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MARKET TIMING
(January, 2001) CRB INDEX: During December, we were expecting to see a test of the old top around 234, followed by a decline of 500 points, or more. The cash index came within 60 points of the objective and the correction is currently pushing 800 points. Bearish seasonal pressures we spoke of in the last issue have now been dissipated and there is no real influence from that sector in the period just ahead. The rising ten-week moving average at 227 and the fifty percent level at 226 provide a good zone of support. Just in case we get an extra splash of selling, the rising 200 day moving average provides a backstop at 222. If the last day of December finishes below 229, it will generate a bullish monthly cycle for January. Stay friendly.
CORN: As we predicted, the bull trend in March corn has been held in check during the first half of December by seasonal pressures. Beyond the middle of December that seasonal tendency reverts to a neutral to friendly attitude. Potentially, the last week of December will be the seventh week of decline and therefore a time to watch for the resurrection of a bull trend. As long as CH stays above 2.11 we have a right to keep a friendly attitude. The current pattern resembles a bull flag formation and that amounts to a prediction for a bullish breakout. In my opinion, that breakout (and universal invitation to buy) will occur on a strong close above 2.20. When that happens, plan for an extended run up to the main half way point of 2.39.
OATS: March oats are seven months down in December and showing no sincerity in producing a positive reversal. Other than an occasional 10 to 12 cents bounce, the pattern stays uniformly bearish. Each time we get a new front month it tends to dwindle down to (or slightly below) the 1.00 level. After it expires, the process begins again.
SOYBEANS: Although the pattern remains constructive, forward progress has slowed to a crawl. As a consequence, January soybeans have yet to challenge the expected resistance around 5.25. The optimistic explanation for this that we have a bull trend being held in check by a bearish monthly cycle (3 down "but") during December. As soon as that cyclical pressure is released, soybeans should pop. To be fair, the 200-day moving average (at 5.14) has done a good job of containing the advance. If I could write the script from here it will allow March beans to drop into a correction phase that takes it to the fifty percent support at 4.97. As it happens, the rising ten week moving average is currently hovering at the same level. The first half of January tends to be a rally period, so if SH is on a dip as the year ends, especially around the above mentioned price support, plan to jump on any reason the daily chart gives you to buy.
SOYBEAN MEAL: Nearby soybean meal easily surpassed old resistance at 189 and did so in the third month of advance. Confirmation of that bullish behavior comes in the observation that these new high prices are not being rejected. Soybean meal has a lot of room to come down without harming the perception of a larger bull trend. Instead, it has been moving sideways for several weeks in joyful acceptance of these higher prices. Theoretically, March meal is entitled to correct half the distance of the previous advance. Doing so will place SMH at 175.70 and any correction that stays above that will be a sign of power. Above 190, the next target is 198 and at this point, I have to believe that the major fifty percent resistance at 214.50 is fair game.
SOYBEAN OIL: New lows in late November were immediately rejected so the bears in soybean oil are temporarily on the defensive. However, until March oil places a solid close above 16.00, I see no reason to be overly optimistic. If that happens, we could see BOH rise to the 18.00 area.
WHEAT: As expected, the price action during December has allowed wheat to gently slope lower and now the March contract is staring at a double bottom at the contract low. The good news here is that January will come to us with the positive promise of three down monthly timing as long as WH finishes this month below 2.73. That means we have the potential for a failure pattern and rejection of new lows. Long term, confirmation of a new bull trend requires a strong close above 2.80 and that looks a bit optimistic at the moment.
LIVE CATTLE: Our plan was to watch for a reason to buy February cattle around 73.00 in order to participate in a strong seasonal tendency to advance during December. The market dropped more than 200 points, but missed our target support by 75 points. However, the bullish seasonal pattern wasted no time in launching a new leg up. As it runs to new highs, the first target is 78.00 and LCG is presently knocking on that door. Presumably, that plus three up monthly timing will cause a downward correction in the second half of December. A multi-week correction down to 74.00 is possible, but not necessary. If the bull trend stays dynamic, a spike up to 82.00 is possible. That higher price may seem optimistic, but the seasonal trend is very bullish over the next 90 days so it is best to avoid thoughts of trying to find a top.
FEEDER CATTLE: Almost on a month by month basis, the tone and trend in feeder cattle has been stronger than live cattle since the bull market began in 1996. In that sense, it has been a reliable leading indicator for fat cattle. As we outlined in the last issue, feeders are now on a huge ten-year-wide double top at 91.00. It is a perfect set up for a failure pattern so the next weekly reversal could be the start of a surprisingly large correction. There is no guarantee that feeders will provide a leading indication of the next bear trend in Live cattle, but it bears watching.
LEAN HOGS: February hogs continue to follow our outline. The script called for LHG to reach 59.50 and then slip into a 400-point correction. The market splashed above that resistance one day and then it turned into rejection and a bearish reversal day. At the moment, the correction has traveled 227 points and has the potential to reach 56.00 within the context of a possible three week correction. At that point, the bull trend should resume with an ultimate objective of 63.50. That higher figure is half way back to the April rally top on the monthly nearby chart. At that point, we will take another look.
PORK BELLIES: As predicted, February pork bellies plowed through old resistance at 68.00 and that amounts to a bullish breakout on the weekly chart. Generally, the first correction back should hold in the 65.00 to 64.00 range. Assuming that is true, the next leg up will strive for 79.00, which is a major fifty percent resistance point.
S&P 500: December is usually a happy, bullish time for the stock market and that habit was to be enhanced this year by a three down monthly cycle and a small double bottom with the October low. Instead, the cash S&P 500 index is lower on the month as I write this. In fact, it just posted the lowest close of the year and is trading below all the pertinent moving averages, including the big Kahuna, the 200-day average. I don't know why, but this reminds me of the GM ads a few years back that told us "This is not your father's Oldsmobile." Now they tell us there will soon be no such thing as an Oldsmobile. Well, this is not your father's bull market anymore either. It used to go up with little, or no reason and now it struggles to find traction. There were only three positive months during the year 2000 and one of those (June) was too small to matter. This will be a yearly reversal and those are rare events. If this were a daily chart, we would shrug our shoulders and say this will probably lead to a three day dip as a minimum. In other words, after years of excess, a three year correction is a logical extension of this bearish behavior. There is no monthly cycle to consider in January, but of course, the seasonal pattern remains friendly. The next reliable price support comes into play at 1234 which is the October, 1999 low. As a coincidence (truly, are these things ever a coincidence?), 1234 also approximates a fifty percent return to the 1998 low.
DOW JONES INDUSTRIAL AVERAGE: The DJIA is stronger by comparison, but that has to come under the heading of faint praise. More and more, the evolving pattern of the last 20 months has the profile of a huge head of distribution. The monthly chart shows there have been three major assaults on the 10,000 level during this period. The last two times, the market jabbed briefly below that mark and then came steaming back. This being the fourth trip, I suspect the odds are more in favor of the Dow staying below 10,000 if they break it again in the weeks ahead. A monthly close above 11,400 is needed to put this chart back into a bullish posture and the possibility of that happening are slim and none.
NASDAQ COMPOSITE INDEX: The NASDAQ Composite Index ambled past the proportional support at 2727 and it is not clear they are all through. January is a swing month so the closing direction will give us a big clue about rally potential. Right now, it looks as though 3000 will provide a ceiling for any near-term bounce.
U.S. TREASURY BONDS: Let's see, I was either out-foxed, or out-maneuvered during December. Embarrassed also comes to mind. Cyclical and seasonal indications were aligned to promote a bearish reversal and it is unusual for any market to completely ignore such influences. Currently, March bonds are two full points higher on the month, so a monthly reversal is not impossible, but unlikely. In failing to reverse, the market is telling us that it wants to test the 1998 rally top of 111-21. I see nothing to predict a downturn in January, but at this stage, a three to four point dip will not change the larger bull trend. There is a seasonal tendency for bonds to decline in the first two weeks of January, so that is a logical time to expect such a correction. It may start sooner because the last week of the year is potentially the seventh week of advance.
GOLD: Counter trend rallies in gold tend to be in the realm of $10 to $15, up from any given low. And just to pander to excitable traders, there is usually one, or more days that are sharply higher so as to make it look like a real change in trend. The most recent effort has two big rally days and the whole effort took February gold about $12 off the bottom. The trend has since turned down again and the target remains $250.
SILVER: New lows were easily made during December and that is the nature of the beast. Very few months went by this past year without a new low being made by silver and that tells you everything you need to know. Some day the trend will change, but until we see concrete evidence of that, the assumption is that Nearby silver will continue to work it's way down to 4.00.
COPPER: Our expectation was for December to bring a rally of 500 points, or more. It was definitely more! March copper charged right past all the relevant moving averages as well as the fifty percent level at 88.10. As a rule of thumb, when a market exceeds the fifty percent level, we can assume it will continue back to the high from which you measured. In this case, that means March copper will soon be testing the April peak at 93.90. The market will look especially healthy if it can stay above 86.00 on the current dip.
ENERGY COMPLEX: As predicted, crude oil failed to make a new high in December and instead, embarked on a multi-month correction. It is currently wrestling with the 200-day moving average at 28.00, but the total effort may reach 24.00 before this is over. That lower figure is half way back to the 1998 extreme low and will provide a strong floor of support. Near term, the next rally will be limited to 31.00, or lower.
SWISS FRANC: There has been a definite change in character here! The March franc has now pushed above the ten-week moving average (which is now on the rise), as well as the last rally top, prior to the final low. A multi-year down trend line has also been violated and the rally is not showing any signs of slowing down. Major resistance points to watch are 62.00, which is the last rally top on the monthly chart; 65.00 because there are many old bottoms dating back to 1991; and finally, 67.00 because that approximates a fifty percent recovery to the 1998 rally top. With those points in mind, a multi-day dip in excess of 200 points will offer the safest entry for new buying.
SUGAR: We were correct in assuming that the fifty percent resistance at 10.03 would cause the rally to stall and bring a downward bias to December. Ultimately, the pattern remains bullish because January will be the third month of decline and that calls for a bullish reversal. It is important for SUH to finish the month of December below 9.75 in order to assure the bullish perspective for January. The last reaction low at 8.67 will provide necessary price support and the rising 200-day moving average is currently at 8.80. Watch for reasons and places to buy.
COTTON: The minor double top at 68.70 was enough to force March cotton to drop into a corrective phase during December. Our estimate was for this correction to find support at either 66.00, or possibly down at 64.00. So far, COTH has split the difference and is trading around 65.00 as it enters the third week of decline. The overall pattern is friendly, although it should be noted that the second half of January usually brings a hard down draft. If we get that again this time, it should be thought of as another buying opportunity.
COCOA: The bear trend appears to be coming to a grinding halt and the monthly chart is in a huge oversold condition. If March cocoa finishes the month of December below 729 it will preserve a bullish seven down monthly cycle for January. That being true, we want to be watching for an excuse to buy as the new year begins.
January, 2001 Fourth Time, Inc. P.O. Box 17468, Milwaukee, Wisconsin 414-351-1992
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