CL: On 7-08 we called the ensuing 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: A bullseye call from 7-08 (@ 67.63 Sep): “…We look for a short-term rally to test the 5-14 high (73.30 basis Sep) in the next week or so…” The rally began AT THE OPEN ON 7-09 to hit 72.04 on 7-17 without a drawdown ! Now note the position-unwinding reflected in plummeting open interest. The net short commercials say the downside is likely to continue for at least a bit. Rising option volatility (which had been falling from the Nov. lows) is more bearishness as is the increasing contango. Keep tight stops on any shorts, however, as the reliably bullish Aug/Sep season lies ahead.

HU: Another great short-term call from 7-08 (@75.64 Sep): “... Most factoids now support a rally to test at least the May 14 high (80.00 Sep) if not April 4 also….” The gasoline rally began THE NEXT DAY, took out 80.00 & hit 82.00 on 7-16! Now, if a short-term top in HU isn’t in, it’s very nearby.  We’re on the sidelines waiting for more clarity in the charts.

NG: The increasing Sep/Oct contango and sleepy option volatility say the downside is likely not yet over. At least a test of the recent 2.79 bottom basis Sep seems likely.  The weekly wave chart has a distinct possibility of a precipitous plunge to test 2.00.  While technically plausible, given that we expect an energy rally in the upcoming Aug/Sep timeframe, such a severe collapse is seasonally unlikely. Shorts should keep tight stops, however, as commercials are moving aggressively net long.

METALS: A mixed picture.  Gold is at the mercy of the dollar right now

GC: The recent collapse of gold has vindicated our 5-31 Outlook comments (@327.50 Aug): “Gold is now the most glaring speculative bubble on the horizon…if you’re long keep the tightest of stops…” Gold peaked 2 trading days later on June 4th @ 330.70! From the 6-18 Outlook (@318.10 Aug): “…6-04 is at least a medium term pivot high…we’re nowhere near a rally point…and…pivot highs are in place…”.  From the 6-19 Wizards: “…Gold remains toppy…”  From 7-08 (@312.50 Aug): “…any FX-driven GC rally is unlikely to challenge the 6-04 high (330.70)…” Indeed, GC launched a failed blip rally the next day, peaking out at 326.10 on 7-22 (well under the 6-04 high) before continuing it’s selloff hitting 300.50 on 7-26!  Gold and the dollar remain inter-twined as shown in the Gold top and DX bottom on July 19th!  Now, commercials remain bearishly net short, limiting the upside in any rally which is likely to be only FX-driven. We don’t expect the next big move to the upside to take place until later in the year in the more bullish Nov-Dec-Jan timeframe. In the meantime, shorts should keep very tight stops to protect profits as gold has fallen a long ways and at least a brief snap-back is likely. If stopped out, move to the sidelines.

SI: We caught the silver top perfectly in our 5-31 Outlook: “…longs should keep super-tight stops and look for short entries…the upsloping trendline from the 5-14 and 5-23 lows is an excellent low-risk entry trigger if broken…”  From the 7-08 Outlook: (@4.98 Sep): “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 (5.17 basis Sep) is probable and a bullish trade with stops at the 7-1 low (4.80 Sep) makes some sense...” The rally to test 6-04 began with the 7-09 open and peaked at 515.50 on 7-15.  Thereafter, the super-bearish commercial position we’ve cited took over.  Amidst crashing GC and a rising dollar, when the Silver plunge on 7-23 took out the 7-17 pivot low, traders had a clear short entry signal.  At this point, while a snap-back rally can be expected, commercials remain massively bearish and we’re nowhere near the bullish Jan/Feb season. Shorts should keep the tightest of stops. If stopped out, move to the sidelines and wait for clarity on the chart to present short re-entry opportunities. Rallies here are likely to be only “back and fill” sucker blips.

HG: A HUGE HOME-RUN CALL from 7-08 (@76.20 basis Sep): “…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)…” The swan-dive selloff began on 7-10, hitting 67.95 on 7-24!! Any reasonable position-trading series of stops would have shorts still in the trade on 7-26.  After being hugely short at the June top, commercials are now moving aggressively to net long.  To hold profits we like current stops just above the high of the 7-24 engulfing bar (70.20) and the 7-22 close (70.25) at, say 70.30. If hit, we prefer to move to the sidelines.

PA: From 7-08: “… 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…” Now at 334.45 (Sep), we’d keep very tight stops on any longs. None of the major PA stocks (PAL particularly) have yet to show signs of pulling out of the tailspin and PA has yet to complete a 5-wave downmove from it’s Jan ’01 highs. We’d like to see it seriously test the Nov ’01 low before getting bullish.

PL:  Commercials are moving constructively to net long. And moderate Oct/Jan backwardation is positive. Short-term however, the chart generally looks like at least moderate additional downside and none of the important platinum company stocks (AAPTY, IMPAY, LNMIY, PAL, and SWC) look positive at this point. We’re on the sidelines.

BONDS/ NOTES/ STOCKS:   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…”  From 7-08, however, we looked for a re-test of the bond highs: “…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…”  Now the looming big question is how 3 major seasonal events may shape up: 1) energy strength likely in Aug/Sep  2) the interest rate blips that often accompany #1 and 3) stock weakness in Sept/Oct. Stay tuned.

TY:  A huge double-bullseye bond and stock call from 7-08 (@107-130 Sep): “…after July 10th, 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 in the next few days. Ultimate upside targets currently are at 109-150 to 109-270 by mid to late July…” Now at 111-015, the break above 107-145 on 7-09 was an ideal long entry stop as the TY rally began in earnest as predicted on 7-10!  The 107-145 entry had virtually no drawdown as the 7-10 low held at 107-245 and didn’t look back, rallying through our targets to hit 111-305 on 7-24!  Also as predicted “…note the bearish implications for US stocks over the same timeperiod…” as the SPX crashed from 920.47 on 7-10 to hit 775.68 on 7-24!  Currently, a short-term wave-e type top is likely in as of 7-24. Also note te softening Sep/Dec backwardation.  However, we expect any pullback here to last only a week or so and hold above the latticework of support in the 106-200 to 108-250 range. Thereafter, we expect a rally to test the 7-24 high before this move is over. Note the commercial position which remains supportively net long and the bullish steepening yield curve, which we’ve predicted since January. Also bullish is the option volatility which continues to expand from the early April price lows and the relative strength of the TY over the Schatz and Bund. Lastly, if bonds look like there’s more upside, we’d expect stocks to fall during that bond rally.  Indeed that is our outlook for the U.S. indices (although many stocks will likely not take out their 7-24 lows we expect the averages will).

TU, FV: Now that FV and TU have taken out their Nov ’01 highs, it’s time to tighten up stops on longs. While we would expect a final thrust to the upside after any pullback here (along with the longer end of the curve), the 2 & 5 year commercials are not as constructive as the 10 & 30 years.  We take this as an EARLY sign of a final top that may be several points away. Rising option volatility remains short-term bullish as does the steepening yield curve and the strength of the TY over the Schatz & Bund. We’d expect volatility to peak and the curve to flatten before the tops in FV and TU are in.

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.


LC: The increasing Aug/Oct and Oct/Dec contango has us favoring the short side of LC. The 7-22 pivot highs provide obvious stops for short side entries. Commercials are MASSIVELY net short and theres no bullish seasonality in sight. Excellent 3 to 1 risk / reward, with an outside shot to test the April 25 low (59.75 basis Aug).

LH: Commercials are not yet sufficiently short to cap the rally from the 5-29 low. Now at 50.80 (Aug), we look for a near-term test of the 7-16 high (52.65 Aug) with targets to 53.250 plus by early Aug. Keep tight stops on longs given the rising commercial shorts and the collapsing Oct/Dec backwardation.

PB: We expect at least a test of the 7-22 high in the next 1 to 2 weeks. This is a particularly low-risk trade given the uptick in LH over the past few days.  Hogs have led PB in every rally since their May/June bottoms.

GRAINS:  From 7-08: “…One final rally, but what goes up must come down…”

W: We’ve been on top of the wheat rally from the 4-26 Outlook on.   On 7-08 (@317.25 Sep), we wrote: “…one final rally…We’re keeping tight stops on longs at the 7-03 low (316) … The strength of the move from the 4-29 pivot low indicates technical likelihood of a re-test of recent highs …”.  Well, our stop held perfectly and we got a lot more than we expected as wheat exploded to hit 343 on 7-22!  Now at 335, keep very tight stops (326-330 range) on longs given the increasing Dec/Mar contango and the MASSIVE commercial net shorts. Note also the toppy-looking option volatility. For every other reason, wheat looks like a super-interesting short setup here. However, the wave count from the April 29th low and the strength of this rally would have us on the sidelines if our stops are hit.  Moves with as much strength as wheat has shown from late April have a VERY high probability of re-testing their recent pivots, in this case the 7-22 high.

            S: From 7-08 (@ 522 Sep): “…longs should keep very tight stops at the island low of the 7-03 bar (511.25 Sep) …” Our stop held perfectly and beans rallied to hit an island bar high of 575 on 7-22!  The violation of the simple up-sloping trendline from the 6-20, 7-11, and 7-23 lows established a very manageable stop in the 544 area on the 7-25 open to the downside.  Given the wave count, the move strength from the June lows, and the Aug/Sep and Sep/Nov backwardation, we expect a final sucker rally in beans.  We prefer to be patient and sit on the sidelines, looking for a short opportunity, however. Note the off-the-charts commercial net shorts and toppy option volatility. The top is coming, it’s just a question of when.

C: From 7-08 Outlook: (@229.25 Sep): “…one final re-test of the 7-02 high is very likely…” Now at 243, corn broke the 7-02 high and hit 250 on 7-24. Corn is now almost a mirror of beans. While we expect a re-test of the 7-24 high, we prefer to wait for a short setup.