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.

  LC: From 6-18 (65.575 basis Aug): “…The current blip rally from the 5-31 pivot low looks to have some moderate upside in the next few days…” Now at 66.825, keep tight stops on longs.  An interesting stop-and-reverse to short situation is developing with a break of the upsloping trendline from the 6-24 and 6-28 lows as the entry trigger (currently at about 65.75 Aug.).


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.


            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.