BISHOP’S  MARKET  OUTLOOK, 12-09-02

ENERGY:  From 11-11 Outlook: “…While we look for a brief upside blip rally here, we would expect it to last for only a few days then reverse to the downside …”  We’ve had more than a blip rally and we’re less convinced that the mid-November lows are vulnerable.  We’re generally standing aside in this group.

CL: From 11-11 Outlook: “…Shorts [from Oct. 21] should now begin aggressively tightening stops along the resistance trendline connecting the Oct. 18^th and Nov. 4^th pivot highs (currently at 26.75 or tighter, basis Dec.).  If hit, move to the sidelines and look for short re-entries…”

This trendline stop worked perfectly, exiting on 11-18 in the 25.50 area (basis Jan.).  Crude is a mixed picture at this point: the pattern favors a retest of the Nov. 13 low in seasonally bearish Dec/Jan. However, our SD Index is more bullish and volatility is indecisive. We prefer the sidelines at this point.

HO: From 11-11 Outlook: “….  Shorts should max-tighten stops to the parabolic resistance trendline connecting the Nov 4^th and 7^th pivot highs. If hit, exit and look for short-side re-entry opportunities….” 

We were aggressively short the energies from the 10-19 Seminar.  Our trendline stops from the 11-11 Outlook did an outstanding job of taking out these positions for substantial multi-week gains.  As with the rest of the group, we prefer the sidelines until more clarity emerges.

HU: Sidelines for now after our great short-side call at the Oct. 19^th Striker Seminar.

NG: Sidelines.

ENERGY STOCKS: The loftiness of XOI and OSX is another reason we’re less convinced of downside tests in the Energy contracts.

METALS:  Gold is weak in all forex here.  The blip GC rally from late Oct. has mirrored the Euro rally over the same timeframe.  Any GC upside is likely dollar weakness, not metals strength.

GC: Position longs should keep parabolic stops here along the uptrend line connecting the 12-2 and 12-5 pivot lows, above 322 basis Feb at this point, and look for reverse-to-short opportunities.  Our very bearish SD says this is likely a final top in the bullish Dec. timeframe.  Gold also remains vulnerable to a dollar rally which we expect in the weeks ahead for other reasons.

SI:  From 11-11 Outlook (@459.00 Cash): “…  The seasonal rally from 10-10 has a nice pattern and could see additional upside heading into the peak Jan/Feb timeframe.  470 – 480 is likely to be an outside target.  Longs should keep tight stops along the upsloping support line connecting the Oct. 24^th and Nov. 6^th pivot lows.  The bottoming SI on most forex is also mildly positive…” 

Now at 464.00, SI is another mixed picture.  Longs should keep very tight stops given the choppiness of recent moves and consider option hedges given that implied volatility is at 12 month lows.

HG: A bullseye call from 11-11 Outlook (@72.10 basis Dec, 73.00 basis March): “…HG position longs should keep stops above 70.00 (Dec.) here.  Now at 72.10, we’re looking for this rally to reach the 77.00 to 80.00 area by the peak bullish Jan / Feb timeperiod. ”

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 highs in seasonally strong Jan/Feb.  Meanwhile our SD Index is becoming VERY TOPPY. We like tight position stops here, at the 11-26 low (73.50 Mar).  If hit, move to the sidelines.

PA: Our yearlong palladium grand-slam continues. From 11-11 Outlook (290 basis Mar): “… PA is fulfilling our long-held view that it would re-test its Oct. 01 lows…We’re keeping the tightest of stops here to lock profits as PA is now in technically-acceptable bottoming territory.  Position shorts should have stops at 305 or lower.  We like parabolic trendlines and “yesterday’s high” as stop themes here. Let it run as far as it will, but don’t give much back….”

Now at 251.25, our parabolic trendline stop has worked perfectly.  Position shorts tighten stops to 270 or lower.

PL: Our stop from the 11-11 Outlook short-sale was taken out for a small loss but platinum remains very toppy.  The rally from the 8-01 low now has a 5-point upsloping support trendline.  Longs have tight stops along this trendline, now at 587 basis Jan.  Look to exit & reverse to short if hit, especially if the 11-15 high has been taken out.

BONDS/ NOTES:   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.  Positives are a supportive SD Index, seasonality, the Curvature Index, and inter-market relationships. 

STOCKS: Bullseye calls for the indices from our 11-11 Outlook: “… our best guess is for resumption of the uptrends started on 10-10, targeting fresh highs in those uptrends by late Nov…”

Notes on specific indexes appear below.  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.  In this scenario, assuming a bottom / rally in the Nikkei, this would be very supportive of a U.S. index rally, a dollar rally, and a bond selloff.

OTC/ NDX: Bullseye calls from 9-11 (OTC 1319.19, NDX 972.48 cash): “…  We’re now looking for a resumption in the rally from the 10-10 lows, targeting 1440 to 1490 by late Nov. on the Composite and 1090 to 1140 on the Nasdaq 100 (NDX)…

We had caught the bottom on 11-11 and 11-12 and the OTC rally exceeded our expectations, spiking to 1521.44 on 12-2. Now at 1367, we expect this blip selloff to hold in the 1325-1350 area and resume the uptrend prior to the Christmas holidays.  If so, we would expect a test of the 12-02 high, with targets to 1540-1560 by late Dec / early Jan.  Assuming this final upleg into January, at that point the prospects for a re-test of the October lows can begin to be intelligently estimated.  We note that the OTC SD Index is considerably weaker than the SP, indicating a high degree of speculation. This is also evidenced in the sharpness of the selloff from the 12-02 high.  Also on the bearish side, the NDX is a big negative for the OTC.  NDX has both SD & pattern weakness and has somewhat less than 50-50 odds of testing it’s 12-02 high (1155.68 cash).  Weakness in the OTC 100 would definitely limit upside in the broader OTC.

SPX/ OEX: A bullseye call from 11-11 Outlook (876.19): “…At this point we’re looking for the uptrends to resume by week’s end, targeting 930 to 945 by mid to late Nov…We will re-evaluate prospects for further upside when and if we get to our nearer-term Nov. targets….”

Exactly as predicted, the uptrend resumed on 11-14, hitting 941.82 on 11-29 than blip-spiking to peak at 954.28 on 12-02 at the start of this pullback.  At this point the pullback is orderly. We expect it to bottom before the Xmas holidays & hold above 865.  Note we expect a fresh new low in the Nikkei over the same timeframe!  Thereafter, we look for the uptrend from the 10-10 low to resume, targeting 960-975 (the 8-22 high) by late Dec, very early Jan.  This final upleg is likely to be accompanied by a rising Nikkei and probably a bottoming / rising U.S. dollar as well.

DOW:  Another stock index bullseye from 11-11 (@ 8358 cash): “…Currently targeting 8860 to 8950 by mid to late Nov….”

Indeed, the Industrials hit 9043 on 12-2!  Now at 8473, we expect this pullback to hold in the 8250 – 8350 range by week’s end, followed by an upside rally to the 9150 – 9250 area by late Dec.  There are interesting early signals now coming from the DJIA that it is increasingly LESS likely to take out it’s October low on any sharp pullback in the months ahead.  It’s the first such indication among the major indices.

RUT:  Another 11-11 index bullseye: “…Targeting 395 to 405 by late Nov…”

The Rut hit a high of 413.64 on 12-2.  After this current pullback, the index looks likely to re-test the high by late Dec.

VALUE LINE:  comments in next issue.

DOW TRANS: comments in next issue.

DOW UTILS:  comments in next issue.

FOREX:  Our view from 11-11 remains intact: “…Most major currencies are in a final rally likely to top out soon in the Nov/Dec timeframe, a classic bottoming season for the greenback.  See also Metals which are primarily FX-driven at this point.  Importantly, the Nov. plunge in DX is largely due to falling US interest rates.  At some nearby point the falling US dollar will begin to pressure US rates (and soften foreign rates).   In turn, as US rates back up, they should help put in a bottom on the dollar…”

We would add a bottoming Nikkei (after a fresh new low) and rallying U.S. stock indices to this mix (see also STOCKS comments).

DX:  From 11-11 Outlook: “…  We’re adjusting downside targets to the 102.00 – 103.00 range by mid to late Dec.  This would coincide with mirror intermediate tops in numerous major FX….”

We see no reason to change this view.

Euro:  We’re still expecting a takeout of the 7-19 high (1.0156 cash), and are adjusting targets to the 1.026 – 1.038 range by early Jan.  The difficulty that EC is having taking out 7-19 points to the overall seasonal toppiness of this market.  Also, EC strength may now be as much JY weakness as dollar weakness.

BP: From 11-11 Outlook (1.5882 cash): “…Nearing at least an intermediate top to the rally from the Jun ’01 major bottom.  Position longs are trailing stops to 1.5700 or higher.   Let it run as far as it can but BP is very toppy …”

Our stop was triggered on 11-25, saving further selloff to 1.5429 on 11-27.  We’re on the sidelines, watching BP as a short-side candidate.

SF:  Now at .6859 (cash), SF is laboring to takeout the 7-19 high (.6951) and reach targets in the .70 to .71 range by early Jan.  Position longs have stops at .6700 or higher.

JY: We noted the weaker JY in our 11-11 Outlook: “…The JY rally is technically somewhat shakier than other major FX.  The Nikkei has preceded recent pivot turns in the JY. Note the EWJ top on 6-03 and bottom on 10-09, both ahead of similar moves in the JY.  The EWJ is currently on a downmove from a technically important pivot at it’s 11-06 high.  Can a top in JY be far behind?…

Indeed, a sharp JY selloff began on 11-13.  This pattern is now so erratic we’re on the sidelines waiting for greater clarity.  As we’re expecting a new low (and important bottom ?) in the Nikkei in the next few weeks, we’ll be watching the JY reaction over the same period.

ME: From 11-11 Outlook” “…Technically we expect the peso to drift, waiting for greater clarity from the major FX.  The 9-23 cash low (.9420) looks solid at this point…”

The 9-23 low continues to hold and the “sideways drift” remains, waiting for the dollar to bottom.

AD: From 11-11 Outlook: “…Super-vulnerable after this final rally from the 8-06 pivot low.  50-50 chance to break the 6-24 cash high at .5774 with outside targets of 5850 – 5925.  AD will likely follow the EC & JY trends.  Keep the very tightest stops on any AD longs…”

No change to this view.  The AD is extremely toppy.  Position longs move stops to the 12-02 pivot low (.5563 cash) or higher.  Look to exit and reverse to short, especially if the 6-24 high is touched or taken out.

CD: From 11-11 Outlook: “…A favorite technical short pattern with attractive risk / reward.  Now at .6393, position shorts have stops at .6452 and targets to .6175 - .6260 by mid/ late Dec….”

We continue to like the short side with stops at the 12-03 pivot high (.6435 cash).

GRAINS: Generally bearish.

W: Bullseye calls going back to 10-19!  From 11-11 Outlook (383.50 Dec): “…Wheat was presented as a “favorite short” at the Striker System Trading Seminar in Chicago on Sat. Oct. 19^th.  It opened Monday Oct. 21^st at 412, hit a high of 418.75 on 10-30 and closed 11-11 at 383.50.  That’s a 4.5 to 1 upside/downside ratio in the action following the Seminar!   The 9-09 high looks very safe at this point.  Bearish seasonality looms ahead.  Position shorts adjust stops to 396.50 or lower, and look for further downside after any blip counter-trend rally…”

This is exactly what we’ve seen, with Wheat continuing to plunge to close today at 348 Dec / 357.40 Mar.  That’s 64 cents down from the Oct. 21^st Open!!  We’re tightening short position stops to 356 to lock in profits.  While further downside appears very likely at this point, at least a blip rally is likely to develop shortly.  If stops are hit we would move to the sidelines and look for short-side re-entries. 

S/ SM/ BO: From 11-11 Outlook: “…The bean rally from the 1-02 major low is on its last legs. We expect a successful test of the 9-11 high (593.5 basis Jan) with outside targets in the 600.0 to 620.00 range.  Meanwhile the SDIndex is becoming very bearish.  Longs should keep very tight stops & look to reverse, especially if the 9-11 high is taken out.  We’re watching changes in our Curvature Index (CI) and volatility for clues that the S top is at hand…”

A test of 9-11 high looks increasingly unlikely here.   Position longs should definitely be lightening up following the 12-02 pivot high.  The pattern probability of taking out this high is less than 50-50 and the SD Index is hugely bearish.  We’re watching for favorable short-side entries.

C:  A bullseye call from the 11-11Outlook: “…Now at 235.75, we look for a downtrend rally to commence shortly, lasting a few days and reaching perhaps 250 – 255.  Thereafter our best guess is for a downside re-test before staging any seasonal climb towards Apr/May planting season.  Position shorts should have very tight stops, at 243.50 or lower, and if hit move to the sidelines for possible short re-entries….”

Right on script, a blip corn rally started the next day, reaching 249 on 11-20!  This rally failed beginning 11-22 and closed at 232 Dec today, taking out the 11-11 low in the process.  Corn is setting up for a strong rally.  Position shorts tighten stops to 234 7/8 Dec / 239 ¼ Mar or lower.  Consider stop and reverse to long if hit and risk-reward looks attractive.

RR:  A good call from 11-11 Outlook: “…A very interesting short situation.  Now at 4.130 (basis Jan), we look for rice to takeout the 10-22 low (3.850), and target 3.710 to 3.780 by early Dec…”

Now at 3.980 the 10-22 low still looks vulnerable.  Position shorts tighten stops to 4.055 or lower.

MEATS:  From 11-11 Outlook: “…Current rallies are on their last legs…These rallies are now cracking.

LC: From 11-11 Outlook: “…Position longs should keep the tightest of stops (74.50 or higher basis Feb).  The snoring volatility looks like a possible complacency trap!  Note the severely bearish SDIndex.  Our tech model is a bit more bullish but given the SDI reading, we’ll tighten stops & move temporarily to the sidelines if hit….”

At least a pivot high is likely in on 12-05.  Position longs should lighten up at any reasonable stop.

LH: From 11-11 Outlook: “…One final upleg is likely after any pullback here.  Position longs raise stops to max tightness on at least partial positions to 45.20 or higher…”

Indeed, from 11-11 we had a blip selloff to 11-19 followed by a re-test of the 11-11 high.  Our SD Index had risen to extreme bearishness during this period and LH is now gapping down.  Substantial additional downside is most likely.

SOFTS / FIBERS:

CO: We’re on the sidelines in this perpetually-mixed picture.

SB: A bullseye call from 11-11 Outlook: “…  Now at 7.34, our solidly bullish position has panned out nicely.  We now expect that SB is on the verge of its strongest pullback in the rally from the June Lows.  After any such pullback, the uptrend is likely to continue with one more upleg to the Jan/Feb peak seasonal timeframe.  But Sugar is hugely speculative at this point.  Position longs should take partial profits and tighten trailing stops….”

The strong pullback we forecast materialized immediately as Sugar opened stable on 11-12 then plunged over the next 2 days to hit 6.60 (March).  Then right on cue we got the next upleg, peaking on 12-3.  We believe 12-3 is at least a tradable short-side pivot point as SB remains very toppy.

OJ:  We continue to stay on the sidelines.

KC: From 11-11 Outlook: A favorite short setup presented at the Oct. 19^th Striker Seminar, coffee opened Monday Oct. 21^st at 65.10 (Dec).  Now at 66.10 we especially like the short-side entry trigger presented by a violation of the support trendline drawn along the pivot lows starting on Oct. 29^th.  SDIndex is hugely bearish…”

Our reverse-to-short trendline stop was broken on 12-04 in the 69.00 area (basis March) and more sharply on 12-06.  Position shorts have stops at 72.00 or lower (Mar.).

CT: From 11-11 Outlook: “After bottoming in seasonally weak Oct., cotton is in a sharp rally, which technically is in need of a breather…We note the very toppy SD index also.  Longs adjust trailing stops to max-tight and move to sidelines if hit…”

Now at 48.72 (basis March), we like the downside in CT here. Position shorts have stops at 50.00 or lower.

LB:  A solid bullseye call from the 11-11 Outlook: “…  On 11-11 we plunged to hit 220.  We’d be lightening up on this weakness and tightening position stops to 230 or lower.   If stops are hit with interesting patterns, we’d reverse to long, otherwise exit to the sidelines and look for long side entries… this downmove is very aged…”

We caught at least a pivot bottom to the day.  LB closed 11-11 at 223.50 and has since rallied straight up to close at 244.20 today.   Position longs have stops at the 12-05 pivot low (233 Jan).  In time the 11-11 bottom may prove to be intermediate or greater in significance.