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(September, 2010) CRB INDEX: As we outlined in the last issue, August was filled with conflict between bearish cycles and friendly seasonal patterns. In real time, the issue resolved in typical mundane fashion as the Index rose to the indicated resistance at 281 and predictably fell away to accomplish a monthly reversal. So, does that turn the trend down? Not in any material way. The upward trend that began in February of 2009 is intact until this Index drops below 247. I see little threat of that happening as we work our way through a bullish seasonal profile over the next three months. There is no monthly cycle for September, but the overall pattern is constructive. If the Index should overcome 281, the path will be clear for an extension up to 293. Indeed, if the market gets that far, the pattern will further project a potential up to the major fifty percent level at 337.
CORN: Seasonal habits have been 180 degrees out of phase over the last three months so it is prudent to not look there for help in deciding where Corn is going for a while. Strike a horizontal line on the weekly chart at the 4.30 level and it immediately becomes apparent that this is a crucial pivot point for the nearest contract and has been since early 2007. It carries all the more weight when you notice it is approaching that price for the fourth time since January of 2009.
As you know, the fourth time at any resistance level usually goes through it. So we start off recognizing that the pattern is potentially quite bullish. After such a long period of time a breakout can reasonably be expected to carry some significant distance. In this case, the obvious target will be the major half way point (back to the top of 7.73 in 2008) at 5.37. Unfortunately, corn will have to navigate through a bearish three up monthly cycle in September. Given that cycle, old resistance at the 4.50 level should be a practical limitation on the near term. A 30 cent correction will not be out of line for the larger bull trend. In fact that will be a decent cue to start watching for an excuse to buy for new rally highs.
SOYBEANS: There has been gradual improvement since February and that means September is the seventh month of advance. Assuming November Beans finish the month above 10.55, it will also be the third month of rally. Although the general tone and trend are friendly, this cycle, bolstered by a negative seasonal bias in September suggests 10.60 is the best we can hope for over the next couple of weeks. Once a correction begins, I see no reason to fear anything deeper than a probe of the half way support at 9.68. Hard to say if it can be achieved prior to expiration, but November Soybeans still have the potential to reach major resistance at 11.82.
SOYBEAN MEAL: September is a distinctly bearish seasonal time for Soybean Meal, but looking at the weekly chart, I see nothing much to support that outlook. The December contract seems destined to exceed the December peak of 303.20 and that will set a new goal of 316. If that higher figure comes into play early in the month, I will give the bearish profile more credence.
SOYBEAN OIL: As expected, December Soybean Oil overcame resistance at 42.00 and the subsequent correction held at the 50 day average, roughly a fifty percent dip. Entirely normal for a larger bull trend. September is a swing month.
WHEAT: The wild ride in Nearby Wheat ended on 8/6/10 and despite the volatility, it didn't quite make it up to the target resistance at 8.86. The severity of the recent drop suggests it has come as close as it is going to get. At most, we may get a test of the August high. For the December contract that means 8.68 is a practical limitation on the upside. In the other direction there is proportional support at 6.70, backed up by the rising fifty day average which will be around the same level in about ten days.
LIVE CATTLE: Nearby Cattle easily exceeded our target for August at 96.90 and is now on a double top with the April peak at 100.20. On the heels of a new high monthly close, it is not clear that price will cause more than a minor correction. There is more important resistance between 104 and 105, but if it is going to make it there it must happen quickly because September is the third month of advance and that makes this market ripe for a bearish surprise. Just like it has been over the last four years. The gist of the situation is that the rally may already be over, or it may have one more surge. Either way, we want to be sensitive to minor sell signals, especially in the second half of the month.
FEEDER CATTLE: Nearby Feeder Cattle seem to be impervious to any selling pressure that comes along. However, this bull trend has now wandered into an arena that has slaughtered five of it's predecessors over the last five years. That arena is anywhere above 116 and that is where we are today. If past is prologue, Nearby Feeder Cattle will be trading below 100 within six months. Time for caution.
LEAN HOGS: The trap door we warned about in the last issue opened wide and gravity did it's job from there. Nearby Hogs have dropped more than 1,400 points so far and it it is not over yet. The presumptive target is the major half way point at 66.60 and it should take many months to get there. September will bring an interruption to that decline. In addition to having a friendly seasonal reputation, the October contract is three and seven up "but" this month. Compelling price support is elusive here so this is more of an invitation to cover short positions than it is to try the long side.
STOCK MARKET: Grudgingly in the last issue, I admitted that the market was acting stronger than expected, but still argued for caution during August. Apparently caution still works. The DJIA retreated nearly 800 points and is now trading below the fifty day average again. The combination of three down weekly timing and a daily chart that is oversold should pull the market back up as we enter September. As you know, September tends to be the weakest month of any given calendar year so the ingredients are here for would-be Bears to have a party. The recent low at 9614 is the only thing in the way of reaching the main fifty percent support at 8864. If the trend stays weak, a logical assumption is for a decline into November when seven down monthly timing will be available just as the bearish seasonal persuasion gives way to a more bullish forecast. At that point, the most bullish segment of the four year presidential cycle also kicks in so I am hoping to have some really oversold choices to buy for a ride into next Spring.
S&P 500: The Cash S&P 500 Index spent a few quiet days above the important half way resistance at 1115, but could not overcome the last rally top at 1131. In that context, it showed a weaker pattern than the Dow. The whole rally effort in July seems like a pyrrhic victory for the Bulls as this Index easily slipped back under the fifty day moving average. As we enter the scary confines of September, it seems doubtful that the July low at 1010 will survive another attack. That being true, the presumed target will be the half way point of 943.
NASDAQ: As I write this, the NASDAQ Composite Index is only 18 points away from a new monthly close and there is still two days left in the month. It probably won't happen but you get my drift. The week ending 9/3/10 is the third week down so any kind of lower close will be a bearish forecast for the month as a whole. Whenever it begins, the next cascade should take this Index down to 1900 which is half way back to last year's extreme low of 1265. Historically, the ten days beyond Labor Day have not been kind the stock market.
BONDS: We expected strength in August and the market delivered in spades. Our parting comment last month was to look for a dip of five to six full points along the way to 141-28. Nearby Bonds are currently in the first significant correction of the month and stand about three and a half points off the top. So we have a little more to go, but at least we will get this out of the way as the new month begins. There is no monthly cycle to guide us, but the seasonal pattern favors higher prices and the trend is up. The market has advanced so quickly that it simply got too far above it's moving averages (proxy for trend) and needs to consolidate for a couple of weeks to allow the two to get reacquainted. Remember, the yearly cycle is bullish (see Trades of the Year Report from January) so there is a positive breeze blowing here. Some have opined that Bonds are in a bubble and should be sold. I don't quibble with the bubble part, but there has to be a reason to make a commitment to the short side and that isn't available yet. Perhaps in November when this market will be seven months up.
GOLD: In a word: Uh-Oh! (A hyphenated word is still one word, isn't it?) Anyway, Gold has taken it's wagon into a box canyon and the Indians are all positioned on high ground. Having just watched a John Wayne movie, I know this is a bad omen for Gold. The bad feeling comes from the observation that September carries the burden of two, bearish monthly cycles. Based on that, the odds are that Nearby Gold will do no better than jab above the recent high at 1266 before reversing into a lower monthly close.
SILVER: Nearby Silver easily held above indicated support at 17.50 and moved higher as expected during August. It is not a definitive bullish statement because it only takes the market up to the top of the trading range. Worse, it has positioned Silver with a bearish seven up monthly cycle about to strike in September. There is enhanced risk for a failure pattern so be very suspicious of apparent strength early in the month.
COPPER: If you are a bull in the stock market you like to see Copper doing well. And vice versa. At the moment, Copper is on the rise, but looking expensive as it enters the third month of advance. In other words, the up trend in Copper is likely to lose that status over the course of the next few weeks. A weekly close under 325 will represent a hard sell signal.
CRUDE OIL: Crude Oil followed our script as it surged ahead in the opening days of August only to tumble into a big monthly reversal. This 1200 point break is enough to put the market below trend lines, moving averages, and a number of other minor support points. Boone Pickens won't like to hear this, but the trend is down and likely headed much lower. Multiple probes of the 69.00 area over the last year means it has been tested too many times to trust anymore. Below that, the immediate target becomes the main half way point at 60.16. A near term rally should be limited to 77.00, give or take.
NATURAL GAS: Bearish monthly timing put a choke hold on Natural Gas on the opening day of August and it continues to squeeze. This market is now at the lowest level since September of 2009 when it bottomed at 2.40. It may go there again, but not this month. The daily chart is really oversold and September is the third month of decline so we could reasonably expect a bounce of 75 cents this month.
U S DOLLAR: In the first place, DXU fell more than fifty percent before starting a rally and that is not a good sign. In the second place, the subsequent recovery has yet to achieve a similar proportional objective of 84.63. And that leads us to the trinity of entering the month of September with the bearish baggage of three down "but" timing. The rally may already be over, but if it sparks a little farther, don't trust it.
SUGAR: I have two observations. Firstly, August is ending better than expected. Secondly, I am unimpressed. For one thing, it failed to reach the major resistance at 21.70 and is showing early signs of rejection as it falls away after exceeding the previous peak at 19.88. With two days left to go, it appears that Nearby Sugar will post a higher monthly close and thereby create a bearish seven down "but" monthly cycle for September. I don't have a reason to be short, but expect to have one before long.
COTTON: Nearby Cotton remained bullish as expected during August and that brings us to a point of concern. This new high monthly close is nothing if not extremely bullish. However, above 87.00 makes this market historically expensive. It has only traded above this level on three occasions over the last 25 years. Each was a brief excursion. More critically, September carries the burden of three and seven up monthly cycles and that greatly enhances the probability of a failure pattern within the next few weeks. The quality of this next dip will tell us if this is to be a major, or minor top.
COCOA: Nearby Cocoa easily responded to negative monthly timing in August and posted the poorest month-end close since June of 2009. A bearish formation to be sure, but it puts the market half way back to the 2008 low at 2688. All that means is that the bear trend should take a rest and allow for a few weeks of counter trend recovery. Something around the 3000 area will look about right.
COFFEE: Nearby Coffee ended it's advance less than 100 points from our long term resistance target of 189.50. Although it had a very sharp two day correction from that area, it is now coming back to challenge that high. Unless something drastic happens in the final two days of August the month will end higher. The significance of that is to create a bearish seven up monthly cycle for September. The rally has been very large over the last few months so there is a lot of room to come down in the weeks ahead. Stay away from the long side.
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