BISHOP’S
MARKET
OUTLOOK, 5-13-02 CRB:
Taking out the 4-18 high slightly would set the
CRB up for a continuation of the selloff from the
early April highs.
Given the outlook for Energy and Metals,
the 4-18 CRB high looks safe. In the past several
issues we’ve been talking about the
“boxed-in” appearance of numerous commodities.
This index and it’s components are now captives
awaiting greater clarity on the condition of the
American economy. This week’s economic reports
may be pivotal. ENERGY:
From 4-26: “…One more kneejerk peak
season rally failure may be in the cards but these
symbols are otherwise boxed in wide sideways
channels...” Did the kneejerk rally top out
on 5-13? It’s
interesting that on this very strong day for the
stock market, among the energies only Crude is
able to post a new high and then only by a few
cents. Note also we are now in a PEAK SEASON for
energies and a summer selloff prior to any
strengthening in Aug/Sep is very likely.
Commercials are generally not supportive
and option volatility reflects widespread
complacency with this aging rally. Keep very tight
stops on any longs in the energy complex. Watch
carefully the reaction of this group to this
week’s key economic reports (retail sales,
housing starts and permits, and industrial
production). CL:
From 4-12: “…Still looking for at least a
re-test of the 4-03 high after this forecast
selloff…”
From 4-26: “…The odds of a re-test of
4-03 have dwindled somewhat and now stand at even
money…”
Well, Crude takes out the 4-03 high on 5-13
by pennies and completes a 5-wave rally from the
Nov ’01 lows with a huge engulfing bar.
Bulls should adjust their trailing stops to
the low of today’s bar. Complacent, plummeting option volatility and commercials just
off huge net short levels both signal that upside
progress from here will be tough.
Watch reactions to this week’s key
economic reports.
A near-term top in this peak season is the
best prognosis. Along with HO, HU, and NG, Crude
is likely “boxed in” a wide sideways trading
range until economic prospects become clearer.
HO:
From 4-26: “…HO looks weaker than CL
technically, and is very unlikely to take out the
4-04 high…”
The 4-04 high still looks quite safe at
this point. Beware a very likely summer selloff
prior to any Aug/Sep seasonal rally. Option
volatility is becoming very complacent and
vulnerable to a downside price surprise. HU:
The erratic technical pattern developing after the
April highs is the fly in the ointment. Otherwise
the season is toppy, commercials mildly bearish,
and other energies generally vulnerable to a
selloff. Best to stay on the sidelines. NG:
From 4-26: “…Very very toppy.
The rally from the 4-12 low has slightly
better than 50-50 chance to re-touch or break the
4-23 and 4-02 highs…” We
took out those highs 4 days later on 4-30 and set
a marginal new high again on 5-08. It’s
revealing that today’s bullish price bar could
not test either 5-10 or 5-08 despite the minor new
high in Crude and today’s stock rally.
Note the textbook “ascending pennant”
or “ascending wedge” pattern on the daily June
chart. This is a classic reversal pattern.
How far might NG dip on a selloff?
I would expect a pullback to at least 3.40
assuming only a Wave 4 dip in an on-going rally.
Otherwise we could be looking at a selloff to test
the lower end of the channel range in the 2.00 to
2.50 area. The
greatest argument against the later “deep
selloff” scenario is that NG has cleanly broken
the 3.50 area and held above it for more than a
month. Commercials remain massively net short and
options are very complacent and vulnerable to a
downside price surprise. METALS:
Note the very curious metals selloffs on 5-13, a
“bullish day” for the U.S. stock market. GC:
From 4-26: “…Excellent risk-reward on the
short side of this trade. GC takes out it’s 2-08
high on 4-25 and thus completes a 5-wave advance
from the April ’01 low.
Commercials are hugely net short with
top-like technical resistance in the 311-314
range…” GC has since failed to break 314
and commercials are now at 3-year record net short
levels! Gold may be the MOST REVEALING of the many
toppy commodities on 5-13, actually selling off
during the stock rally. A very interesting
inclusion on our favorite short watchlist. SI:
From 4-26: “…Expect the 4-02 high to
contain the current rally.
Commercials are very net short and likely
to box SI into what is now a 16-month sideways
price channel…” We’d like to see SI get
a little closer to channel highs at 4.75 in order
to place it on our favorite short watchlist, but
it’s unlikely to rally that far. Note the hugely
bearish “reversal cum engulfing bar” on 5-13
that reverses off the 4.70 “mini channel”
resistance after barely taking out the 4-26 high.
Commercials hugely net short. Favor the downside. HG:
We expect the downside drift of lower highs and
lows to continue, at least short term, taking out
the 5-06 low in the 71.20 area basis July.
Thereafter the picture blurs a bit with
option volatility getting VERY SLEEPY and
commercials moving up constructively ahead of a
May / June seasonal bottom.
Watch housing and industrial production
reports closely.
Copper may soon find itself on our early
alert long watchlist. PA:
A favorite short from 4-16 (@ 362.00). Now at 354,
keep tight stops on any shorts.
PA may still eventually test its Nov. 01
lows in the 310 area. The generally bearish
short-term metals outlook supports this view. PL:
A great short call from our 4-26 report (@547.90
basis July): “…On a spec-fueled sucker
rally. Likely to stall and re-trace in the days
ahead. The power of the current rally points to a
re-test of the 4-18 high after retracement…” PL
sold off rapidly to hit 513 on 5-01. Now at
523.30, the strength of the selloff has surprised
us. However, with stops at 513 and 517, the PL
chart offers good risk/reward for a blip upside
rally to test the 4-18 high of 558.00 and cap the
rally from the Oct ’01 lows. The 5-01 low must
hold to support this rally. BONDS/
NOTES: From
4-26: “… Bonds and notes remain a very mixed
picture, consistent with confusion over economic
prospects…”
The current retracement looks more like
“curve re-adjustment” flowing to the shorter
end than a broad-based selloff.
Note that the shorter you go on the curve,
the longer the commercial position. Bonds and
stocks are really key to all markets here, as they
are the most sensitive gauges of sentiment
regarding the condition of the economy.
That said, they are not an easy read at
this point. Our
BEST GUESS is that the “triangular
consolidation” in bond prices will continue for
a bit, looking for clarity on direction from key
economic reports. US:
This week
is a minefield of economic releases that will
either cap this rally from the 3-15 lows or drive
US to a test of the 5-01 high. Either way, the commercial selling indicates that we’re
likely boxed in with resistance near the 5-01
highs. The 4-18 low (99-20 basis June) is critical
to a near-term bounce in US.
Should 4-18 hold, we would look for a rally
to test first the triangular downsloping
resistance line drawn from the 2-22 and 5-01 highs
(now near 102-30 in price) and then potentially
even the 5-01 high itself (103-04). Should 4-18
NOT hold, then look for at least a downside test
of the upsloping triangular support line drawn
from the 12-17 and 3-15 lows (now near 98-05). The
key will really come from this weeks critical
economic releases (retail sales, housing, and
industrial production). We narrowly favor a
re-test of the triangular resistance highs but the
economic reports will rule the technicals in this
situation. Option volatility, having bottomed on
3-14 supports the retest view as do the
commercials who are selling into the rally from
the 3-15 US low but are not yet sufficiently short
to cap it off. This is not a high-conviction
scenario as the technical pattern since the Nov 01
high has been erratic at best.
TY:
Commercials remain loftily net long.
Indicative of a curve shift from 30’s to 10, 5,
and 2-year maturities.
Note the bearish head and shoulders
formations on the 5, 10, and 30, but VERY
CONSTRUCTIVE Elliott Wave 5 rally underway in the
2-year. The
TY pattern appears as triangle congestion within a
larger sideways rectangle after the Dec. bottom
and the Feb top. Bottom line: the “final upside retest” story is intact
until the 5-09 lows are broken (104-190 basis
June). A break of 5-09 points to a test of
upsloping triangular support line drawn from the
12-17 and 3-15 lows (now about 102-24 basis June). CORPORATES:
Mid and lower-grade corporate closed end funds are
basically holding their own after a 3-year slide. Credit spreads likely have maxed out. We continue to think it’s an ideal environment to
accumulate these corporate bonds. If the economy
is weak these higher yields will be attractive and
there’s the perception corporate risk is
declining by “cost-cutting” measures at most
firms. Alternatively, if the economy improves
there’s the perception that top and bottom lines
will benefit. Heads you win, tails you win. STOCKS:
From 4-26: “…The good news for the
bulls is that a bottom is in sight and well above
the 9-21 lows.
But we’re not quite there yet...”
Very positive for stocks is the reversal of
the 2-month drain of dollars from all mutual fund
categories. OTC/
NDX: From
4-26: “…Now at 1663, the bottom is near, but
not quite yet..
Look for a heartening kneejerk rally to
develop this coming week then fail with a sharp
crash to re-test today’s lows and put in an
important bottom in mid to late May. The power of the current selloff tells us the bottom will be
rocky but likely to hold between 1550 and
1600…”
To remain intact the “heartening kneejerk
rally” from 5-07 must hold above the 5-10 low
(1599.64). Technically
the rally is likely to fail by week’s end below
1715. The
daily Elliott count suggests at least a test of
the 5-07 low before an important bottom is in
place. Option
volatility, which bottomed in mid-March (with the
HIGH in the OTC) and has not yet reached extreme
levels, is also supportive of a 5-07 low retest.
Very positively, commercials are moving to net
long levels and cash flows to mutual funds are
picking up. Strategically
it’s a little late to be looking at broad-based
shorting but too soon to put on numerous long
trades. Patience is likely to be rewarded.
The bottom is near and I still expect it in
May. As with Bonds, stocks are now really captive
to the economic reports. If they come out strong
this week, our stock bottoms may already be in,
mixed or weak reports will likely bring re-tests. SPX:
From 4-26: “…the very short commercials
clearly point to further downside. We might see a
blip rally here but afterwards somewhat lower lows
are very likely.
For a bottom that can springboard a summer
challenge of the Jan highs, look for a double
bottom in May, between 1025 and 1050…” Commercials
are now moving off net short levels but appear to
need lower prices before getting seriously
supportive. Note
that a continuing selloff in US Treasuries would
likely coincide with a continuing mini-rally in
the SP within an awkward, downward drift from the
Jan high. We
still favor a final test of the 5-07 low to “get
it over with” and drive commercials to true net
long levels and put in a believable bottom. DOW:
The likely driver will be this week’s
economic reports.
If Treasuries congest further, they are
likely to box the Dow between the 5-06 low (9807)
and the 3-19 high (10673).
If Treasuries break to the upside on
economic weakness look for a retest of the 5-06
Dow low. RUT:
From 4-26: “…Look for an on-going
selloff to bottom above the Feb lows (457 area) in
May…”
Commercials are still net short and need
lower prices to step up and buy. At this point
we’re raising downside targets to 480-490.
The pattern in the RUT and the commercial
position in both RUT and SP support the view of a
broader re-test of all stock indices’ May lows
before a final bottom is in place. SPECIFIC
STOCKS 1ST QUARTER PERFORMANCE:
For the period beginning 1-18 and ending 4-26:
Shorts: Closed shorts average 4.07% over 25 day
holding period. 5 open shorts with average 17.6%
profit. Longs: Closed longs average -.45% profit
over 35 day holding period. 6 open longs average
13.5% profit.
Baselines: S&P down 4.5%, OTC Composite
down 13.8%
SPECIFIC STOCKS SHORT:
Our short sale selections open as of
the 4-12 Outlook:
(entry price, current price, % profit,
current stop) From 3-15: TLAB (11.13, out 5-08 @
9.74, 12%) CHKP
(32.17, out 5-08 @18.35, 43%) From 4-01: ORCL
(12.84, 8.47, 34%, 9.18) RATL (16.01, 12.28, 23%,
13.00) CSCO (17.52, out 15.75 on 5-08, 11%) BMET
(26.40, out 5-01 @28.80, -9%) SPECIFIC
STOCKS LONG:
Long selections open as of 4-01: (entry price,
current price, % profit, current stop) from 2-15:
VVI (25.33, out 5-06 @ 29.00, 14%) LION (7.45,
10.30, 38%, 9.85) ROC (5.16, out 4-30 @ 4.85, -6%)
From 4-01: DCN (20.90, out 5-01 @ 19.50, -7%),
CKFR (15.32, 24.18, 57%, 22.40) ITRI (30.40,
33.50, 10%, 32.20) FOREX:
Many currencies approaching resistance
within apparent sideways channels. A Forex selloff
would coincide with an important bottom in U.S.
stocks forecast in May. As with bonds and stocks,
the key may well be the U.S. economic reports to
be released this week.
Stronger reports will spark the lurking
rally in the DX and forex selloff while weaker
reports will push forex up a bit more to their
channel highs. Technically we favor one final re-test of the May lows for DX
but currencies are very much captive now to the
economic reports and movement in bonds and stocks.
DX: From 4-26: “…Very
high open interest is likely to unwind in the
direction opposite of the current price trend (a
selloff from the Jan. high). Commercials are
moving to constructive net long position but may
need to accumulate for several weeks. Also, the
technical pattern from the Jan high points to at
least a re-test of current levels before a
meaningful rally can begin.
Note … the confirming commercial shorting
in EC, BP, SF, AD, etc…”
We technically favor one final re-test of
the May DX low, but a US stock rally would take DX
along for the ride, and the huge net long DX
commercials will be ready for it. Euro: On final legs of a sucker rally from the 1-28 cash low (.8578). Upside targets are in the 9165-9250 range. A break in the rally below the 5-08 cash low (.9041) puts it in serious jeopardy. The highest net short commercial position in 3 years says the top is very near. A selloff in the EC is likely to coincide with the forecast May bottom in the S&P and top in the long Treasury bond. Note the pattern reeks of swing congestion with a triangle developing within a rectangle. BP:
Commercials are very bearish.
The rally from the 1-29 cash low (1.4064)
may have one blip left, likely to stall under
1.4800, consistent with one final downleg in U.S.
stocks. Both
BP and EC are in highly sensitive zones just
touching their downward sloping upper triangle
resistance lines.
These lines are very sufficient in
themselves to combine with the commercial net
short levels and tank these currencies
immediately.
Hence the 5-03 high (1.4683) and the 5-08
low (1.4538) form very important breakout levels. SF:
From 4-26: “…Now at 6152, keep tight stops
on longs as layers of channel resistance lie just
ahead...” Now
at 6270, we prefer very tight stops at the 5-08
cash low (.6213). SF is VERY NEAR significant channel resistance (9-21 high
6361, Jan ’01 high 6266, 7-99 low 6300).
One final blip may remain to test this
resistance but the commercials are hugely short at
3-year levels.
JY: From 4-26: “… One
clue: The Nikkei has mirrored JY turning points
within a day! As the Nikkei looks technically
bound to take out its’ March highs in the next
week or so, the JY will likely go along for the
ride…” The March high in the cash JY was
taken out on 5-03 but the Nikkei March high was
not. These charts are now starting to drift
sideways. This makes the 5-08 lows in both EWJ and
JY critical to keeping the rallies from the
February lows intact.
JY and Nikkei commercials moving further
net short while catatonic option volatility points
to one last blip to take out 5-03. ME:
From 4-12: (@10.84 basis June) “…An
on-going favorite on the short watchlist, has this
brick finally topped?…Substantial further
downside is very likely…”
From 4-26L@10.65)
“…lower lows are very likely.
Commercials are still very net short…” Now
at 10.44, a complicated bottoming process is
likely occurring. Very short term we look to take
out the 5-03 and 5-10 low (10.405) with blip
downside targets to 10.36.
Then setting up for a blip rally failure
and final test of the lows (holding above
10.29-10.32) before month’s end. Watch the DX
closely as a rally in the Greenback is likely to
be shortly followed by a sympathy ME rally.
AD: From 4-26: “…Keep
extremely tight stops on any AD longs. Both the AD
and the Aussie stock market (see EWA
WEBS on the AMEX) are at important
resistance and have completed 5-wave advances from
their April ’01 (AD) and Sept ’01 (EWA) lows.
Commercials are massively net short the AD. Great
risk/reward potential…” Now the AD and the EWA display bearish divergence. While the
EWA peaked on 4-19 the AD has continued the toppy
Wave 5 rally. Commercials are freakishly net
short. Note also the bearish spike low in option
volatility early in May. We prefer the tightest
stops on longs while looking for shorting
opportunities.
CD: From 4-01: “…A
major bottom in sideways pattern continues to
evolve…” From 4-26: “…The upside breakout
on 4-17 to take out the 3-22 high basis June is
further confirmation of the bottom in the CD…” The CD rally from the Jan major low is now ready for a
breather. The technicals point to a short-term
pullback followed by a resumption of the rally to
marginally take out today’s high. Commercials
are moving to hugely net short so this season CD
will not likely trade much higher in its sideways
channel. MEATS: Hogs getting bullish, bulls still bearish. LC:
From 4-26:
(@62.775 basis June) “… LC now looks like a
couple days of rallying then a resumption of the
downtrend which is very likely to take out the
4-25 low…”
We got 7 days of rallying capped off with a
very convincing Wave 4 reversal bar on 5-08. Now
at 63.125, we’re targeting the downside to test
and takeout the 4-25 low (59.325).
Commercials remain hugely bearish. LH:
While a final retest of the 4-12 and 4-30 lows is
technically plausible over the next few days, LH
is shaping up for a major bounce from these levels
on both weekly and daily charts.
Note the very long commercial position and
the collapse in option volatility. Also note
strengthening in the PB outlook. PB:
From 4-26 (@ 66.85): “…Keep tight stops on
shorts. In the final downleg of the selloff from
the March high. Commercials are moving to a very
constructive net long position ahead of a likely
bottom…”
Now at 64.975, PB may have one final blip
down to retest the 5-08 low (60.900) just above
the huge long-term support zone at 60.000.
Both technicals and commercials are very
supportive of a major bottom forming here in the
weeks ahead. GRAINS:
Peak seasonality is right here. W:
From 4-26 (@266.5 basis July): “…The easy
downside money has been made and a bottom is near.
Commercials are adding to net longs. The strength
of the collapse from the 3-28 high points to a
rally and final re-test of 4-26 before the selloff
from the 1-14 high is over…” Now at 271.5,
keep very tight stops on longs as we continue to
expect a brief retest of the 4-29 low, targeting
261.5 over the next week or so. Said re-test would
put in an important bottom in this maximum-bearish
May/June season.
The VERY net long commercials are setting
up for a substantial rally. A bit more complacency
on the option volatility would help
bottom-building as well. Note also the massive
recent net longs in Minneapolis wheat.
S: The picture of
consolidation. Note the position unwinding as
commercials close out shorts against funds’ long
liquidations. Prices consolidating in sideways
channel since the Mar high. Commercials now
approaching very supportive levels which will
limit the downside. Option volatility is rising
with the rally from the Jan lows but is not yet at
an “extreme” level. The peak season is still
upon us. We look for at least a short-term pop to
test 480-483 in the next few days basis July. With
a 467.5 stop we like the risk / reward on this
trade. A
distinct possibility of a rally to the 490-500
area sweetens the deal. C:
From 4-26 (@ 203 basis July): “…Huge recent
volume, net long commercials, a completed selloff
from the Jul ’01 high and the 4-12 spike low all
point to at least a tradable rally here. The only
blemish is a possible mini descending triangle
since the 4-12 low. If so we might see a final
downside test of 4-12…” This is exactly
what we got. The mini triangle broke down to put
in an important bottom on 5-06.
The gap open and reverse bar at the 5-06
bottom came with very net long commercials and
jittery option volatility. Now at 215, Corn may
easily yet rally to 225.
This may be only short-term upside.
Longer-term Corn bears are heartened by the ugly
weekly chart and the inability of C to rally
earlier in this peak season. RR:
Keep very
tight stops on any shorts, as at least a tradable
rally is likely very nearby.
Option volatility has declined
substantially from the Dec highs, reflecting high
complacency with this selloff.
Meanwhile commercials are moving to
seriously net long levels. Further, well-formed
5-wave completions from the Feb ’97, Sept ’00
and June ’01 highs give this situation the real
possibility of a major low in the making. Given
the bearish descending triangle since the Nov 01
low, a final spike climax bottom nearing 3.50
basis July short term is not out of the cards. SOFTS
/ FIBERS:
CO: Technically toppy in the
bearish May/June season. However, commercials are
moving to very constructive net long levels. We
prefer to stand aside.
SB: A bullseye long on our
prior watchlist. From 4-26: “…now at 509
basis Jul, SB is a market to watch on the long
side. A
major bottom is forming on the selloff from the
Oct 2000 high…”
A tremendous rally started the next day.
Now at 584, the turn in option volatility likely
confirms major Wave 5 bottoms on both weekly and
daily charts. We favor tight stops on longs as the
earlier period after a bottom is often volatile
and the seasonally week June/Jul season is still
ahead. The months ahead should offer a number of
good long side trades. OJ:
Setting up for a serious upside test.
Attractive risk/reward.
Commercials are constructively net long and
option volatility is catatonic at 2-year lows.
Bullish ascending triangle forming from the Jan 02
Wave 4 bottom on the daily charts.
CT:
We’ve called this market for almost 2 months. From
4-12:“…A favorite short on 4-01 (@ 38.41 basis
May, 40.00 Jul), CT sold off rapidly to 36.86 May.
Now at 37.37 May, the downtrend should remain
under the 4-10 outside bar high of 39.10.
Commercials remain bearishly net short and the
possibility of a MAJOR move to challenge both the
Feb ’02 and Oct ’01 lows gives this situation
great risk/ reward…” From 4-26: “…Now at
33.55 May, 35.27 July, CT is due for a blip rally
in the days ahead before continuing to lower lows…”
Now at 34.71 July, the current blip rally will
most likely fail in the next 2 or 3 days followed
by a test of the 5-06 and 5-07 lows (33.05).
This trade could have a major hidden payoff
of a further test of the multi-year lows (Oct
2001) in the bearish seasonality ahead. Bears
beware the increasing commercial net longs, while
bears take heart in the rising option volatility
from the 3-22-02 high which looks like it has
further to go. KC:
Another on-going great short call: From 4-01:
“… Now at 57.20 May, keep VERY tight stops on
any longs as the rally-ruining KC commercials are
moving sharply to 3-year record net short
levels…” and From 4-12 (@53.20 May,
55.50 Jul): “… The shifty KC commercials are
dizzingly net short now, indicating the downside
move is not over. Look for a test of 50.00 –
51.00 at this point…” From 4-26: “… Now at
49.70 May, 52.15 Jul, we expect a blip rally.
However, commercials remain very net short,
signaling a re-test of support at 50.00 and below
basis July…Keep tight stops on shorts and let KC
run as far as it will go…”
We got a 2-day blip on 4-29 and 4-30
followed exactly by a plunge to break 50.00 and
hit a low of 4885 on 5-13.
Now, commercials moving to net long signal
the beginning of the end of this selloff from the
April highs. Look for a 3 or 4 day rally then a
final downside test likely to hold in the area of
the Feb lows and above the major bottom in Dec. LB:
A great call from 4-26 (@297 basis July):
“… We’re now mildly bullish LB with at least
50-50 odds of testing the 3-22 high (330 basis
May) in the next few weeks…” LB rallied to
hit 310 on May 6.
We favor very tight stops on longs here,
just below the 5-13 bar low of 296.80. Rally
targets to 326 but keep stops tight at 296.00.
Failure to rally with the stock market on
5-13 is suspicious.
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