Metals

DECEMBER GOLD: Gold has a good chance to move higher into the June 23-25 time window. The June 5th cycle low is likely to hold and prices and likely to move higher this month. Monthly cycles suggest that such a rally would be a minor "blip" and that the downtrend could resume from the first week of July. But we are more inclined to expect higher prices into October when the 44- and 16-month cycle highs peak. Some mixed data in our cycle work allows for the possibility that gold will collapse with stocks in July and August as it did when stocks fell in March. But even though the 13- and 24-month cycle lows support that scenario, we are skeptical that such a collapse will occur.

Fundamentally, when gold is adjusted for inflation, its value is equal to the historical low of $103 reached in 1976. Moreover, gold investment continues to be undermined by low inflation and more lucrative alternative investments.

Jewelry demand, which accounts for 80% of gold demand, does not appear to offer much support either. Gold analyst Tony Warwick- Ching estimates that although jewelry demand may rise at an annual percentage rate of 3.5-4.5, increased supplies from mining production will likely offset that increase. The only bullish fundamental factor that could push gold prices beyond 355-360 is serious inflation in the oil sector and we do not see that as a serious factor until late fall.

Bottom Line--We see good reasons to cover shorts and consider light longs into at least late June, looking for a rally to the 357-363 region basis August and 368-370 basis December. We will evaluate other sectors before issuing a summer sell signal in July. Because we could be forming a longer-term bottom here, with higher prices into March, 1998 and beyond, so we would recommend accumulation of gold coins, gold mining stocks, and gold jewelry.

If gold fails miserably and cannot close above 370 basis December, then we cannot rule out a decline to 322 or lower into the fall of 1997.

Trading Strategy--Cover put options and shorts in early June and consider light longs into early June. Buy inexpensive December call options.

Monthly Chart Trend--Higher into 2003.
Weekly Chart Trend--Higher into March, 1998.
Daily Chart Trend--Bottoming and higher to 368-370 basis December. Support/Resistance--Breakout: Buy December 372.00 stop with a
364.00 stop.
Breakdown: Sell December 338.00 stop with a 346.00 stop. Exit 329.00.
Turning Points--Major Entry/Exit Dates: June 23, July 1.

JULY SILVER: Weekly chart technical patterns would still allow one more low to 4.50-4.46 or maximum 4.30, but time cycles are running out for a negative downside to emerge. Cycle low clusters dominate into June 6, the second week of July, and the first week of August, but positive energy will enter the market June 9-17 and possibly June 23-27. July silver will need a close above 5.00; otherwise, we are still completing a simple 4th wave a-b-c pattern and will still need one more low into August to confirm a bottom. If silver falls with the stock market, then it may be dumped during July and August. At the moment, we have too many mixed cyclical signals to take a definite stand. The 11-month cycle high looks friendly for short-covering in June and prices should hold up into June 23 or June 26, but July cycles appear weak into early August and if we fail to rally significantly in June, then we still could make new lows into August.

Fundamentally, silver has good value in the 4.50 region and warrants accumulation. The World Silver Survey for 1997 issued by the Silver Institute suggested that demand is rising due to increased jewelry production in India and Mexico as well as increases in photography use. This resulted in a drawdown of 173 million ounces in 1996. Global mining production is at 493 million ounces. Longer term it is clear that stocks will continue to decline and prices will need to increase. Buy signals should remain intact through October 1997 so we are more inclined to be long, and one more new low to 4.46-4.50 into this summer would be enough to make the case for a major pattern completion.

Bottom Line--Good fundamental value in the 4.50 region and bottoming cyclical action warrant at least buying some December call options and beginning to accumulate silver coins and junk silver. We are going to have to close above 5.50 to negate a 5th wave fall to the 4.30 region. If the rally in June stalls under 5.50, you may need to bank profits or protect yourself in July and into August.

Trading Strategy--Favor longs in June and own a few December call options in case we breakout.
Weekly Chart Trend--Higher to 5.46-5.50 into late June and then possibly lower to 4.30.
Daily Chart Trend--Bottoming and higher.
Support/Resistance--Breakout: Buy 5.51 stop with a 5.41 stop. Exit June 27.
Breakdown: Sell 4.25 stop with a 4.35 stop. Exit 3.64.
Turning Points--Major Entry/Exit Dates: July 1, August 11-13.

JULY PLATINUM: At publication, platinum has surged to a high of 473 as Russian shipments continue to be delayed. This technical breakout suggests much higher prices than we can even currently calculate and cycles are supportive into late June when the metals complex is due for a high in the June 25-26th time window. The fundamental story is starting to read like a Tom Clancy novel as Russia, which mines 23% of the world's platinum, attempts to manipulate the market. To date, their strategy has been to keep platinum off the market in order to boost prices and support the ruble. The latest news suggests that Russia will continue to delay shipment until at least July. Once they resume shipments, the market will fall like a house of cards.

Our cycle work suggests that we could actually be peaking as early as June 6. Backwardation suggests that once Russian supply hits the market, prices will fall the rest of the summer. We would favor short October contracts or July/October spreads. The market could hold up into late June if supplies continue to be held out. Prices still could reach as high as 515.Major Dates--June 6, July 1, September 2.

Energies

AUGUST CRUDE AND AUGUST GASOLINE: API statistics from June 3 were extremely bearish, indicating an 8.4-million-barrel increase in oil stocks. Moreover, refinery capacity rose to 98.5%. With the technical breakdown on July crude at 20.50, the weekly charts are starting to suggest a fall to 18.00. Technically, the failure to rally in 3 waves into the May high indicates that we still need to make a new low on the weekly charts. An alternative cycle suggest a low into July 1, when the 14- and 15-month cycle lows are due. A close above 21.65 on the August contract is necessary to create a technical reversal.

Gasoline stocks have also increased, according to the June 3 API figures. Moreover, Tosco's return to the market is adding 100,000 barrels per day to the pipeline. On the demand side, consumption has only risen 7% compared to last year, which is somewhat of a bearish surprise considering the strength of the U.S. economy.

Seasonal cycles for gasoline are usually lower after mid-May, followed by a secondary peak in late July. Cycles and technicals are mixed, with one weekly chart pattern suggesting 5440, and the 11-, 15-, and 22-month cycle lows due into July 1 support that possibility. Monthly charts even project 5180 longer term. In the long term, we remain very positive about this market, as we expect Middle East tensions to accelerate this year, and our longer-term cycles are friendly for the next five to six years.

The current contango that shows July prices weaker than August is a bearish signal to stay short this market. Short-term patterns and cycles suggest that crude could recover to the 2000 region with upside action June 9-12 and some additional positive energy into June 18 and possibly even later in the month.

Trading Strategy--Position traders may be able to add better long- term January and December call options by the July 1 low or at the 1800 region.
Weekly Chart Trend--Bottoming around 18.00 and higher into December.
Daily Chart Trend--Lower toward 18.00.
Support/Resistance--Breakout: Buy August 21.65 stop with a 20.95 stop.
Breakdown: Sell August 19.75 stop with a 20.55 stop.
Turning Points--Major Entry/Exit Dates: June 17, July 1.

Stocks

Stocks have grudgingly suggested topping action, and the market continues to show signs of tiring and divergences. Momentum, relative strength, and stochastic indicators are stalling. Still, the new high on June 6 is indicative of additional upside action ahead, and the most bullish pattern would allow a rally to 915 basis June before we get a correction to 817 into the August low. We are actually more bearish and if the current pattern turns into a rising wedge pattern that terminates in the 875-885 region basis June, we can make a case for a neat pattern completion off of the 987 low and that would allow a bigger drop.

Fundamentally, fewer stocks are hitting new highs, and one has to wonder if the 6-year economic expansion cycle is drawing to a close. Moreover, M-2 has been declining, which is another cautionary sign for equities.

In our analogue cycle going back to 1973-1974, the stock market fell 55% during the Watergate furor. While the public continues to ignore Clinton's ongoing embarrassments, the likelihood of Hilary getting indicted or Bill being embarrassed could be the catalyst for this summer's fall. Taking the optimistic analysis of the stock market, our monthly chart projection would suggest a fall to 666 or 590 on the September S&P. That would suggest Dow 5589 or 4651 into August 15. Because our 120-year cycle analogue would suggest a recovery rally in the next 3-4 years, we are reluctant to call this a terminal top.

Our cycle analogues would suggest a recovery from the August 1997 low to July 1998 and then a sharp sell-off July or August 1998. Political and geocosmic cycles could also point to a major economic crisis brewing in April 1998. Until we see the August low and the November cycle high, we will not be able to measure how much of a recovery we will have.

Technically, we are going to need to close below 773 on the June futures and 769 on the cash to confirm an important weekly chart top. Major support on the weekly chart cash will come at 590-606. We still recommend that portfolios be adequately hedged into August 15 and profits taken. We probably will recommend re-entering the market in August as we could have an 11-month recovery rally and it could be a significant bounce.

Trading Strategy--Use rallies into June 23 to establish July and August OEX puts and to hedge your portfolios.
Monthly Chart Trend--Topping and lower.
Weekly Chart Trend--Topping and lower into August 15 toward S&P
cash 600-606.
Daily Chart Trend--Higher into June 23rd.
Support/Resistance--Breakdown: Sell June 771.10 stop with a 774.55 stop.
Turning Points--Major Entry/Exit Dates: June 23 (high), June 30
(low), July 14 (high), August 15 low.

Interest Rates

SEPTEMBER T-BONDS: U.S. Treasuries are acting very stubborn and we are starting to anticipate the possibility of a cyclical inversion. The big fundamental play in the past had been selling yen, buying dollars and buying U.S. Treasuries. With the huge short covering in the yen, one would expect more U.S. Treasuries to be dumped. But the market has held above 108.00, and until we get a weekly chart close below 108.00, we will not turn negative. The recent reaction to the increase in GDP to 5.8% was ignored and even the June 6th Employment report which was revised upward in April is inflationary and was ignored. Moreover, the market created a technical buy signal as the market rallied through the 110.00 region. With the consensus that the Fed is not going to raise interest rates before the fall, will we be higher in September? With weekly stochastics pointing higher, and a 5th wave count suggesting 116.28, we cannot be aggressively short this market until we close below 108.00.

Short-term patterns could allow a rise to 111.07 or maximum 111.29. Cycles in June are mixed but the weaker ones are over by June 10. Friendlier cycles continue into June 17, June 19, and June 23, but after that we appear vulnerable into July 1.

We are reluctant to recommend a long-term position trade because of numerous incongruities so we will take it one week at a time. From a technical standpoint, it appears that even if we hit the 111.07 region, we would still need a pullback to the 108.20 level. How do we manage to fit our stock market scenario with T-bonds? It could be a flight to quality. Sometimes understanding fundamentals ahead of time is challenging.

The big fundamental issue is Japan. With the recent rise in the yen, the Japanese have lost 9% on their U.S. holdings in stocks and T-bonds. Pressure from the Japanese finance minister to keep funds at home further thickens the plot. These developments make the July 1 cycle low for T-bonds and high for the yen all the more significant.

We expect another 50-basis-point rate hike by September with the next possible hike in July. While the CPI and PPI do not indicate inflation, we expect rising energy prices into December. Rising labor costs and strong economic growth also will continue to exacerbate inflationary and growth tendencies. Despite tons of positive hype about the budget accord, the first impact will not be felt for at least 18 months--and there may be no real impact until the fiscal year 2001, if then. Because we still see major earth changes involving floods, volcanoes, and earthquakes increasing dramatically from 1998 to 2001, we doubt the budget will ever get balanced.

Fundamentals and technicals support a range on T-bonds between 108 and 117 for the rest of the year.
Bottom Line--It may be more prudent to buy September T-bonds or calls on pullbacks to the 108.20 region into July 1, looking for an August or September target of 116-117. Selling breakdowns on a close below 108.00 would be a safer short, should the opportunity occur.
Trading Strategy--Watch July 1 for a possible major buy. Weekly Chart Trend--Higher to 116.28-117.00.
Daily Chart Trend--Higher to 111.29 and retracing to 108.20.
Support/Resistance--Breakout: Buy 112.05 stop with a 111.04 stop. Exit 114.06.
Breakdown: Sell 107.23 stop with a 108.27 stop.
Turning Points--Major Entry/Exit Dates: June 23, July 1.

Currencies

SEPTEMBER U.S. DOLLAR INDEX: After the trade correctly guessed that Chairman Greenspan would not raise rates, the dollar has staged a sharp recovery. Moreover, the dollar continues to get support from two key fundamental factors, namely that U.S. interest rates remain more attractive than those in Germany, Japan, and Canada and, secondly, Treasury Secretary Rubin remains committed to a strong dollar. While weekly charts suggest that the dollar could sink to 91.90-92.00, a rally to 101-102 is likely this year.

The Japanese Yen continues to be a key factor in currency trends, especially since the Japanese finance minister hinted recently that a rate hike may soon be instituted. Our cycles for the yen are supportive into July 1, and we expect that long yen/short dollars will be the best play for the month.

Canada's economy is doing well enough to suggest that interest rates would more likely be tightened than raised. Consequently, the downside may be somewhat limited even though we project cycle lows into early September. Great Britain's economy appears to be weaker than the trade had realized, but prices should be supportive in June before moving lower into early August.

The German economy has received a boost from improved exports but domestic demand remains too weak to justify a recovery before the 4th quarter. Switzerland has benefited from a flight to quality by investors removing funds from more volatile economies in eastern Europe, so the Swiss Franc is likely to out-perform the DM. Trading Strategy--Favor long yen and short dollars between June 6- 25, but look to reverse by July 1 as the dollar looks better this summer.

Weekly Chart Trend--Higher to 101-102.
Daily Chart Trend--Lower to 92.00 into June 23-27.
Turning Points--Major Dates: June 16, June 23-25, July 1, September 2.

SEPTEMBER JAPANESE YEN: The G-7 nations appear to have come to the consensus to stabilize Japan's currency at 110 yen to the dollar and allow 10% slippage on either side. Japan's finance minister continues to indicate a coming rate hike. The Japanese economy did recover somewhat in the first quarter but much of the strength was attributable to last-minute buying before their April 1 tax hike. More recent data suggests the economy is still sputtering, as evidenced by a 14.4% fall in department store sales in April.

Japan's GDP will likely fall after the 1st quarter, suggesting that rates will not rise. Our cycle work suggests a higher yen into July 1 and then lower into the first week of September. We expect that the Tankan survey due for release on July 1 will indicate more weakness in the Japanese economy, given the abundance of banking problems and lack of strong domestic growth that would not justify a rate increase.

While the yen could rally to 9210 by July 1, we may only get a retest of the 9000 region. An outside chance of hitting 9500 remains, but that may occur in the last quarter of this year. The yen could still make new lows this summer to the 6950-7050 region but current fundamentals would probably create support in the 8100 region. We think a light September put position entered June 30- July 1 will be worthwhile.
Major Dates--July 1, September 2.

SEPTEMBER DEUTSCHEMARK: The Deutschemark appears poised to move
higher in June and possibly holding up to July 7th. Weekly chart patterns would allow a rally to the 61.18 region.

Exports are picking up in Germany, which bolsters the economy, but domestic demand remains anemic. Retail sales fell 3% from March 1996 to March 1997. High employment and low consumer confidence continue to weigh on the economy.

Germany's tax revenue fell 10.0 billion short of expectations, raising their deficit/GDP ratio to 3.2%, exceeding the 3% required by Maastricht for EMU membership. In response, the German government tried to re-value their gold reserves but the Bundesbank dug in its heels. They may try other accounting gimmicks to meet requirements for EMU membership.

Fundamental support for the DM is currently at 1.760 to the dollar (56.81). Cycles are weak from July 7 to late August. Short-term traders should favor longs into June 25-July, while long-term players should use rallies to sell, looking for at least 5680 and probably 5450 into late September.
Major Dates--June 25, July 7, September 2.

SEPTEMBER BRITISH POUND: The economy in Great Britain is not as
strong as the trade had anticipated. The industrial sector appears weaker than the consumer sector. Moreover, inflation is under control and the Bank of England should not be in a rush to raise rates. Fundamentals dictate a trading range between 162.00-165.00 short term.

Cycles are supportive in June for higher prices between June 6-25 and we could rally to the 167 region on the expiring June contract. We would favor longs into June 25 and then look to add shorts, favoring them into early August. Downside patterns could project prices to 157.00.

Major Dates--June 6, June 25, August 8.

SEPTEMBER CANADIAN DOLLAR: Our cycle work still projects the Canadian Dollar lower into September. Our computer models are projecting a 58% chance of a fall to 71.65 to complete a 5-wave pattern lower but we are skeptical of this happening if we can rally above 7400 during the month of June

Fundamentally, the Bank of Canada is shifting monetary policy, indicating in their last report that the easing cycle is over. Economic growth in Canada has picked up sharply, reflecting strong export demand. Only employment has been slow to follow.

With a solid balanced budget and low inflation, Canada's currency is undervalued and likely to rally long term. Cycles are shifting at publication, with important turns on June 9-10 and then into June 25 and July 1. Short covering is likely to continue into June 23, and our next major sell signal is not ready to enter into July 1.

We would favor longs in June as fundamentals have changed and the July pullback may not create the final low to the 7158 region.

June 9, 1997
Barry Rosen
Fortucast Market Timing, Inc.
P.O. Box 2066, Fairfield, Iowa

Consensus National Futures and Financial On Line Index
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