three 
corpses. A young captive was shown lying on the ground, face down with 
his hands tied behind his back.  

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