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BISHOP’S
MARKET
OUTLOOK, 7-8-02 CRB:
On 6-24,
the CRB decisively broke its 5-15 and 6-04 highs
and on 6-28 took out its post 9-11 high set on
4-02. This
rally was primarily on the back of accelerating
grain and energy prices. The CRB rally in turn put
inflation pressure on a bond market which was
ready for a breather.
As we are forecasting a final blip in bond
prices later in the month, if true this is likely
to be accompanied by a pivot top in the CRB during
the same time period. ENERGY:
Looking to test recent highs. CL:
On 7-08
we called the blip rally: “…
a good probability of testing the 5-14 high in the
next week or so...”.
Now, crude has mixed factoids: Bearish are:
1) Net short commercials
2) Weakness in dollar terms AND vs. most
forex 3)
Easing Oct/Dec. backwardation
4) Potential bottoming of option volatility
at the recent price peaks
5) The failure of the recent rally to take
out the 5-14 high
6) a “mini head & shoulders”
pattern forming since late June.
On the bullish side: The Aug/Sep season is
approaching.
Given the erratic chart pattern drifting
sideways, we prefer the sidelines to wait for a
clearer picture at this point. HO:
Rarely have HO & CL looked so completely
alike. Note
the technical picture, commercial trading
positions, volatility & softening contango.
We look for a short-term rally to test the
5-14 high (72.55 basis Aug) in the next week or
so. HU:
Another “ditto” energy market. Our early
bullish analysis from the 6-18 Outlook has proven
correct. Most factoids now support a rally to test
at least the May 14 high (.8230 Aug) if not April
4 (.8290) also. Position traders should keep stops
along the uptrending support line of the ascending
triangle from the April 12th low (now
in the .7590 range Aug.). NG:
The 4-month old broadening top formation is a
bearish standout in an otherwise mixed picture.
We’re on the sidelines. METALS: A mixed picture. Gold is at the mercy of the dollar right now GC:
A generally
good call from 6-18: “…Now at 318.10, 6-04 is
very likely at least a medium term pivot
high…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 its FEBRUARY Yen and Swiss franc
highs. Should
the dollar firm at all here, that’s further
trouble for GC...” DX did indeed rally,
beginning Jul 1, sparking the current GC selloff
from the same date.
As we’re looking for a short-term DX
rally here, followed by a re-test of numerous
Forex highs (SF, JY, EC, etc.), we expect GC to go
along for the ride.
Against the currency backdrop, Gold
commercials remain hugely bearish, making any
FX-driven GC rally unlikely to challenge the 6-04
high. Short-side
position traders have stops at the 7-02 high
(315.80 Aug) at this point. SI:
While we’ve been very productive on the short
side from the 5-31 Outlook, technically a rally
from here to test the 6-04 high is probable and a
bullish trade with stops at the 7-1 low (4.80 Sep)
makes some sense.
However, we prefer the sidelines for now as
the bearish commercials and seasonals paint a very
mixed picture.
Note also the bearish increasing contango,
a sign of soft demand. HG:
Commercials, just coming off huge net shorts at
the 6-04 high, point to lower lows ahead.
The “broadening top” to a chart that
also saw a 5-wave completion on 6-04 adds
technical bearishness.
Short-term look to take out at least the
6-24 low (74.60 basis Sep).
Thereafter, technically HG is unclear. PA:
We’ve had 3
months of bullseye calls on PA. From 4-01 (390
Sep):
“…a favorite short situation…”
From 4-12 (370 Sep): “…even the Nov.
’01 low in the 310-315 area looks vulnerable at
this point…” From 4-26 (366 Sep): “…not yet bottomed…more
bearish…”
From 5-13: “…Keep tight stops on shorts
(PA spiked up next 2 days)…” From 5-31 (347
Sep): “…Still bearish…looks determined to
re-test the Nov. lows in the 310 range…a PL-PA
bull spread makes sense here…” From 6-18 (338
Sep): “…we’re still looking for a re-test of
the Nov ’01 lows in the weeks ahead…” PA
hit 314.50 on 7-01. We now look for a blip upside
rally here to as much as 338 or so, followed by a
re-test of the 7-01 and Nov’01 lows. PL:
Make that a month and a half 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…” From 6-18: “…Now at
565.80 we’ve taken out 4-18 and more….
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 snapped the trendline stop like a
twig on 6-25, closing @ 558 basis Oct.
It then nose-dived straight down to hit
518.20 on 7-03! Ultimately, we look for this
selloff to hit at least the May low (507 basis
Oct) if not the “horizontal support shelf” at
495. Also
bearish: commercials still net short, option
volatility hasn’t bottomed, PA is weak. For
further directional clues, watch which way
platinum mining stock AMS breaks from its
congestive triangle. BONDS/
NOTES: From
6-18: “…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…” Indeed our quadrangle scenario played out with Bond tops
on 6-26, DX bottom on 6-28, and blip rally in
stocks from 7-03.
However, the STRENGTH of the moves to these
key pivots indicates that they are likely to be
re-tested. US:
From
6-18 Outlook: “… 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.
The rally went a little further, cracking
on 6-27. Except
for a brief spike down during the 9-11 disaster,
30 year rates (TYX at the CBOE) have been stuck in
a range from 5.20% to 5.90%.
Rates recently hit a yield low of 5.32% on
6-26 and now look to favor a blip rally.
As rates rise, prices fall, hence US peaked
at 105-05 on 6-26 (basis Sep).
Now at 102-22, US looks very likely to at
least take out it’s 7-01 low (102-08 Sep) in the
days ahead. We
expect this pullback to hold somewhere in the
101-08 to 102-02 area, however, and set up for a
final rally to test the 6-26 price high and yield
low. The
reason?... the price rally from the 5-14 pivot low
to 6-26 high was just too strong to be a
believable technical top. If this is true, NOTE
THE IMPLICATIONS:
SP and DX would likely re-test recent lows
while various FX test their highs. GC would be
expected to rally on the back of the falling DX
though a new GC high looks unlikely at this point.
Any such final rally is likely to top out slightly
above the 6-26 highs as the commercials are
already seriously net short. TY:
TY is basically a strong ditto of US. Note
however the hugely net long commercials, even at
the 6-26 high!
We look for a blip pullback here to take
out the 7-01 low (106-300 Sep) and target 106-230
to 106-290 by 7-10.
Thereafter, a reversal rally to test the
6-26 high is very likely. Again, note the bearish
implications for US stocks over the same
timeperiod. TY shorts should keep the tightest of stops here, at or below
the 107-145 blip highs on 7-05 and look to stop
and reverse long if an attractive bullish setup
presents itself in the next few days. Ultimate
upside targets currently are at 109-150 to 109-270
by mid to late July. TU,
FV: Somewhat
more mixed picture than US or TY. Technically,
both TU and FV yield charts point to lower yields
and higher prices (tests of 6-26 highs at the
least) after any counter-pattern blips here.
The commercial behavior in TU is not as
constructive as TY, however, and FV commercials
are outright bearish at seriously net short
levels. Best to stand aside for the moment. CORPORATES:
Credit spreads for all but telecom debt have
likely maxed out.
Corporate debt should be considered as a
“yield enhancer” for a prudent portion of the
investor’s portfolio. STOCKS: With
the exception of the NASDAQ 100 (NDX), all major
U.S. stock indices appear to be setting up for at
least one final re-test of their 7-03 lows.
Mid to late July is the common bottoming
timeframe at this point.
The good news is that commercials are
becoming increasing constructive, especially in
the broad SP 500 and Russell 2000 contracts.
These “final downside tests” would
likely coincide with final blip rallies in bonds
and forex to challenge their recent highs. OTC/
NDX: A bullseye directional call from
the 6-19 Wizards presentation (1496.83 OTC cash):
“…Final
downleg from 5-15 high may have final plunge over
the next few days….Bottom targets to 1410 by
6-26…” The
plunge was even deeper than we expected, hitting
1336 on 7-03.
The strength of this move now makes a
re-test of 7-03 very likely.
If not already over, the current blip rally
from the 7-03 low is likely to stall under 1470 by
July 10-11. Thereafter,
a final selloff targets 1275 to 1325 by mid to
late July. On a positive note, the high-cap NASDAQ 100 (NDX) is more
technically constructive than the broader OTC
composite. NDX
made a technically-satisfactory 5-wave bottom on
numerous timeframes on 7-03.
It will have to wait for a similar pattern
in other indices. SPX:
Another bullseye call from the Wizards 6-19
presentation (@1019.99 cash): “…One final
plunge in the S&P….Bottom targets 945 to 965
by 6-26…”.
The
selloff lasted a few days longer than our
forecast, swan-diving to hit 934.87 and close at
953.99 on 7-03. The
short-term bear news is that the strength of the
selloff to 7-03 was so great that a re-test is
highly likely.
We look for the current blip rally, if not
over yet, to stall under 1000 cash by July 10-11,
then reverse and re-test 7-03 with targets to
905-930 by mid to late month.
The strength of the SP 100 (OEX) selloff
from 5-17 also supports the “low re-test”
theory. Switching
back to good news, commercials are moving
constructively now, to net long levels.
This increases the odds that any
post-bottom rally will seriously test the Jan.
high. These
odds were much lower even 2 weeks ago. DOW:
Now
at 9275, we look for the current rally from the
7-03 low to hold under 9500 by July 11th.
Thereafter a final re-test of the 7-03 low
is likely, targeting 8700 to 8800 by mid to late
July. RUT:
From 6-18: ”… 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…” and from the 6-19 Wizards: “…RUT
needs a final downside re-test…” At this
point the RUT remains bearish. We look for the
current blip rally from the 7-03 low to fail in
the days ahead then reverse to test 7-03,
targeting the 415 price level by mid to late July.
SPECIFIC STOCKS SHORT:
Our short sale selections open as of
5-06: (entry
price, current price, % profit, current stop) From
5-06 Cornerstone: IDPH (47.50, 34.57, 27%, 37.25)
IMCL (14.23, 7.25, 49%, 8.88) MLNM (16.54, out
6-17 @ 12.10, 27%) RATL (11.67, out 7-03 @ 8.20,
29%) PMCS (13.45, out 5-09 @ 16.20, -20%) BRCM
(29.94, 16.76, 44%, 17.80) RFMD (15.56, OUT 5-14 @
18.40, -18%) YHOO (14.60, out 5-15 @ 17.55, -20%)
MEDI (29.45, OUT 5-24 @ 34.10, -16%) XLNX (34.47,
out 5-09 @ 38.60, -12%) NTAP (14.28, out 5-13 @
17.45, -22%)
WMB (18.51, 5.40, 70%, 6.41) DAL (26.88,
18.91, 29%, 20.00) AIG (69.55, out 6-24 @ 65.81,
5%) TOY (16.41, out 5-13 @ 17.90, -9%) EP (35.16,
19.40, 44%, 21.07) From 5-13: SEBL (22.88, 13.19,
42%, 15.40) ADRX (44.84, 21.56, 52%, 24.20) HPQ
(19.98, out 7-05 @ 15.75, 21%) SPECIFIC
STOCKS LONG: Long selections open as of
5-06: (entry price, current price, % profit,
current stop) From 5-06 Cornerstone: AMAT (22.12,
out 5-22 @ 25.50, 15%) NVLS (43.90, out 5-22 @
47.80, 8%) KO (56.59, out 5-28 @ 55.15,
-3%) MCD (29.10, out 5-29 @ 29.90, 2%) SBC
(31.06, out 5-30 @ 33.70, 8%) JPM (34.40, out 5-29
@ 36.70, 6%) UTX (67.34, out 5-21 @ 68.50, 2%) SLB
(54.20, out 5-21 @ 54.00, -1%) WY (63.70, out 5-28
@ 65.75, 3%) UIS (12.61, out 5-21 @ 12.50, -1%) 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: From
the 6-18 Outlook: “…Technically
we look for a retracement rally here…followed by
at least a re-test of [recent lows]. Said
retracement would obviously coincide with a mirror
selloff of several major FX, which we expect to
begin by late June…” Indeed, FX topped and
DX rallied from their 6-28 pivots.
We expect this rally to fail at or near
prior horizontal support in the 111-112 area basis
Sep. Note
also the bearishly-increasing Sep/Dec contango and
perverse commercial behavior, moving to net short
even as prices fall. Euro: Note the position unwinding as open interest has declined from the 6-28 EC high. No buyers are left and hugely net long specs must liquidate to commercials at lower prices. Note also the short-term bearish falling option volatility reflecting market comfort with this blip selloff. Lastly we note the toppy flattening backwardation prior to the 6-28 pivot high. Given the strength of the resistance-breaking rally from the 1-28 pivot low, we expect the current selloff to hold, likely in the 9480 to 9570 range by mid to late July. Thereafter we look for a retest of the 6-28 high. BP:
We expect the current short-term blip pullback to
hold in the 1.49 to 1.50 range followed by a rally
to test the 7-02 high at 1.5383 cash. Note the curious very short commercials which probably
indicate the rally test is not likely to get much
past 7-02 and will be an important 5-wave top from
the 6-11-01 and 1-25-02 pivot lows. SF:
The
SF has completed a 3-wave sequence on a weekly
basis from the 10-27-00 low and a 5-wave advance
on a daily basis from 7-05-01. We’re now looking for a substantial if volatile selloff of
SF from here, targeting the 6380 to 6480 range
(cash). Note the hugely bearish net short
commercials and falling option volatility. JY: From 6-18 (@ 8046 cash): “…Now the final speculative rally forecast on 5-31 is underway from the 6-12 low…the faltering Nikkei MUST rally soon if JY is to rally…” Note the takeoff in the Nikkei on 6-20! The speculative JY rally did not miss a beat, heading straight up to an intermediate high of 8444 on 6-28. The Yen is now a mixed picture. The mostly likely scenario: a serious short-term selloff to at least the 8000 to 8120 zone followed by an eventual rally to test the 6-28 high. Commercials are very short-term bearish ME:
A super bullseye call from 6-18 (10.343 cash):
“…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…”
The selloff proceeded flawlessly,
nose-diving to hit a low of 9.98 on 6-26!
Now at 10.1025, huge commercial net longs
make this downtrend rally worth playing. At a
minimum we’re targeting the 10.230 to 10.450
range short term (cash). Keep very tight stops as
the selloff from the 4-02 high looks like it needs
one final downleg.
AD: A
great call from 6-18: “…look for a final test
of the 6-07 high, targeting 5750 to 5800 by early
to mid July…The Aussie stock market (EWA
I-shares) is a major AD wildcard...”
Indeed, AD peaked at 5774 on 6-24! Note
the failure of EWA to rally past its 6-06 high in
support of the AD, a telegraph of the 6-24 AD top!
AD now has a short-term bearish triangle
appearance consistent with at least a blip
pullback. The
strength of the rally from both the 9-21-01 and
1-30-02 pivot lows suggests a final re-test of the
6-24 high is still in the cards.
CD: From 6-18: “…
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…” The
likely top came sooner, completing a 5-wave
advance from the 1-18-02 low with the 6-28
reversal bar high at 6651 cash.
While more upside remains on the weekly
chart, the daily chart is likely to retrace to at
least the 6420-6470 zone in the days ahead.
Commercials are hugely bearish. MEATS: Hog heaven. LH:
We’ve
nailed LH for the past month and a half.
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…”
From 6-18 (@ 50.825 July): “… LH bottomed
immediately after 5-31, formed a bullish ascending
triangle, and has rallied to hit 50.825 today.
We believe LH has put in an important
bottom on 5-29…we prefer only long side LH
trades at this point…” Now at 54.975, LH
may be in need of a brief pause.
However, collapsing option volatility and
net long commercials are very bullish. Keep tight stops on longs and if hit, look for long re-entry
opportunities. PB:
From 6-18
(@63.75 Jul): “…A similar [bullish] pattern to
LH…in the process of completing a major low to
the selloff from the Jul ’01 high. Commercials
quite supportive…” Now at 73.32, the
recent rally is further evidence of the major
bottoming formation in LH and PB. GRAINS:
One final rally, but what goes up must come
down. W:
Our bullseye
wheat calls just keep coming.
From 4-26 (272.75 Sep): “…the easy
downside money has been made and the bottom is
near…” From 5-13 (284 Sep): “…an important
bottom…setting up for a substantial rally…”
From 5-31 (288.5 Sep): “…This rally is for
real and the 4-29 low may be a very important
pivot…plenty of upside fuel over the next few
weeks…” From
6-18 (296.25 Sep): “…we expect the rally to
break the 6-14 high (304.5 Sep), and test 307-309
by June 25th or so…”
Now
at 322.75, W has exceeded our expectations in a
straight-up parabolic move. We’re keeping tight
stops on longs at the 7-03 low (316) as a
pullback-respite is overdue.
The strength of the move from the 4-29
pivot low indicates technical likelihood of a
re-test of recent highs after any such pullback. A
final top in the peak-bullish Sep/Oct timeframe
may be expected. Bulls should beware the
commercial sell-off, heading to net short but not
yet at rally-capping levels.
How will we recognize the impending
top?...Look for contango to increase and the
rising option volatility to peak before the top.
S: Beans
exploded with increasing backwardation in late
June, blowing through a potentially bearish head
& shoulders pattern.
The gap on 6-28 is developing an “island
top” appearance and longs should keep very tight
stops, likely at the island low of the 7-03 bar
(511.25 Sep) Due to the litany of bearish issues we itemized in the 5-31
Outlook, this bean rally is truly a surprise. We
view it as a “grain sympathy” rally,
piggy-backing on weather concerns and the wheat
explosion. The strength of the rally points to one
final upside test after any pullback.
We prefer the sidelines until such test
when interesting short opportunities should
present themselves. Near the ultimate top we
should see decreasing backwardation and the high
option volatility should top out. C:
We’ve
been forecasting a solid bottom in Corn for the
last several issues.
The 6-24 breakout above the 5-15 high is
the final confirmation that 5-06 likely formed a
major pivot low. Also, the strength of the
breakout makes one final re-test of the 7-02 high
very likely. That’s the good news for bulls. The
bad news is that the commercials are now massively
net short, option volatility is toppy and the peak
season is behind us.
For C position longs we like a stop at the
7-03 bar low (229 Sep).
After any final upside test in the weeks
ahead, a major grain selloff is expected given the
similarities in the C,S, and W patterns, not to
mention Oats and Rice. RR:
A
good call from 6-18 (@ 4.21 Sep): “…We
continue to watch Rice from the long side…decent
risk-reward with initial stop at the 6-12 bar low
(4.05 basis Sep) with targets to the 6-03 high
(4.98 Sep)…” Now at 4.42, we’re raising
our stop from the 6-12 low to the recent
“shelf” of lows @ 435. Target to take out at
least the 7-02 high (4.47) near-term. SOFTS
/ FIBERS:
CO: We’ve been standing aside
from the CO mixed signals.
Due to the parabolic rally from the June 11
low, stops should follow the trendline connecting
the parabola pivot points on 6-17 and 7-11.
Let this rally go as far as it will, but
exit on ANY crack of this steep trendline support.
SB: A
25 cent call from 6-18 (@ 5.11 Oct):
“...A successful test of major 2002 lows seems
very likely … Targeting: 470-480 (Oct) by mid
July…” SB plunged straight down to break
all 2002 lows and hit 482 (Oct) on 6-21.
The sugar selloff from the Oct ’00 high
is now at or near a major 5-wave bottom. We can
expect volatility in this bottoming season as we
look for long-side setups. Note that right now SB is undergoing position-unwinding as
commercials move to neutral and open interest
collapses. An
uptick in open interest along with rising prices
would be very bullish.
Watch this market closely. OJ:
Our
bullish call on 6-18 (@ 90.50 Sep) received a
straight-up rally to peak at 92.55 on 6-24 but
nowhere near our minimum targets “in the mid
90’s or so”. The top was telegraphed by the
softening Sep/Nov backwardation. We would
generally expect prices to work lower from here
but the 7-03 gap down has us temporarily on the
sidelines. KC:
After a great short-side call on 5-31, we said
the following in the 6-18 Outlook: “…
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…” Note that July/Sep contango softened
decisively starting on 6-21 and Sep/Dec softened
on 6-28, BEFORE the upturn on 7-1!
We’d like to be more bullish on KC but
the awkward “right-sloping H&S” pattern
from the 12-01 continuous low has us on the
sidelines. Commercials moving very constructively
so we’ll be looking for bullish setups in the
weeks ahead. CT:
From 6-18
(44.00 Dec.): “… A bullish ascending triangle
is developing from the Oct low making at least a
short-term breakout of horizontal resistance (near
44.50 basis Dec.) likely…”
Now at 48.89, longs keep extremely tight
stops near the 7-02 bar low (47.00 Dec.) and along
the parabolic upsloping support trendline. If
broken, look for a stop-and-reverse to the short
side with initial stop at the nearby pivot high.
This strategy offers tremendous risk/reward,
perhaps back as far as the May lows (37 Dec.),
given the commercials PLUNGING to net short. LB:
An
easy lay-up trade from the 6-18 Outlook (275 Sep):
“…an interesting blip long-side setup for the
adventurous…” A $3.00 stop held as lumber
rallied straight up to hit 293 on 6-28 and 7-1.
With Sep/Nov backwardation strengthening
and commercials still constructive we still like
the blip upside with close stops at the 7-03 bar
low (278.60 Sep). If stops hit we have a scratch
from the 6-18 trade.
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