BISHOP’S  MARKET  OUTLOOK, 6-18-02

CRB: From 5-31: “…The CRB is whipsawed by weakening energies and the speculative metals rally. But we still see the 4-18 high as very secure at this point…”. So far 4-18 is holding and we see no glaring pressures to break 4-18 near term.

ENERGY:  A thoroughly mixed picture.

CL: From 5-31: “…Now at 25.76 (basis Jul, 25.30 Aug) CL is poised for a short-term upside blip given the 5-29 reversal bar…but this rally is likely to fail.  The not-yet-bullish commercials and the weak summer season ahead all point to 5-14 as the top in crude for some time to come...” CL blipped upwards to peak on 6-04 then sold off to hit 24.10 (Aug. on 6-11).  The present CL technical picture is bullish on the weekly chart, pointing to a challenge of the 5-14 high (28.10 Aug), while the daily chart is bearish, with high odds of taking out the 6-11 low.  Which is likely to unfold? Bullish: rising commercial position, now at neutral, and improving outlook for distillates. Bearish: weak seasonality, backwardation softening from the May high, and weak oil stocks.  A stronger DX would also soften the energies. All in all a very mixed picture. We’d generally stay on the sidelines here but will go out on a limb and favor the downside scenario with initial stop at the 6-17 bar high (26.72 Aug.) and targets to 23.00 – 23.75 area.

HO: Another mixed energy picture. Out best interpretation is that HO looks boxed in between the 6-11 pivot low and the April-May highs. The technical pattern is too erratic here, particularly the choppy selloff from the Apr high, to pay much attention to HO. The softening contango and increasing net long commercial position are both mildly supportive in an otherwise weak season. We prefer to stand aside.

HU: Very mixed: 1) 5-31 technically may have been a pivot low 2) Commercials on the way up from net short but not quite at rally-sparking levels yet 3) Option volatility expanding from 5-29, supporting the 5-31 pivot low viewpoint  4) Backwardation pressures, which had been softening from the 4-1 high may now be returning, an early bullish sign. We’re standing aside for the moment.

NG: Like CL, a very “mixed scenario” contract right now. We’re waiting for greater clarity and more favorable risk / reward.

METALS: Metals stocks may have one final upside blip while the commodities look like pivot highs are in place from early June.

GC: From 5-31 (@ 327 basis Aug): “…Gold is now the most glaring speculative bubble on the horizon…Industrial demand is zilch, lease rates are falling, and Commercials are hugely net short.  If you’re trading GC from the long side, keep the tightest of stops…”  Gold peaked 2 days later on 6-04.  Now at 318.10, 6-04 is very likely at least a medium term pivot high. Note the position unwinding from the open interest peak in late May: speculators are unwinding their net longs at lower prices.  Commercials remain hugely net short at this point: nowhere near rally-sparking levels. Position short-sellers have stops at the 6-07 and 6-14 pivot highs (328 and 324 basis Aug).  Note the GC exposure to DX: Gold has failed to take out it’s FEBRUARY Yen and Swiss franc highs.  Should the dollar firm at all here, that’s further trouble for GC.

SI: A huge bullseye from 5-31: “…longs should keep super-tight stops and look for short entry opportunities. At this point the upsloping trendline from the 5-14 and 5-23 lows is an excellent low-risk entry trigger if broken…” 2 days later, silver completed a 5-wave advance from it’s Nov ’01 lows on 6-04 then gapped down on 6-05, triggering a short-side entry with the simple trendline break described above, closing 6-05 at 493.30 (basis Jul).  Commercials remain black-hole massively net short and the weak Jun/Jul season is just ahead.

HG: It’s interesting that on 6-18, a huge increase in May housing starts and building permits could not spark a Copper rally.  On 6-04, HG completed a 5-wave rally sequence from the Nov ’01 low.  Commercials remain hugely net short, selling into the recent May rally.  Increasing contango pressure is at least short term bearish, also.  We expect this selloff to reach the lower range of current resistance, in the 72-area basis Jul over the next few weeks.

PA: A double-bullseye from 5-31: (@345.50 basis Sep) “…Still bearish. Palladium looks determined to re-test the Nov. lows in the 310 range.  A PL-PA bull spread makes sense technically…”  Both the PA selloff and the PL-PA spread performed beautifully.  PA crashed to hit 331 on 6-13 while PL rallied from 545 (Jul) to close today at 565.80.  PA has had a sharp downside move, so keep tight stops on any shorts.  We’re still looking for a re-test of the Nov ’01 lows in the weeks ahead.

PL: A month of platinum bullseyes. From 5-13 (@ 523.3 July): “…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…From 5-31 (@544.30 July):… we’re still technically looking for a test of the 4-18 high (558 Jul) with outside targets to 575 by mid-June…”  Now at 565.80 we’ve taken out 4-18 and then some.  Longs keep simple stops on the multi-point trendline from the 5-13 low (currently about 555.00).  Let PL run as far as it will BUT look to stop and reverse, entering short on a trendline break. PL toppiness is developing as: 1) easing backwardation pressure reflects loss of internal steam  2)  sister metal PA weaker than ever 3) Commercials moving to seriously net short 4) PL mining stock AMS and the XAU index both looking very toppy with only a 50-50 likelihood to test their May highs.

BONDS/ NOTES:   From 5-13: “…The current retracement looks more like “curve re-adjustment” flowing to the shorter end than a broad-based selloff…”  Note the on-going relative strength of the shorter end during the rallies from the May lows. This is probably best interpreted as a sign of uncertainty over the strength of the U.S. economy.  Bonds are part of the “financial quadrangle” (US, SP, GC, DX) that we’re watching intently.  Our premise is that SP will rally, prompting a selloff in US, both prompting a rally in DX in turn prompting a selloff in GC.  We may be getting it in reverse with the GC selloff underway.  1 down, 3 to go.

US: Last week, US blasted out of a bullish ascending triangle to new 2002 highs following a raft of weaker-than-expected economic reports.  Soft retail sales, industrial production, business inventories, consumer sentiment, and auto sales combined with the week’s stock collapse to prompt a flight to Treasury quality. Even corporate debt sold off.  Technically the strength of the rally from the 5-14 low points to one final blip retest of the 6-14 high.  Targets: 104-05 to 104-22 (Sept) by 6-20.  Meanwhile, commercials are moving near to rally-capping net short levels. Keep very tight stops on any longs.  Clue for the top: look for Sept-Dec backwardation pressures, building since the March lows, to subside first.

TY, FV:  On-going bullseye calls: From 5-13 (@TY 105-02 basis June, 103-23 Sep): “…Commercials remain loftily net long. Indicative of a curve shift from 30’s to 10, 5, and 2-year maturities…Bottom line: the “final upside retest” story is intact until the 5-09 lows are broken (104-190 basis TY June)…From 5-31: Now at 106-145 (June), longs keep very tight stops near 106…”  The 106 stop was never threatened and TY rallied straight up to hit 108-255 (Jun) on 6-14!  Longs should keep tight stops (108-040 Jun, 106-235 Sep) as this rally is getting toppy.  Super bulls look at shorter maturities (TU) as their upside probability is better.

TU: A bullseye call from 5-31 (@ 104-28 basis June, 104-04 Sep): “…TU continues to look like substantial upside in this rally from the apparent Wave 4 bottom in March…”  TU has rallied straight up to hit 105-18 Jun and 104-25 Sep. Commercials are now lightening up on their net longs but nowhere near rally-capping levels at this point. Technically, TU has an excellent chance to take out the 11-08-01 highs and target 106-12 to 107+ in July.

CORPORATES: Last week’s treasury rocket was truly a flight to quality as both corporate equity and debt sold off.  Still, mid and lower-grade corporate closed end funds are holding their own after a 3-year slide.  Credit spreads likely have maxed out.  Corporate debt should be considered as a “yield enhancer” for a prudent portion of the investor’s portfolio.

STOCKS:  As we hit what look to be rally-springboard pivot lows on 6-14, it’s interesting to review our bottoming projections from our April, May, and early June reports.  Assuming the good news of a likely summer rally dead ahead, the bad news is that any rally is likely to have real technical difficulty taking out Jan and March highs.  That could change if a positive stock market feeds on itself, boosting consumer balance sheets and sentiment and thereby stimulating the economy, in turn pushing the market.  This is thinking too far ahead at this point. For now, we can see a very muddled picture: 1) Messy Dow chart  2) Weak SP and DJ commercials  3) Charts appearing “boxed in” between their June lows and their Dec-Jan-Mar highs  4) A very late start on the summer rally following a vote of absolutely no confidence from the April earnings season.  We cannot emphasize strongly enough the importance of U.S. stocks to the American economy, particularly given the sky-high levels of consumer and corporate debt and over-saturation of supply in everything from homes to cars to fiber optic cable.  THE ECONOMY NEEDS THE STOCK MARKET to inflate consumer and business balance sheets (improving credit worthiness), and to pump-up consumer confidence.  Monetary stimulus has failed because of the low level of credit demand and reluctance of banks to lend.  Fiscal stimulus has failed because of political soundbites.  The only remaining stimuli: A) a falling dollar  B) a rising U.S. stock market.  We are getting a mild dose of A…. will we get any B?

OTC/ NDX: Our short-term bearish outlook on 5-31 has come through beautifully (@OTC 1615): We’re sticking with our 5-04 forecast at this point: that OTC will bottom above the 1500 to 1550 range in late May, early June.  How much above, and whether the 5-07 low will hold is unclear…”  Also note our bullseye call at the 5-04 Cornerstone on the fate of the NDX: “…The NDX is likely NOT to hold above it’s 9-21 low and will weigh heavily on the OTC…the OTC will be a close call to hold above 9-21…”  Since 5-31, the OTC selloff exceeded our expectations, hitting 1445.44 on 6-14 but remaining slightly above it’s 9-21 low of 1387.  Meanwhile, as predicted, the NDX took out its 9-21 low (1088), hitting 1055.57 with a classic reversal bar pivot low on 6-14!  The OTC / NDX are generally well positioned for a decent Summer rally at this point: 5-wave selloff completions are in on 6-14 from the Dec and Jan highs and commercials are massively net long vs. weak short specs.  Rising option volatility from catatonic April levels and increasing backwardation pressures are also positives.

SPX: Our bullseye SP calls continue: From 5-13 (@1074.56 cash):   Commercials are now moving off net short levels but appear to need lower prices before getting seriously supportive…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…” From  5-31 (@ 1069.55 cash): “… Now at 1069.55 the wave technicals still point to a break below 5-07 targeting, say 1035 by early to mid June.  Note this is entirely consistent with our 5-04 forecast at Cornerstone of an S&P bottom in the 1025 – 1050 range…”  From 5-31, the SP rallied only one day and one point (to 1070.74 on 6-03) then crashed 89 points to hit 981.63 on 6-14!  Technically we have 5-wave completions of the selloff from the 1-07 and 3-19 highs on the daily chart and from the 5-17 high on 60 min. bars. Seasonally we’re poised for at least a summer rally from here.  See also strength in the SP 100 (OEX) below.  The negative factoids: 1) We’d like to see a decline in the option volatility that’s accompanied the selloff from the March highs to complete the picture 2) The still-short commercial position gives us no optimism beyond perhaps a kiss of the Jan / Mar highs 3) The general chart appearance is weak and likely to develop a “boxed-in” sideways pattern.

DOW:  We got the direction right on 5-04 (@10006 cash): “…I look for a seasonal bottom in the 1-30 low area (+/- 9500) in late May…”  The 1-30 low congestion basically held with exception of one spike climax bottom day (6-14), hitting a low of 9260.  The “extended selloff” from the March highs gives the weekly Dow chart a decidedly weakened appearance; more akin to the boxed-in “sideways drift” we’ve seen in the SP and ND.  Note the DJ commercials continue to selloff, offering no support for a strong summer rally thesis from the 30 big caps.

RUT:  From 5-04 (512.32 cash): “…look for an on-going selloff to bottom above the Feb lows (457 area) in late May…”  and From 5-31 (@487.47 cash): “…We see today’s action as a few days of a blip rally, likely followed by a final re-test of the 5-30 low (482.60) early in June…” Well from 5-31 we tested 482.6 and then some, hitting 446.66 on 6-14, within 9 points of our forecast on 5-04.  At this point we favor a few days of blip upside followed by a final retest of 6-14 in the next week or so. Commercials are moving constructively, nearing a level from which we can expect a decent summer rally to commence.

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 5-13: SEBL (22.88, 15.30, 33%, 17.60) ADRX (44.84, 37.98, 15%, 40.00) HPQ (19.98, 17.87, 10%, 18.50)

SPECIFIC STOCKS LONG: Long selections open as of 4-01: (entry price, current price, % profit, current stop) from 2-15: LION (7.45, out 6-12 @ 10.20, 36%) From 5-13: VIA (48.04, out 6-12 @ 47.00, -3%)  DD (45.65, out 6-04 @ 44.20, -4%) 

FOREX:  From 5-31: “…Our MAJOR FINANCIAL THEME continues to be an impending reversal of fortune with the S&P and DX bottoming vs. tops in US, Gold, and most Forex.  The continuing weak position of SP commercials is the major fly in the ointment.  They need to move net longer to support a serious US stock rally.  Stay tuned…”

            DX: A mixed picture.  Commercials behaving somewhat erratically, coming off somewhat of net longs without a pivot low as yet.  Bearish continuing contango pressure and expanding option volatility.  Technically we look for a rally here but it will likely be only a retracement followed by at least a re-test of today’s levels. Said retracement would obviously coincide with a mirror selloff of several major FX, which we expect to begin by late June. DX should also be boosted by a U.S. stock rally which we expect may already be underway.  Just as we expect such a stock rally to labor near it’s Jan / Mar highs, so might a DX retracement fail and reverse for a downside test of today’s low.

Euro: A bullseye call from 5-31 (@ 9313 cash): “…Triangle congestion is now completely cleared and the next major resistance is at the top of the horizontal “box” going back to June 2000 in the 9500 area…The power of the recent rally indicates that after any blip pullback, a final surge to test the 9500 resistance is technically probable…”  EC did not look back, hitting 9518 on both 6-14 and 6-18. Now, this market needs a breather. Note the softening Sep-Dec backwardation. We look for a pullback to at least the 9200 – 9300 zone then a final rally to test the 6-14 high, likely topping out in the range of 9575 (1-05 high) to 9690 (6-09-00 high).  Commercial behavior, just coming off extreme net short levels is consistent with at least a short-term pivot high on 6-18 while option volatility points to one final upside rally.

BP: A total bullseye from 5-31 (@ 1.4569 cash): “…Now that the rally is underway, I’m now able to pinpoint a topping zone forecast on BP: 1.4700 to 1.4820 by early to mid June. MIGHT THIS BE THE SAME TIMEFRAME FOR AN S&P BOTTOM AND A US TOP??  The odds are very good.  …How will we know when the BP peaks?  One clue: watch for the catatonic BP option volatility (now at 2 year lows) to pick up!…” BP rallied straight up to hit 1.4790 on both 6-14 and 6-17 before a climactic-looking surge to 1.4929 on 6-18.  Now look at the BP option volatility, bouncing nicely in the past week from 2-year lows!! Exactly the movement forecast to precede a pivot high in BP! Meanwhile the reliable BP commercials are moving to ever-shorter bearish levels. Longs should keep the tightest of stops at this point. Technically, BP has now completed a 5-wave rally sequence from the 1-28 lows and is very ready for a selloff. Watch for a softening of the Sep-Dec backwardation (which has accelerated in past few days) as a pre-cursor to this forecast top.

SF:  From 5-31: “…We would expect a blip pullback here followed by a final leg up to top out in the 6500-6600 range in June.  Note the hugely net short commercials now at levels consistent with EVERY important top in the SF in the past 3 years.  We expect ALL of these FX (BP, EC, SF) to retrace vs. the DX in unison, likely triggered by a US stock rally and rising US interest rates.  But the US stock rally is the “when and if” key trigger…”  We continue to stand by this analysis with a “two view” outlook: Scenario 1) The major rally from the Oct ’00 lows is complete and SF has likely topped  OR  Scenario 2) SF is very toppy but has one final blip upleg remaining to the rally from the 1-31-02 pivot low.  Option volatility, rising since early March but not yet at extreme levels supports the latter scenario, while the hugely short commercials support the former.  Either way, at least a blip pullback here is technically very likely especially if we get a continuation of dollar-favorable action in SP, US, and GC.  After a blip pullback will SF make one last rally?  Technically the odds are now just over 50-50. But SF is likely to labor near recent highs and fail in or under the solid wall of resistance @ 6500 – 6700. Keep very tight stops on longs and look for short-side opportunities to develop soon.

            JY: A great call from 5-31 (@ 8050 cash):  The 5-30 exhaustion gap is an ideal Wave 3 top… we expect a pullback in JY to at least the 7850 – 7900 area before a final speculative rally to test the 8300-8400 “multiple resistance zone”…The key to JY remains the Nikkei…”  5-30 was indeed a pivot high from which we pulled back immediately to a cash low of 7948 on 6-12. Now the final speculative rally forecast on 5-31 is underway from 6-12.  I’m lowering my rally targets to the 8140–8240 range by late June to early July. The softening JY contango is also supportive of the final blip thesis as is the technical wave count.  More bearish is the faltering Nikkei which probably MUST hold and rally soon if JY is to rally. Note the on-going selloff in EWJ (Japan I-shares). We like the sidelines.

ME: From 5-31: “…a perfect reversal bar on 5-30 setting up for what looks to be a sharp sucker rally.  We expect the current rally to reach perhaps 10.50 or so, then selloff to test the 5-30 low and put in a very tradable bottom…”  The forecast sucker rally was delayed by a few days, but likely topped out on 6-18, hitting 10.4410.  We now look for a final selloff to test the 6-06 low (10.226 cash) and bottom in the 10.10 to 10.22 range by the first week in July.  With tight initial stops at recent pivot highs (10.43 area) ME offers attractive risk/reward in a quick short sale.  But keep tight stops as commercials are moving to very supportive levels.

            AD: Technically, AD appears to be on a blip Wave 4 selloff from the 6-04 and 6-07 highs (5747 cash).  For AD to remain bullish, I expect the selloff to hold above the 5420-5520 range and bottom within the next week.  Thereafter, look for a final test of the 6-07 high, targeting 5750 to 5800 by early to mid July.  Continuing backwardation pressure is also bullish although the increasing option volatility reflects toppy nervousness. The Aussie stock market (EWA I-shares) is a major AD wildcard. EWA is toppier on a daily basis though the weekly chart, like AD, calls for another upleg after the current retracement. GC is another issue, as the AD and the mining-heavy EWA had rallied along with the recent runup in Gold.

            CD: Our comments from 5-31 still hold: “…The Canadian economy is very strong and the domestic demand for currency shows it. The strength of the rally from the Jan lows points to one final upside test after any pullback.  Longs should be very cautious as commercials are very net short and only speculators will be participating in that final upleg…”  The current pullback started 2 days later with the 6558 cash high on 6-04.  Now at 6476, to remain bullish, we expect this pullback to hold above the 6430-6450 range and bottom by late June. Thereafter, technically CD is poised for one final “Wave 5” rally to test the 6-04 high and target 6560 to 6600 by early to mid July.  Confirming this view is the increasing backwardation pressure and the disinterested sideways option volatility.  The Canadian stock market is a technical wildcard. We have both a rally and retracement scenario so it’s a wildcard.  The mildly bullish outlook for SP swings Canadian stocks mildly positive for the CD also.  Much more threatening is the massively short commercial position.  Long-side traders should keep the tightest of stops on any CD rally plays and likely look to exit and reverse if stopped out.

MEATS:  Hog heaven.

LC: We have not as yet seen the final plunge in LC forecast in our 5-31 report. The current situation is very mixed and unfortunately the chart offers few clues on the primary trend.  The current blip rally from the 5-31 pivot low looks to have some moderate upside, perhaps to 6500 in the next few days. The softening contango from late May supports this blip rally scenario. However the commercials are massively net short and the larger chart is confusing. We’re standing aside.

LH: A major bullseye call from 5-31 (@ 47.775 basis July): “…commercials are very net long and Hogs have completed a 5-wave downward sequence. We look for a bottoming formation to begin in the days ahead. Note the collapsing option volatility which peaked at recent congestion…” LH bottomed immediately, formed a bullish ascending triangle, and has rallied to hit 50.825 today.  Note the bullish increasing backwardation pressure from the late Apr/ May bottoming zone.  We believe LH has put in an important bottom on 5-29. A blip pullback may be expected in this typically volatile “turning zone”, but we prefer only long side LH trades at this point.

PB: A similar pattern to LH with the exception that the selloff from the 3-07 high has not completed a 5-wave sequence and therefore the 6-10 bottom is slightly more suspect.  Otherwise, PB appears to be in the process of completing a major low in the selloff from the Jul ’01 high. Commercials quite supportive.

GRAINS:  Plenty of action.

W: A great call from 5-31 (@ 282.25 July): “…We believe this rally is for real and the 4-29 low may be a very important pivot. Net long commercials should provide plenty of upside fuel over the next few weeks.  Expect nervousness near 285 then a likely follow-thru to the 290-300 range. Clearing the 3-point downsloping resistance from the Jan. high (now at 290-292) will be another chart milestone. Note also the low open interest of this “forgotten” market, another bullish indication…” W rallied for 2 days, kissing and putting a 4th point on the downsloping resistance line.  Then 4 days of nervousness and a solid breakout of the resistance, hitting 298 on 6-14. Note the rocket fuel provided by the combination of softening contango, very bullish net long commercials, improving seasonality, and peaking option volatility!  Now at 289.25 (July), we expect a rally to break the 6-14 high and test 300 – 302 by June 25th or so.

            S: A pinpoint call from the 5-31 outlook (@ 509 July): “… Longs keep tight stops at 500 or tighter. Given the increasing net short commercials this rally is likely to top out by 525.  When will Beans peak?… look for a blowoff in option volatility that’s been steadily increasing since the Feb lows…” The 500 stop held comfortably and Beans rallied to peak out at 519.5 on 6-06. Note also the simultaneous CAPPING OF OPTION VOLATILITY!!  If Beans have one last technical rally from here, it’s 50-50 that it takes out the 6-06 high, targeting 525 by very early July.  Otherwise S is overwhelmingly bearish: 1) Very high speculative open interest with commercials massively net short 2) Post-peak seasonality  3) a mini head and shoulders developing (5-22 the LS, 6-06 the Head) and 4) softening backwardation pressures. We favor only short situations.

C: From 5-31: “…Best to give this market a little time to form a more discernable bottom…”  We continue to see the awkward outlines of a bottoming process in the works. Technically C is poised at the completion of a 5-wave selloff from the Jan ’01 and Jul ’01 highs.  Peaking option volatility and softening contango are also supportive.  Out-of-sync are the mildly net short commercials, the post-peak seasonality, and a mini descending triangle forming after the 5-06 low that looks like it wants to break downward for a re-test. Best to be patient and look for more solid bottoming evidence.

RR:  We continue to watch Rice from the long side.  RR confirmed a 5-wave bottoming sequence with the apparent spike climax low on 6-11.  Peaked-out option volatility is bullish as is the snap-back in commercials, approaching net long territory.  We’d like to see a little more firming in the backwardation though it’s very pronounced at this point. All in all, for the adventurous, at 3.960 RR offers decent risk-reward with a long side trade initial stop at the 6-12 bar low (3.75 basis July) with targets to the 6-03 high (4.785).

SOFTS / FIBERS:

            CO: Generally toppy, but commercials behaving in erratic swings now heading to net long.  Bearish is the 5-wave technical toppiness and the backwardation softening to neutral.  Bullish are the supportive commercials and the strong Aug / Sep season ahead. Best to stand aside.

            SB: We’re downshifting at least our short-term SB outlook.  A successful test of major 2002 lows seems very likely (2-27 at 5.03 and 4-11 at 4.94 basis July).  The technical chart is looking for a new low to put in an important wave 5 bottom, commercials are massively net short, option volatility has not peaked, contango pressures are increasing, and the weak Jun/Jul/Aug season is dead ahead. Targeting: 460-470 by mid July.

OJ: From 5-31: “…Now at 91.80 / 90.50 (July / Sep) we still look for at least a test of the Nov highs in the 96.00 (Jul) area with a solid technical shot at 100-103 by mid to late June.  Commercials remain very supportive. Great risk/reward with stops near the 5/23 (89.90) and 5/25 (90.80) pivot bar lows…” Both the 5-23 and 5-25 pivot low stops have held. Stops should basically follow the upsloping support trendline connecting the Jan, Apr, and May pivot lows of the congestion triangle.  With tight stops we still favor an upside breakout from the triangle, technically targeting 100 to 103 by mid to late July. Very sleepy option volatility is comfortable with the recent rally although commercials are coming off of net longs and would likely cap this rally near recent pivot highs in the mid 90’s or so.

KC: Another bullseye call from the 5-31 Outlook (@ 54.25 basis Sep): “…we favor the view that Coffee will retest at least the 5-14 low (48.60 / 51.25 Jul/Sep).  Note the bearish Jun/Jul/Aug season ahead…”  Coffee began plunging the next day and hit a low of 49.00 (Sep) on 6-14! Shorts keep very tight stops and enjoy the ride as commercials are moving constructively to neutral. Clue for the bottom: look for increasing contango pressure to abate before the next pivot low is in.

CT: Approaching the top of a “sideways box” trading pattern with mixed factoids. The Oct ’01 low looks like a 5-wave completion on a daily basis but perhaps only a Wave 3 on a weekly chart (making the rally from October a dead cat bounce). A bullish ascending triangle is developing from the Oct low making at least a short-term breakout of horizontal resistance (41.00+) likely.  But any breakout is not likely to go very far as commercials are moving to net short from their net long levels supporting the recent 5-07 pivot low.  Also, bearish seasonality lies ahead. Will the Oct lows hold during any pullback? We prefer the sidelines to watch the behavior after the next pivot high for further clues.

LB:  An interesting blip long-side setup for the adventurous.  Seriously net long commercials, decreasing contango and bottoming option volatility are all supportive of the bounce from the 6-10 low (256.30 basis July).  On the other hand, LB appears “boxed-in” and we expect the Mar highs (325 area) to hold, especially given the reliably weak Aug/Sep season ahead. Now at 272.50, a long-side bet with initial stop at 256.50 has attractive risk-reward over the short term.