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BISHOP’S
MARKET
OUTLOOK, 7-28-02 ENERGY:
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. MEATS: 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.
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