ENERGY: Recent huge commercial net longs indicate that major bottoms are not far off. However, new lows look necessary to confirm these bottoms. Thereafter a broad-based energy rally to the strong Apr/May timeframe may be anticipated.

HO: From 1-04: (HO @58.59) “…recent rally is likely a dead cat bounce. A major low likely to be put in before upcoming bullish Apr/May season…”  From 1-17: “…Heading to new low, final downside target of 43 by mid Feb.”

Currently (HO @51.10), Dec lows very likely to be broken, w/ downside target of 43 – 47 by end of Feb. This would be a MAJOR LOW. Note recent commercial accumulation, very bullish longer term, and supportive of a post-bottom rally into the bullish Apr/May season.

HU: Awkward bearish H&S pattern forming after the Nov to Jan downtrend rally. Nov 01 lows likely to be seriously tested w/ downside targets in the 43 to 45 zone by late Feb/early Mar. Would be a major low.

CL: A test of the Nov low (16.70) is likely over the next 3 to 4 weeks. Worst-case downside targets remain in the 13.50 to 14.00 range.

NG: Awesome bullish setup. This high open interest market finds specs hugely short against the highest net long Commercial position in 3 years!  We may have a pinpoint bullseye bottom in both price and time on 1-28 @ 1.85.  Is this the bottom of the slide from the Dec 99 peak? Only time will tell but at the least it’s a substantial rallying zone with a very attractive risk/reward profile.

METALS: Approaching seasonal weakness with short commercials.  New lows are generally needed to put in major bottoms. NOTE the implications for the economy: growth is likely to be weak at best!

GC: Sept 01 highs look secure. Poor trading pattern favors the short side from this peak seasonal timeframe. Note seriously net short commercials and bearish Apr/May ahead.

SI: New lows very likely in days/weeks ahead. This plunge should put in a MAJOR BOTTOM, perhaps languishing sideways through April.

From 1-04 Outlook: “Is a major SI bottom in or just a dead cat bounce? …expect at least a minor re-test of the lows before a final bottom…”

HG: Needs a little more time to make a final bottom. Current downtrend rally likely to stall soon. Technically bullish ascending triangle from the Nov low belies an ominous net short commercial position. Wave counts also point to a retest of Nov. in the weeks ahead. Shorts present a good risk/reward here: 2-cent downside vs. 8 cent upside.

PL: A favorite short. The Wave 4 dead cat bounce peaked in early Jan. Commercials are very net short. Look for test of Oct 01 low with final targets of 384-388 during the weak metals season of April/May. Ditto for Palladium with targets of 271-275 by early April.

BONDS/ NOTES:  From 1-17: “I’ve been looking for a TOP in this apparent Wave 4 bond rally for the past few days….One day does not make a trend but today’s (1-17) selloff is impressive.  Watch these markets intently for shorting opportunities in the days ahead.

US: The next 3 months seasonally trend downward. Commercials are moving net shorter and likely won’t go net long until the Dec lows are broken. Currently targeting 97-98 by early March.  Note this would be consistent with a knee-jerk rally in stocks over the same period. The current blip rally from 1-25 lows is likely to stall by 2-04, under the 1-16 high, then resuming the downtrend from Nov 01. 

TY: Commercials are more supportive of the TY than the US and the Dec lows look somewhat safer.  The shorter you go on the curve (5 years, 2 years, etc.), the longer the commercials and the stronger the chart.  Further curve steepening in light of a tepid economy?

CORPORATES: From 1-04: “Higher yield corporates have been out of favor since early 1998…the credit quality cycle is probably bottoming…look at HIS, CIM, COY, KYT, DSU, CNN, VIT, DHF, PHY, ARK, VLT, YLT….favor a reduction in the spread of Medium corporates over treasuries.”

As a group these higher-yield closed end funds are performing well. Charts have appearances of major bottoms in Sept 01.  Very interesting for both trading and accumulation.  I expect a “scramble for yield” to develop as investors tire of paltry stock returns over the next few years.

STOCKS: The key technical factoid for the stock markets is that we are working through a likely major bottom that began on 9-21.  The period following major tops and bottoms (Elliott Waves 1 and 2) is generally categorized by excessive choppiness and volatility. 

We’ve done a fairly good job staying head of the twists and turns to this point: From 1-04: “…what seems most clear is that the top of the rally from the 9-21 lows is just ahead…”  From 1-17: “…SPX 1-07 high (1176) looks safe with downside target of 1070 – 1100 [hit1081 on 1-30]… OTC downside targets 1820 to 1900 [hit 1851 on 1-30]. From 1-25: “… SPX look for short-term drop to take out 1-23 low (1117) by 1-29 [hit 1081 on 1-30].

The uncertainty of the moment is whether the indices will take out their 1-07 and 1-09 highs on any follow-through of the bounces begun on 1-30 or whether these will be rally failures followed by new post 1-07 lows.   From the 1-25 Outlook Update I was confident of bottoms on 1-29/30 and a follow-through to take out the Jan highs in all indices.  At this point, 5 days later having gotten the bottom, the follow-through to new post 9-21 highs remains murky.  Looking at each index will provide some clarity: 

SPX: While commercials were net short at the Jan top, they have not yet moved back to a sufficiently net longer position to support a clear bottom on 1-30.  Chart-wise 1-30 looks like a bottom that can hold, however.  Weekly, daily, and 60 min upside targets all cluster in the 1195 area between Feb 15 and early Mar.

Should this pattern materialize, we’d look for serious commercial shorting at that top, followed by a plunge into the bearish Apr timeframe as the spring earnings season looms like cold water in the face. On the weekly chart, the 1-07 high would become Wave 1 from the 9-21 low, and the 1-30 low Wave 2. The Apr pullback would be a minor wave low within a larger evolving weekly Wave 3. Score one for the short-term bulls.

OTC  COMP: Commercials spiking to net short at the 1-09 top are now nearing a neutral level they reached at the Apr 01 lows. Not raging bullish but enough to support a rally follow-through.  A blip downside rally, IF ANY, over the next few days should hold above 1840.  Afterwards a rally to 2170 – 2230 by mid Feb to early March seems in the cards.  Score another for the short-term bulls.

DJIA: Charts favor a rally to the 10450 – 10500 area by late Feb/ early Mar.  Commercials are in unsupportive mode now and likely to be distinctively short at the top of this forecast rally.  Vague, less clear than SPX or OTC Comp

RUT:  Commercials moving in mildly positive direction after net shorts at the 1-09 top.  1-30 low qualifies as double bottom (post 1-09) on the charts.  Rally targets: 510 to 516 by late Feb.  Score 3 for the short-term bulls.

NDX: The NDX has retraced from its 12-06 highs to predictable support levels on 1-30.  Rally targets: 1870 to 1890 by late Mar.  4 for the short-term bulls.

OEX: Has retraced from 1-04 high to predictable support.  Rally target: 612 by late Feb.  5 out of 6 for the short-term bulls.

As a final note on stock indices: This forecast rally is likely to be characterized by narrowing participation and a deteriorating advance / decline line.

FOREX: Note that we are leaving the Nov/Dec timeframe that is typically WEAK for the U.S. dollar and heading into the Apr/May period where products invoiced in dollars (Oil, Grains, etc.) rally, pushing up demand for the greenback.

            DX: US Dollar is in final wave up, likely to take out the Jul 01 high marginally, say 123 to 125 by mid April.

Euro: From 1-17 (ECU Cash @ 881.00)  …”This is becoming a favorite short-sale candidate, coming out of the peak Nov/Dec timeframe and heading into the bearish Apr/May zone.  Note the commercial net short position and the pattern which projects taking out the Oct 2000 lows and heading for a final downside target range of 75-80 by late March.”

Currently, very high open interest finds Specs long vs. short Commercials.  The months ahead favor the DX seasonally.  Sharpened downside targets: 790 to 815 by mid Apr to May. HOWEVER, keep tight stops on any current shorts as ECH2 is approaching a short-term Wave 3 rally zone from which a countertrend pop to 880 – 890 by mid Feb is plausible.

            JY: From 1-04: “ … in final nosedive…”  From 1-17: “Further short-term downside remains as the Yen is in its final downleg.  Keep tight stops on shorts, as the bottom is likely not far off. Look for a rally in the Nikkei (which may not materialize until the S&P strengthens) to precede any stabilizing in the Yen.”

Currently, hedgers are going further net long and the chart is in bottoming zone on weekly basis, but not quite yet bottomed on daily basis.  Look for a blip rally to 7580 by early Feb, followed by a final bottom plunge to 7380 – 7390 later in the month.  The Nikkei bottom is OVERDUE. Note the bottom reversal bar in EWJ (Japan WEBS) on 1-30

            ME: the Peso is one of the most bearish charts today.  Note the toppy pattern on both weekly and daily charts and the MASSIVE commercial net short position.

            AD: A messy pattern in the process of forming a major low from the Dec. 96 top. AD may need to yet put in a final bottom. Target 44 to 46 by late April.

            CD: Near term, CD likely to head higher (in sympathy with DX?) from its 1-18 low in the bearish Dec/Jan season.  Expect choppiness. Commercials mildly supportive of the rally thesis.  Was 1-18 a major low?  The picture is inconclusive at this point and a retest of the 4-01 lows may yet be needed.

MEATS:  Keep tight stops on longs. The peak Feb/Mar season approaches.

LC: A favorite long for the past month, keep tight stops.  From 1-04: “…short-term bullish setup” From 1-17: “…LC continues to rally as we forecast 2 weeks ago…the peak Feb season is approaching...”.

Currently, keep tight stops on longs as we’ve had a nice rally and want to preserve profits. Commercials moving to serious net short.  Bears will want to watch LC and LH closely as these rallies will likely come to “stop and reverse” type tops in this peak season.  Subsequent downside action will likely take out the Nov 01 lows.

LH: Keep tight stops (above 54.60) on longs during any final Feb-Mar seasonal upside.  Commercials are moving to pre-top net short. See LC comments.


W: From 1-17 (@ 300.75) “…Beware the very toppy Chicago W chart.  Commercials are taking a pre-top net short position and the peak Oct/Nov season is behind us.  Look for short-sale opportunities…”

            Currently (@285.25), expect a brief countertrend bounce followed by lower lows. Commercials remain bearish and the season is not supportive.

            S: Our 1-17 comments appear premature: “…the entire Soy complex is very bullish as we forecast two weeks ago. Commercials are still supportive of all contracts (S, Meal, Oil) and the bullish Apr/May period lies ahead.”  We’re sticking with our view of 1-04: “… nearing a major Wave 5 bottom…”

            While the decline from the Apr 00 high is in the process of bottoming, the Oct 01 (419), Jan (415) and even the 1999 lows are not yet secure.  A final plunge to the 393 area by mid to late February now looks more likely.  Thereafter look for a rally into the Apr/May planting.

            C: Commercials flat. Wait awhile to let a pattern develop.


            CO: From 1-03: “…bearish setup developing…charts very toppy in peak season, commercials net short…”  From 1-17: “…Cocoa remains very weak.  Two weeks ago we were looking for a final blip rally and top.  It looks like we now have it and substantial downside is likely, heading into the May/June bottoming timeframe.”

            The toppy CO chart is pregnant with basic technical patterning.  See the reversal bar on 1-10 and the bearish mini-pennant developing from the 1-15 low.  Commercials will need lower prices to go net long. 

            SB: From 1-17: (SB @ 7.48) “…Sugar now looks VERY TOPPY.  Commercials are moving to very net short in this peak Jan/Feb season.  Look for this market to turn south with a downside target under the Oct 2001 lows, say in the 5.75 range by May.”

            Currently (SB @ 6.38) commercials remain very bearish. Revising downside major bottom targets to the 5.00 – 5.65 range in the bearish May/June season.  Keep tight stops as a rally near the 6.15 – 6.10 area (Oct 01 lows) is likely.

            KC: The extended final downleg from Dec 99 has not yet bottomed. The recent rally was another commercial head-fake.  A major bottom still seems nearby with a target of 38.60 – 40.00 by mid to late Feb.  Then rallying into the seasonally stronger Mar/Apr/May timeframe.

OJ: Hitting the Dec/Jan low on an Uptrend correction. Commercials moving to rally-supportive. Keep very tight stops on any shorts and look for a rally beginning in the days ahead.  Target high: 95 to 102 by late Mar/ mid Apr. 

LB: A messy pattern. Commercials moving to net short as the peak Feb/Mar season approaches. Keep VERY tight stops on longs.

CT: Likely heading for a major low to take out Oct 01.  Bottom targets: 22 to 25 by mid to late Mar thereafter rallying into the bullish Apr/May season.  Commercials are very bearish and shorts have great technical risk/reward: 2.75 downside vs. 10 to 12 on the upside.