BISHOP’S
MARKET
OUTLOOK, 4-01-02 CRB:
From 3-15:”….A number of significant
breakouts from energies to metals to grains, even
coffee have combined to generate a technically
important breakout in the CRB…” Near-term,
however, this index is now extremely toppy and
ready for a pullback. Look for one or more major
commodity groups to retrace near-term. Likeliest
candidates: SB, LB, CT, KC, and various Metals.
Grains and energy likely to remain
stronger. ENERGY:
With recent breakouts, major bottoms are
confirmed and longer-term substantial upside is
likely. Near-term, however, commercials are moving
to very bearish net short positions.
Will the Energy contracts pullback at least
briefly prior to any final move to an Apr/May
seasonal high? The answer probably lies OUTSIDE of
Energy. For example, a sharp selloff in U.S.
stocks and/or weaker-than-expected economic
reports could easily trigger at least a mild
energy selloff near term.
Note suspicious strengthening in the
Transport stocks, which often move counter to
Energy. HO:
From 3-15:….” Keep very tight stops on any
longs…” Commercials are moving to extreme
net short positions ahead of the peak Apr/May
season. HU:
From 3-15:…” Keep very tight stops on
longs…” Peak season ahead and commercials
very net short. CL:
From 3-01: “…Keep very tight stops on any
CL longs. The CL rally continues as
commercials hit the highest net short levels in 2
years. Will
CL pullback or continue to rally into Apr/May
peak? Keep
very tight stops.
Longer-term the CL / XOI ratio is
supportive. NG:
Technically poised for a pullback under 3.00 in
the days ahead. NG may lead a short-term energy
selloff. Over the next few months we feel there is
at least one more rally likely to take out the
3-26 high. Longer-term NG remains very bullish. METALS:
Commercials are at very bearish net short levels
now. Play any short sales very tight as metals are
likely in longer-term uptrends. Next 2 months is
generally a bearish bottoming season. Longer-term,
recent new highs confirm technical bottoms in some
markets. GC:
Expect 02-08 high to hold as commercials are very
net short and bearish Apr/ May lies ahead.
Longer-term, higher highs are technically likely. SI:
Commercials going to largest net short position in
over 2 years. Bearish Apr/ May lies just ahead. Our preferred strategy is to step aside or look for a swing
short trade when and if SI hits the highs of the
current channel in the 4.70 area. Don’t be
fooled by the technically bullish ascending
triangle. If it breaks to the upside it’s
probably a bull trap. HG:
From 3-15: “…A favorite short
situation…HG is now at a short-term top with
very net short commercials. See also the toppy LB
contract…”
HG remains on our favorite short sale
watchlist. Commercials hugely net short ahead of
the bearish May/ June bottoming season. PA:
An on-going favorite short situation from 1-31. PA
has remained flat. Favoring the short side with
stop @401. PL:
Remains short-term very toppy. BONDS/
NOTES: What
a difference 2 weeks makes!
Economic reports have generally been
supportive of the view that the economy is
strengthening and our “leaders” in Washington
managed to pass a fiscal stimulus. Add to that the
CRB uptick and a stalling DX. With this
combination the toppy bond and note charts backed
up easily. Where from here? US:
From
3-15: “….lower prices should attract
commercial buying…”. This is exactly what
we’re now seeing. Short-term we’re sharpening
targets to the 96-16 to 97-00 range basis June
with 94-16 on the outside. After that, look for a
meaningful short-term rally (consistent with a
stock market and CRB pullback) to develop within
the longer-term downtrend.
Commercials are at 2-year high net long
levels consistent with the 4 most powerful rallies
of the past 24 months. Note also that interest
rates (CBOE TYX) hit their short-term 5-wave
target zone on 3-21 at 5.86% TY:
Any short-term downside is likely to be over by 1st
week of April and to hold above 12-17 lows.
This sets us up for a swing rally.
Commercials are now at net long levels consistent
with the May and July 01 bottoms. CORPORATES:
We’ve liked the mid-grade Corporate / Treasury
bull spread since 1-04.
Our selected corporate closed-end funds
have held above their Dec. lows while continuous
Treasuries have not.
We continue to like accumulation of
mid-grade corporates in the face of credit quality
spread improvement. STOCKS:
From 3-15: “…In hindsight we will
likely find the 1-07 and 1-09 highs to be a major
Wave 1 top, followed by a major Wave 2 bottom on
2-22…an April pullback, if any, is likely to
HOLD above the 2-22 lows…then looking for a
strong Summer rally on the back of the
introduction of single stock futures…”
Today I’m somewhat less convinced of the
“2-20 lows hold” thesis, largely due to the
lagging performance of the OTC & NDX.
Breaking
the market into key factoids: 1) Commercials are
very net short consistent with a substantial
selloff in the weeks ahead.
2) April earnings season looms, always an
inflection point (Oct was a bottom, Jan a
top….April a bottom ?)
3) April often brings seasonal weakness and
a bottom in stock indices
4) Technically, the Dow and RU2000 have
made textbook wave 5 tops from the 9-21 lows.
The SPX would complete by at least touching
the 1-07 high which it missed by only 3 points on
3-19. The
Dow Trans looks highly likely to make a new
post-921 high in the days ahead. Meanwhile, the
OTC and NDX are the weakest of the lot and
near-term rallies to take out Jan highs look less
likely. 5)
All indices are poised EITHER for A) a short
“blip” rally, over by April 10th,
to take out their post-921 highs followed by a
mid-April selloff
OR B)
an on-going plunge into mid-April because the
post-921 highs are already in.
6) A stock market selloff in the next few
weeks would be consistent with a selloff in the
CRB and a bond rally over the same timeframe, both
of which I’m expecting for independent reasons. OTC/
NDX: From
3-15: “…
Note the number of larger-cap NDX stocks
rotating from “final downturn” to
“bottoming” including: CMVT, PMTC, ATML, NXTL,
SANM, JNPR, QCOM, VRSN, CTXS, JDSU, HGSI, DISH,
LLTC, MOLX, NTAP, YHOO, CNET, AMCC, and ITWO.
While numerous NDX stocks are still in
downlegs, because they tend to be smaller-caps
their weightiness on the index is lessened…” This optimism now looks premature. Note the backing-up of some of these
hopeful rallies in stocks such as CMVT, CIEN, JDSU,
VRSN, and JNPR. Also see the collapse in ORCL.
Meanwhile the buoyant chip equipment stocks
(AMAT, KLAC, NVLS) are getting toppy.
Other “nice movers” are also stuck:
PAYX, INTC, SEBL, and DELL and several high fliers
are cracking down (CDWC, PCAR, USAI, BMET, BBBY).
Thus the NDX internals favor the downside
near-term. The
good news is that the “knot” of collapsing
tech stocks we’ve seen since 1-09 (including the
“Kryptonite Tech Stocks” from our 1-04
Outlook) is 1) thinning out somewhat
and 2) hitting “final stage” bottoming patterns.
A blip rally is looking less likely here
and something that would take out the 1-09 OTC
high looks very remote. Any rally must move
swiftly and hold the 3-26 lows to have any
credibility. That said, the 2-22 lows look more
vulnerable to an April pullback than do the other
indices. NDX commercials moving to unambiguous net
short levels. SPX:
Can we rally in the face of the second highest net
short commercial position in the last 3 years
(Bearish Mar 2000 was the highest net short)?
About even money of the “quick blip”
scenario to hit 1178 – 1190 by April 8th,
then collapsing into mid April.
Again, this rally has to be swift and hold
the 3-26 low. DOW:
From 2-15: “…the Dow Industrials and
Russell 2000 are in positive patterns vs. the less
clear S&P 500 and OEX. The NDX and OTC are
most bearish of the lot.”
From 3-01: “…Today the Dow pattern
remains very much to the short-term upside with a
target above 10,400 by mid March…” From 3-15: “…Today the DJIA has likely one final blip
rally left to take out the 3-08 high and hit, say
10,700 plus by month’s end…” We’ve
had the blip rally and taken out 3-08 (by only 10
points !). Not
much near-term upside remains, if any.
The Dow may languish sideways here, waiting
for a clear signal from the OTC. RUT:
From 3-01: “…The Russell 2000 has an
orderly Elliott pattern with a clear turning point
bottom on 2-22.” From 3-15: “… Currently
targeting the 514 to 530 range by early
April…” As
of 3-28 the RUT rally has continued, hitting 509
and now in a picture-perfect Wave 5 topping zone.
Very similar pattern to the Dow.
SPECIFIC STOCKS SHORT:
Our
short sale selections over the past several months
were largely stopped out for good profits in
recent rallies.
(entry price, current price, % profit,
current stop) from 2-15:
CPB (26.58, out 3-20 @ 26.90, -2%).
From 3-15: BEAS (15.29, 13.71, 10%, 14.95)
PMCS (16.25, 16.28, 0%, 17.70) BRCD (25.54, 27.00,
-6%, 29.10) FLEX (16.67, 18.25, -9%, 20.55) TLAB
(11.13, 10.47, 6%, 10.90)
CHKP (32.17, 30.40,
5%, 34.00) SPECIFIC
STOCKS LONG:
The recent stock rallies have lifted our long
selections as follows: from 1-25: MO (49.90, out
3-19 @ 51.30, 3%) SBUX (22.88, 23.13, 1%, 22.35)
from 2-15: SBC (37.12, out 3-21 @ 38.10, 3%) TXN
(31.50, 33.95, 5%, 31.70) NSC (21.30, out 3-22 @
22.65, 6%) UIS (11.95, 12.63, 5%, 11.85) DD
(44.90, out 3-20 @ 46.65, 4%) ADBE (35.69, 40.29,
13%, 37.70) OPWV (6.21, out 3-20 @ 6.23, 0%) SRI
(8.40, out 3-26 @ 9.65, 15%) CDMS (10.75, 11.95,
11%, 11.10) VVI (25.33, 28.00, 11%, 26.55) WDC
(5.98, 6.23, 4%, 5.80) LION (7.45, 7.75, 10%,
8.20) OS (6.05, 7.60, 25%, 6.85) ROC (5.16, 5.08,
-2%, 4.81) FPF (3.38, 3.29, -3%, 3.17) TTF (4.85,
4.95, 1%, 4.58) TRF (20.00, 27.10, 35%, 23.15) EWS
(5.61, 5.78, 3%, 5.50) EWJ (7.27, out 3-26 @ 7.93,
9%) EWA (9.68, 9.90, 0%, 9.62) IFN (10.82, out
3-22 @ 10.75, -1%) COY (9.04, 8.95, -1%, 8.70) KYT
(8.13, 7.86, -4%, 7.83) FOREX:
Heading into the Apr/May period where products
invoiced in dollars (Oil, Grains, etc.) rally,
pushing up demand for the greenback.
Numerous currencies (JY, AD, CD, etc.)
likely forming major bottoms.
DX: From
3-15: “….Getting very toppy in this
approaching peak season. Commercials getting very
net short. The DX will likely struggle to barely
take out the July 01 high on any seasonal peak
rally here…” The
DX chart still looks like one final upside test
ahead. Euro:
A favorite short on 3-15, it looks like we caught
the high to the day, closing 3-15 @ 8791 basis
June with a textbook reversal bar. Now at 8682,
we’re targeting 8400 by mid to late April. Note
the negative season ahead and very heavy
commercial net short position. BP:
Short-term look for mild pressure on the 1-25 cash
low @ 1.4065.
Now targeting a mild break under 1.4000 by
mid to late April. At this point, the June 01 lows
still look relatively safe. SF:
Conditions have changed since our erroneous
long-side call on 3-15.
The muddled picture is now technically
bearish. Favor the downside short-term.
JY: From 3-15: “… A
re-test of the Feb low is plausible on short-term
charts…” Now at .7540, we expect a
continuing short-term slide to test .7300 and put
in a major long-term bottom. The curious plunge in
the commercial position to slightly net short is
further bearish evidence. Earmarks of a “soft Yen” Japanese policy perhaps? Note
the constructive Nikkei chart (the EWJ WEBS on the
AMEX), which after a 2-week breather appears
likely to test its recent 3-11 high. If so, a continuing rally in Japanese stocks will help to put
in a long-term JY bottom. ME:
From 3-15: “… One final blip rally (in
conjunction with DX?) might still be left in this
thing but it’s as toppy as ever…”
Well, we got the blip rally to take out the
stubborn Feb high. A 5-wave Elliott sequence is
now complete from the Sept & Oct 01 lows.
Commercials are off-the-charts net short. Very
bearish.
AD: Longer-term, substantial
upside is likely in both Aussie FX and stocks (see
EWA, Australian WEBS). Short-term keep very tight
stops on any AD longs as the commercials are
selling heavily net short into the current rally
from their supportive net long levels at the Jan.
lows.
CD: A major bottom in
sideways pattern continues to evolve. MEATS: The peak Feb/Mar season is behind us. LC:
A bullseye
favorite short on 3-15 (@ 7235 basis April). We
now look for a blip rally to, say 7150 followed by
a continuation of the downtrend started in Feb.
Longer-term the Nov 01 lows may be tested as
commercials are still very net short and bearish
May/ June lies ahead. LH:
From 3-15: (@ 54.750 basis April)
“…Commercials flat with bearish seasonality
ahead. The length of the selloff from the 2-05
high basis April makes the downside more likely
from here…”
Now at 51.875, keep tight stops on shorts
as commercials are moving to net long in support
of at least a blip rally.
Thereafter a downside test of 50.550 seems
most likely. GRAINS: Bullish seasonality ahead. W:
From 3-15: (@ 282.25 basis May)
“….Technically look for the current May
Chicago W rally to hold under 295 then selloff
into a May/June bottom….” Well we hit a
high of 295 precisely on 3-27 before the massive
bearish engulfing bar on 3-28 touched 297 and
crashed to 280 !!
Where from here? Higher prices are likely
despite weak seasonals ahead. After any brief
pullback here, commercials are technically
supportive of at least one final rally to takeout
3-28.
S: A favorite long situation
on 1-04 and 2-15 (441 basis May).
From 3-15: “… Now at 468, keep very
tight stops on longs…” Long-term position
players going into Apr/May should keep stops above
455 here. Beans
are short-term very toppy. Expect another pullback
lasting a few days with major support @ 459 and
455. Commercials
are gravitating towards net shorts but are not yet
at planting season extremes.
Look for prices to continue to rise into
the peak months ahead, targeting July 01 prices in
the 520 to 530 range. C:
From 3-15 (@ 205.75): “…A favorite long
situation with a nice 5-wave bottom from the July
01 highs, basis May. Very bullish commercials are
net long ahead of the Apr/May peak season….” Now
at 202.50 this still looks like a bottom. Note
also the climax-level volume on 3-28 and the
outside engulfing bar.
Open interest remained flat on this
huge-volume day; footprints of liquidation by
short speculators.
Has musical-chairs position-unwinding
begun? If
so, it’s likely to favor the stronger-money
commercial bulls over the weaker net short specs. SOFTS
/ FIBERS:
CO:
A continuing favorite short on 3-15 (@ 1559 basis
May). Now @1494, commercials are moving off
extremes but remain very net short.
They’ll need lower prices to step up and
buy in quantity to halt this slide. Very bearish.
SB: From 3-15: “…Keep
very tight stops on any longs…” One more
downleg remains likely with a major bottoming
target in the 5.25 area.
We’re sharpening our downside target
timeframe to April 9 – 15th. OJ:
Right on cue, commercials are now selling short
nicely ahead of the Apr/May peak season. Sharply
rising open interest indicates we’re not quite
at the end of this move. Look for this rally to
break Nov 01 highs in the 96.20 to 99.00 range
with target potential sharpened to 99.00 –
102.50 by early May. CT:
Commercials are moving into a toppy net short zone
again. Setting
up for a tradable downside blip or better. The
season is still bullish so keep tight stops on any
shorts. We
might get lucky and stumble on a major downside
move here, as both weekly and daily charts are
poised for at least a meaningful retracement. KC:
From 3-01: “….Setting up for at least a
brief rally. Commercials going net long with chart
at a technical bottom….” From 3-15 (@ 54.75):
“…More short-term upside is likely in this
bullish peak Apr/May KC season….”
Now at 57.20, keep VERY tight stops on any
longs as the rally-ruining KC commercials are
moving sharply to 3-year record net short levels.
Longer-term, the post-2001 breakout points
to higher highs after any sharp near-term selloff. LB:
From 3-15: “…. One final blip is likely on a
technical basis to suck more long specs in. May
soon become a favorite short situation….” So
far we have this forecast precisely with a blip
rally from March 18th to 22nd,
slightly breaking the 3-08 high then rapidly
selling off.
The bearish season lies ahead.
See also toppy construction-related HG.
Look for shorts.
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