CRB:  Up from 195 at the April low to 225 (cash) today, this 15% inflation-sensitive rally is bound to pressure interest rates, consistent with at least a short-term top in Bonds which we are forecasting for other reasons (see Bonds).  Prior to the two spike-up days of 9-05 and 9-06, the CRB was perfectly poised to cap its rally from the October major bottom with a classic wave 5 top.  Given the strength of those past two days, however, the likelihood has increased that we will see a re-test of the highs after any short-term CRB pullback.  Such re-test may target the 2000 highs in the 230-235 range. The fact that much of this CRB surge is grain and energy-driven dampens this outlook slightly as many grain contracts are now extremely toppy.  We find the inter-market picture believable: a strong CRB rally caps the Bond rally short-term, Bonds selloff, the CRB subsides, Bonds then setup for a final rally in late Sept/Oct, accompanied by a final stock plunge. The then-softening interest rates in turn eventually stimulate stocks heading into seasonally-strong Dec/Jan and the upward re-test in the CRB ensues.  This is a crude summary of our Fall / Early winter outlook.

ENERGY:  Crude and distillates are very toppy in this peak season.  An energy selloff would take short-term pressure off the CRB as well.

CL: Technically we may have one further upside pop but position traders should keep very tight trailing stops above the support line connecting the Aug & Sep low pivot points.  This stop is now at 28.50 and rising.  Declining backwardation since mid-Aug says a top is likely.  Also note the rising net commercial short position as crude peaks in seasonally toppy Aug/Sep.  As a sign of the top, look for the sleepy option volatility to turn up first.

HO: HO is peaking in seasonally toppy Aug / Sep as commercials are building a huge net short position ahead of bearish Nov / Dec / Jan.  By taking out the Mar / Apr highs, HO is completing a wave 5 move from the Dec. ’01 low.  Longs should keep the tightest of stops. Nice short setups will have great risk/ reward here.  Another negative: option volatility, which has declined from the Dec. price lows, definitely looks to have bottomed. We would expect any HO selloff to be characterized by rising volatility.

HU: Gasoline is technically putting in a wave 5 top early in the peak Sep / Oct season. Commercials are mildly net short and option volatility is on the floor.  Meanwhile backwardation is softening. These are all early-top warning signs.  Keep extremely tight stops on any longs.  Note: a decline in energies would be consistent with a top in the CRB, a final upside pop in bonds, and a final stock selloff, all of which we are expecting for independent reasons in the late Sept/ Oct timeframe.

NG: Commercials who were net long at the recent Aug. bottom now are moving aggressively to net short and approaching rally-capping levels. Nonetheless, we like the short-term upside prospects for NG to takeout its 8-27 (3.7070 basis Oct) high and target May’s “sideways box channel high” in the 3.82 to 4.00 range by late Sept

METALS:  A mixed situation.

GC: Short-term, should our forecast for rallying forex hold, we would look for GC to rally also, aiming for technical targets between the Jun 4th high (332.60 Dec.) and 340+ by late Oct.  Note also the promising ascending triangle developing since the Aug. 1st low.  Gold has recently been flat or declining vs. most global forex, confirming that this year’s gold action remains primarily fx-driven rather than being based on any supply / demand issues.  Also note the flat contango and cresting option volatility, further evidence that GC is at the mercy of the currency markets right now.

SI:  Commercials that were hugely short at the silver top in July are approaching but not quite at levels consistent with prior bottoming / rallying points.  Option volatility is also not yet at an extreme.  Our best chart interpretation is for a downside test of the 8/23 close (441.50 cash), targeting 436 by late Sept.  Thereafter, commercials may be sufficiently net long to launch a tradable rally into seasonally strong Jan / Feb.  SI is still plummeting in all forex, a sign of no supply / demand pressure.  Increasing contango most likely also points to near-term softness, consistent with a test of the 8-23 cash low.

HG: By testing its 8-05 low, HG is setting up for at least a blip rally.  Shorts should keep extremely tight stops below 69.75 and look to stop and reverse to long if hit.  The very net long commercials indicate this rally is at least tradable and may turn out to be a major bottom.  The post-peak declining option volatility and the Sept / Oct bottoming season are two other positives longer-term.  Note also copper stock PD approaching a plausible rally point in an otherwise somewhat murky pattern.

PA: We’re standing aside, waiting for greater chart clarity. See platinum comments.

PL:  Technically a favorite short to test the 7-23 low (509.90 basis Oct), targeting 505.  The still net-short commercial position confirms this view while option volatility is unclear and increasing backwardation is contrarily bullish.  Regarding platinum companies: AAPTY looks like a downside test of its 8-05 low.  Ditto for IMPAY likely to test its 8-01 low.  SWC looks close to bottoming while LNMIY and PAL are unclear.  PL bulls should wait for AAPTY and IMPAY to improve.

BONDS/ NOTES:   While we expect a short-term selloff, a final rally in late Sept / Oct is still our favored outlook. As a new development, the commercial bond market behavior may be revealing early signs of yield curve flattening.  Note that the most bearish commercial positions are now at the front end of the curve!!  While 30/10 is still steepening, the 10/2 has been flat since peaking out in early August.  We’ve correctly forecast a steepening yield curve since our 1-05-02 Cornerstone presentation.  Now it looks like this trend may be reversing.  A gradual flattening would be consistent with IMPROVING economic conditions, an increasing real demand for credit, and upward pressures on interest rates.  More than one indicator is necessary to confirm this but it’s an intriguing development.

US: The current wave 3 rally from the 3-15 bottom is very close to a short-term top.  In fact, we view 9-05 as a plausible short-term pivot high.  From this forecast top we look for a counter-trend pullback into mid-Sept., likely to hold above 106 (basis Dec.) and set up for a final upside test in late Sept / early Oct.  The commercial net short position is currently very consistent with a short-term top as are the cresting option volatility and easing backwardation.

TY:  Our US comments apply also to TY.  Assuming 9-05 put in a short-term wave 3 top, we expect a counter-trend pullback into late Sept. which is likely to hold above 108. Thereafter we would look for a final blow-off rally in Oct.  Commercials are currently at levels consistent with prior selloffs.  Declining Sep/ Dec backwardation and cresting option volatility also support this view.

TU, FV:  Extremely toppy short-term.  Commercials are very net short and option volatility is peaking.  We also view 9-05 as a likely wave 3 top in FV.  If so, look for a serious pullback followed by a topside retest along with TY and US as described above. 

STOCKS:  All the indices look destined to test their July / Aug lows in the weeks ahead.  While the blue chips (SP500, OEX, Dow) appear most able to hold their lows, the broader and smaller-cap indices (OTC, NDX100, RU2000, and Value Line) look quite vulnerable.  Such a re-test would be consistent with re-tests on the high side in bonds and many currencies.  In fact our technical outlooks for the U.S. dollar, the CRB, U.S. notes and bonds, energy, and forex are all consistent with a selloff in U.S. stock indices bottoming in late September or more likely, mid October.

The declining Nikkei is a huge issue at this point.  Prior to 9-11-01, the outlook for the Japanese economy and stock market was the primary concern of global finance.  The Nikkei hitting new lows recently indicates: 1) No bottom in sight for the Japan economy and  2) A weaker-than-anticipated global economy.  Contrarians see the new Nikkei low as the first step in putting in an important bottom.  Also note that the premium in the Japanese WEBS (EWJ) has held up and kept that issue above its low set in February along with the bottom in the Yen which also holds comfortably today.  It’s entirely plausible that we have bottoms in the currency and the ETF premium before the final bottom in the Nikkei.  Regardless, the Nikkei turned sharply down on 8-15, leading the 8-22/ 23 tops in most U.S. indices by a week.  Similarly, we’ll look for it to bottom BEFORE U.S. stocks.

OTC/ NDX: With the NDX (Nasdaq 100) at 922.22 cash, we expect a selloff to test the 9-05 low targeting 855-875 by week’s end.  After any ensuing blip rallies we see a final major bottom being put in during seasonally bearish late Sept / Oct in the 750 – 810 zone.  The 8-05 low (856.35 cash) is likely to be taken out at this point.  Note the recent huge blip in open interest with commercials net short and predictive of lower prices.  The increasing contango is also short-term bearish.  We see a similar short-term selloff as likely for the OTC composite also.  We’re targeting 1220 very short term and 1090 to 1140 by early to mid Oct.

SPX/ OEX: The 7-24 SPX (SP 500) cash low (775.68) is likely to be tested in the weeks ahead but looks more likely to hold than the 8-05 OTC and NDX lows.  Ditto for the OEX (SP 100) which looks slightly stronger yet than the SPX.  SP commercials are moving to constructive net long levels and option volatility is subsiding somewhat after peaking at the 7-24 price low.

DOW: Somewhat less than 50-50 odds of taking out the 7-24 low (7532.66 cash).

RUT:  The Russell 2000 has somewhat greater than 50-50 odds to takeout the 7-24 low (354.11 cash) and target 335-340 by mid October.

VALUE LINE:  This important broad and un-weighted index appears likely to re-test and even money to take out it’s 7-24 low (905.45 cash).  If 7-24 fails to hold, we are targeting down to the 845-870 area by mid October.

DOW TRANS: Slightly better than 50-50 odds that the 7-24 low (2090) will hold. If not, we’re targeting 1980-2030 by mid October.

DOW UTILS: Our best guess is a break below 200 to re-test the 7-24 low (186.49 cash).

FOREX:  The U.S. dollar is likely to continue its selloff and challenge recent lows.

DX:  After making a wave 3 technical bottom on 7-19, the dollar index made a picture perfect rally to fail just under the historically important 110 area.  The selloff from the 8-06 high looks distinctly 5-wave and destined to take out the 7-19 low.  Now at 106.94 (basis Sep), we’re targeting the lower 102 area before this move is over.  Note also the slight uptick in contango which had softened somewhat during the blip rally from 7-19.  The bottom re-test hypothesis for the DX is also consistent with high re-tests in numerous other currencies as described below.

Euro: A favorite long-side setup.  Position traders have stops above .9800 cash.  Now at .9932, we’re targeting a takeout of the 7-19 high (1.0156) to hit 1.0250 – 1.039 by early Oct. We see this move as part of the “fall re-testing trio”: a topside test in FX & US bonds and a downside re-test of U.S. stock indices.   

BP: A ditto of EC & SF.  Now at 1.5678 cash, we expect on-going upside to test the 7-25 high (1.5811) and target 1.5900 to 1.6100 by early to mid Oct.

SF:  On a likely final rally in the uptrend from the July ’01 and Jan ’02 lows.  Long position traders have stops currently near 6690 cash.  Short-term we’re targeting a takeout of the July 19 high, to hit 7020 to 7120 by mid Oct.  The technical wave counts, net short commercial position, and increasing contango all reflect toppiness. 

JY: Commercials are supportive only of an upside blip from here.  If JY re-tests its 7-19 high (.8660 cash), commercials are likely to move to net short extremes and set up for a substantial selloff into Nov / Dec.  Option volatility has likely not yet peaked and is also consistent with a 7-19 retest.  On the other hand, the increasing contango, which bottomed in mid-August, is an early sign of approaching toppiness.

ME: The peso is likely very close to a tradable rallying point.  Note the 5-wave completion from the 4-02 high and the substantial net long commercial position.  Shorts should keep extremely tight stops and look to reverse and go long if hit.

AD: The AD looks least likely of the major FX to re-test its high. Weak technicals and supportive commercials contribute to a mixed picture. We’re standing aside & watching for a more definitive pattern to develop.

CD: Reasonably likely to re-test at least the 8-05 lows near-term.  This would be consistent with a weakening DX (vs. JY and European FX) over the same period.

GRAINS: A near-term top in grain prices is consistent with a pullback in the CRB which would help set the stage for a final bond rally in late Sept/Oct.

W: Massively net short commercials are a clear warning that the wheat parabola has reached short-term blowoff peak levels.  Long position traders should keep the tightest of trailing stops at 384 or higher (basis Dec) to lock in profits.  After any pullback, however, wheat may attempt a final re-test as Sept / Oct is often a seasonal peak and the current parabola looks more like an intermediate wave 3 move than a final wave 5 rally.   As clues to an impending top, watch option volatility and contango closely.  Volatility is likely to turn down and contango increase just prior to the top.

S/ SM/ BO: Beans stand a slightly better than 50-50 chance of taking out the 8-15 high (579.50 basis Nov.), targeting 590-595 by late Sept.  However, S is becoming toppy to the extreme. Position longs should keep tight stops above 544 and look to reverse and go short if hit.  The peak May / June season is well past and reliably bearish Nov / Dec lies ahead.  The deeply net short commercial position and backwardation declining from the mid-Aug highs are further signs of toppiness.  Meal, like Beans, may be on a final rally to test its 8-15 high, but Dec. BO appears to have peaked on 8-15.

C: Corn is technically on it’s final blip wave 5 rally to take out the 8-15 wave 3 high (288.5 Dec), targeting 292 – 296 by late Sept.  However, this picture is an awesome bearish setup.  Seasonally weak Sept / Oct lie just ahead and commercials are moving to 3 year record net short levels.  Option volatility has crested and contango has flattened from mid-August after softening during the rally from the May lows.  Position longs should keep the tightest of stops above 274 and look to stop and reverse to short if taken out.

RR:  While rice may be approaching a short-term rallying point, such a rally is probably better viewed as a short re-entry setup.  Longer-term we expect somewhat lower lows, targeting 3.450 – 3.500 (basis Nov), in the area of the Nov. 01, Mar 02, and May 02 lows.


LC: An erratic chart with mixed factoids. Short-term our best guess is a blip to take out the 8-09 high (69.15 Oct), targeting 70.00 by late Sept.  Option volatility continues to decline after peaking at the 4-25 price bottom and also supports the short-term blip thesis.  But increasing contango and super-short commercials warn to keep very tight stops on any longs and reverse to short if hit.  The bearish Oct / Nov season lies ahead.

LH: Now at 33.70 (Oct), while we expect a short-term advance to the 37.00 area, it’s likely only a sucker rally in an on-going downtrend.  We expect LH to eventually take out the 9-03 low (29.40) before this selloff is over.  Look for a short-side setup to present itself should the current blip rally follow through for a few more days.


CO: Mixed factoids.  We’re standing aside.  Position longs should adjust trailing stops to the low of the 9-03 bar (19.25 Dec.).

SB: As of it’s June 21st lows, sugar likely made a major bottom in the selloff from the Oct ’00 and Jan ’02 highs.  The satisfactory wave-5 bottom was put in during the Jul / Aug bearish season and has since formed the right shoulder of a near-textbook H&S bottom.  Also note the increasing backwardation.  However, net buying has shifted to speculative hands now as the commercials head to 2-year net short levels likely to cap this rally very soon.  Longs keep very tight stops.  Given the long-term bullish pattern, we’d move to the sidelines and look for long-side re-entry setups if our stops are hit.

OJ: Longer-term, further downside is likely as OJ heads into the bearish Dec / Jan timeperiod.  A major top was likely put in at the Aug 13 high.  Option volatility is expanding with the selloff and commercials are still at net short levels, both bearish signs.

KC: Now at 57.55 (basis Dec), coffee looks destined to test the Apr highs (64.15) over the next month or so.  We would expect a bit of backing and filling in the next few days before a resumption of this uptrend.  Commercials are moving off net long positions but are still at levels consistent with rising prices. After bottoming with price in the seasonally weak Jun / Jul timeframe, rising option volatility is also supportive.  Lastly note the bullish softening contango

CT: Commercials are coming off the net short extremes reached at the July high but are still at bearish levels.  Resuming contango is also short-term bearish as is option volatility, still falling from the June price and volatility highs.  Cotton is at an interesting VITAL support area in the 45 zone.  This level has seen no less than 9 key highs and lows in the past 12 months.  Which way CT breaks from here will be predictive of the ensuing 4-6 weeks of price action.  For CT to maintain a plausible final W5 rallying opportunity, the 8-27 wave 4 hypothetical pivot low (44.35 Dec) must hold.  All-in-all, a breakdown to the 40 area is distinctly possible.  Given the plausible dual chart interpretations, the current setup offers an interesting “either way breakout” type setup.

LB:  Position shorts have tight stops just over 235 basis Nov and should look to reverse and enter long if hit, given the very high commercial net long levels.  However, increasing contango and sleepy option volatility say that the rally may only be counter-trend with further downside re-tests during this bottoming season still probable.