BISHOP’S
MARKET
OUTLOOK, 02-18-03 FINANCIAL
EDITION ENERGY:
We note that on the longer-term charts, all
Energy contracts are nearing their 2000 continuous
highs after making head & shoulders bottoms in
the Oct-Nov 2001 timeframe.
This “symmetry on the charts” is a
classic technical topping (or at least re-tracing)
zone. Further,
these contracts show massive levels of long-side
speculation, particularly gasoline. Position longs should keep the tightest of trailing and
profit stops at this point.
Reversals to the downside, which would
ordinarily be very attractive shorts should be
approached with caution, however.
Energy is currently the prime beneficiary
of the confusion surrounding the Iraq crisis.
In this environment, un-hedged short
positions carry unacceptable levels of risk. CL:
Crude
looks very toppy in the short run. Position longs
should keep the tightest of stops along the
upsloping support trendline from the Feb. 3 swing
low. If
hit, move to sidelines.
Ordinarily, we’d be looking for stop and
reverse to short but given the factors affecting
this market we prefer either an exit or a hedged
short position only if stops are hit. Longer-term,
the strength of the last upleg from the Nov. 02
lows is a technical indication that after any
pullback here we’re likely to see a re-test of
these highs.
This observation is tempered somewhat as
the last uplegs in distillates (HO & HU) were
not as strong, adding support to the thesis that
the oil rally is more Iraq-driven trading hysteria
than economic reality. HO:
Position longs have final trailing stops placed
along the upsloping parabolic support trendline
that includes the Feb. 12 blip low.
All other energy comments apply. HU:
After the long rally from the Nov. ’01 lows, HU
appears very near a massive speculative top.
Our best guess is gasoline will retrace
from it’s Feb 12 (basis Apr) blip top.
Position longs should keep the tightest
stops. CL
comments apply.
Any short positions placed while the Iraqi
confusion persists should be hedged.
Of all energy contracts, gasoline would be
our preference for a hedged short. NG:
A very similar situation to CL.
The rally is even more speculative.
Position longs keep the tightest of stops
as we expect the most significant selloff since
May-Aug of ’02.
Thereafter, a re-test of current highs is
still technically plausible. ENERGY
STOCKS: The selloffs in both XOI and OSX
from late 2002 further illustrate the speculative
nature of the current Energy bubble.
This is a market driven by understandable
Iraq-oriented concerns that will only “return to
rationality” when that issue is resolved, one
way or the other. METALS:
During the Florida seminar series we
highlighted the metals as part of an
“Intermarket Bubble” involving unsustainable
speculative rallies in gold, currency, bonds,
& energy.
GC:
Gold was highlighted during the Florida seminar
series from Jan 27-30th as an integral
part of the Intermarket Bubble.
3 trading days later, April GC peaked at
384.50 on Feb 5 with a classic reversal bar.
Now at 352.20 we believe there’s further
downside, targeting 325-335 by mid to late March. Speculation remains very high, bearish seasonality (Apr /
May) is ahead and volatility has not yet subsided.
However longer-term, as with energy, the
strength of the GC move from the Oct/Nov
consolidation to the Feb high indicates that after
the current selloff, an eventual re-test of the
highs remains probable at this point.
One primary reason: the global debasement
of currencies.
All major economies are now pursuing
aggressive fiscal stimulus on top of accommodative
monetary policies. This translates to more
currency in circulation, inflation fears, etc.
Longer-term the industrialized world faces
baby-boom retirement obligations that are likely
to be met, in part, by simply printing checks.
Time will tell. SI:
Plunging after topping out on Feb 5 @ 495
(basis Mar), bearish Jun / Jul lies ahead.
Now at 453.50, after any brief rally here
we look to break 450, targeting 4.25 or lower. HG:
A bullseye call from the 12-09 Outlook: “…our
SD Index is becoming VERY TOPPY …..Now at 74.90
(Mar), Copper looks ready for at least a blip
pullback to the 72-73 area before a likely
speculative rally to test the June continuous
highs (79.50) in seasonally strong Jan/Feb….”
The copper pullback exceeded our
expectations, closing at 70.20 on Dec. 31 and then
rallying smartly to test the June highs, topping
out at 79.55 on Feb 3rd in the middle
of peak seasonality.
Now bearish May/June lies ahead.
Note the extreme bullish speculation and
complacent low volatility at the Feb. high.
Now at 75.55 we expect further downside,
targeting the 65-70 area in this range-bound
market. PA:
Now at 254 basis March, Palladium appears to be in
the final stages of putting in a bottom on the
long slide from the Jan. 01 highs.
However, a retest of recent lows in late
’02 appears technically necessary in order to
complete that bottoming process.
Currently targeting the 200 – 210 zone by
late March. If
this develops, it would likely be accompanied by a
correction in Platinum and on-going softness in
GC. PL:
Platinum continues to defy the
fundamentals.
Position longs should have the tightest of
stops along the parabolic upsloping support
trendline which includes the Feb 10 pivot low.
Now at 675 (basis Apr) we look for a
counter-trend pullback to at least the low
600’s. As
with GC, the power of the last upleg from the
Oct-Dec congestion leaves us thinking that
ultimately a re-test of the Feb 4 high is
technically not out of the question. BONDS/
NOTES: A
bullseye call from our 12-09 Outlook:
“….TY is a mixed picture.
We narrowly favor short term upside and the
risk-reward of the long side is attractive with
logical stops at the 12-03 or 12-05 low (110-260
March). Targets are to take out the 10-10 high
(115-090) by yearend.
Such a move would likely coincide with: 1)
Softness in U.S. stock indices at least early in
the move 2)
a final downside plunge in the Nikkei
3) a final U.S. dollar selloff… all of
which we expect for independent reasons….”
Indeed, our stops at the 12-03 and 12-05 lows
held, and TY hit 115-17 on Dec. 31!
Also as predicted, since our 12-09 Outlook
the U.S. stock markets and the Nikkei have plunged
and the dollar has tanked, setting up the
“Inter-Market Bubble” of toppy bonds,
currencies, and gold.
TY is now a very mixed picture.
What we are MOST SURE of is that
position longs should keep the tightest of stops
here, 113-29 basis March, 112-15 or so basis June.
Technically we’re still looking for the
longer maturities to follow the short end and
re-test of October’s low in yield (3.61% on the
10 year) by mid-March which of course would
translate to new note & bond highs. How could
this happen if the U.S. stock market is rallying?
Bonds could continue to make marginal new
highs in the face of rallying U.S. stocks if the
DOLLAR is also rallying, which we believe will be
the case. Note
that we are less sure of a U.S. stock rally over
this timeperiod.
Also supportive for short-term bond &
note upside: mutual fund inflows over the past 2
weeks, which certainly include some U.S. dollar
repatriation, have heavily favored bonds and munis
over stocks and the money market.
Bulls should be extremely cautious here
regarding the extreme long-side speculation in
Notes. STOCKS: On-going bullseye
calls in December and January.
From the 12-09 Outlook: “….
We note that the Nikkei appears to be
heading for a fresh low in the days ahead.
During the same timeframe we would expect
U.S. indexes to struggle, bonds to remain buoyant
and the dollar under pressure…”
From the Jan. 4th Cornerstone
Seminar (S&P at 930, OTC at 1421): “…. We
look for stock indices to trend downward, towards
at least a mild re-test of the Oct. lows”.
The S&P and OTC subsequently collapsed
to hit 817 and 1262 respectively on Feb. 13. Our
list of Nasdaq short sales doubled the performance
of the OTC over this period. At this point the erratic stock index charts present mixed pictures.
Note the following factoids on the bullish
side: 1) The Nikkei marginally put in a fresh new
bottom in February but may need another re-test to
complete a final bottoming pattern 2) The dollar
rally and gold selloff are both bullish for
stocks. On
the bearish side: 1) Stock mutual fund flows
remain bone dry
2) Technically, interest rates look poised
for a re-test of their Oct lows
3) Technically the selloff from the 12-02
index highs looks incomplete and the rally
unfolding from the Feb 13 pivot lows looks more
like a “countertrend rally” at this point. Our
conclusion:
Any position longs should have the tightest
of stops as this rally can only be seen as
countertrend.
We still narrowly favor the view that after
a blip rally here,
the Oct. lows will be re-tested in the
weeks ahead. FOREX:
Currencies figured prominently in our
presentations at the Florida seminars from Jan. 27
to 30th.
We cited the rallying Euro, Pound, Swiss
& Yen as components of a larger “Intermarket
Bubble”. The
Pound now appears to have topped out the week of
our Seminars on Jan. 31st.
The Euro and Swiss were not far behind,
topping out 3 trading days later with classic
reversal bars on Feb. 5th.
The currency outlook at this point is
cloudy. What
we’re most certain of is that the selloffs are
likely not over.
These currencies have enjoyed a 12 month
rally from their Jan/Feb ’02 lows and are likely
to retrace 7 to 10 percent if February is not the
ultimate high.
Look for Gold to remain weak during this
projected selloff.
The dollar rally in turn is likely to
support BOTH U.S. stocks and bonds up to a point
at which bonds & stocks will de-couple. The direction of the de-coupling will give us clues as to the
future of the currencies.
Should stocks continue to rally, this is
almost certainly bullish for the dollar.
A scenario where bonds rally and stocks
retrace is less clear as to it’s currency
implications.
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