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Author: JsnStein Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 113  
Subject: Market summary 7-29-06 Date: 7/29/2006 11:27 PM
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Introduction

It is late so I will keep it brief this week. Actually, I did start writing about the economy and interest rates. But it became incoherent and it is too late at night to fix it. So I will take just a moment to comment on last week's introduction. I made a case for the market being in a secular bear market. However, that does not make the case for a continuation of the current market decline. A secular bear market does not necessarily mean stock prices will go lower, only that stock multiples will contract overall. Either profit growth will outpace stock price appreciation, as has been happening in the last 3 years, and/or stock price declines will be deeper than declines in profits. Both scenarios result in multiple contraction. Although, due to various other fundamental factors I do believe that stock prices will go lower at this time. The secular bear market theory is just another piece of the puzzle, which currently appears to playing out as expected.

I will be away on business next weekend so the update may be late.


Currencies

The dollar is weakening across the board, but the weakness was not enough to break the short term uptrend lines. We are seeing some unusual volatility in the Australian Dollar, I changed my stance to Neutral, conflicted to denote the bullish trend in the chart but also the heavy resistance just above the current price. The fundamentals are equally as conflicted. The Japanese Yen bounced off trendline support like clockwork making me somewhat bullish, but the chart still looks to be pointed down.

Australian Dollar: Neutral, conflicted.
British Pound: Neutral to bullish.
Canadian Dollar: Neutral to bullish.
Euro: Neutral to bullish.
Japanese Yen: Neutral to slightly bullish.
U.S. Dollar Index: Neutral to bearish.


Energy

Crude oil and gasoline look like they may be gathering momentum for a break to the downside out of an inclining wedge. I hate playing tops, I would rather play a continuation. Tops (and bottoms) take so long to completely play out. The big moves come at the middle to the end of a trend, not the beginning. And fundamentally, I don't really see a top forming here. Of course, if I could see the top then it already would have already formed and be running lower. However, stocks (inventory) are climbing (or falling less than expected, except the last report) and demand is coming in lower than expected, so it's not improbable. If a top comes here I would be inclined to think it would only be an intermediate top. This discussion may be premature because the top isn't even formed yet. I will play the break if it comes. I am uneasy about the trade, but that is how all good trades start. (Not all trades I am uneasy about are good trades, but I am uneasy at the start of almost all good trades.)

Crude Oil: Neutral to slightly bullish, potential top.
Heating Oil: Neutral to slightly bullish, potential top.
Natural Gas: Neutral.
Unleaded Gasoline: Neutral to slightly bullish, potential top.


Grains

Nothing has changed in the grains, a lot of volatility that is getting us nowhere. Soybean meal is dropping to new lows.

Corn: Neutral to bearish, weather market.
Oats: Neutral to slightly bullish, weather market.
Rough Rice: Neutral to slightly bullish.
Soybean Meal: Neutral to bearish, weather market.
Soybean Oil: Neutral to slightly bullish, weather market.
Soybeans: Neutral, trading in a channel, weather market.
Wheat (CBOT): Neutral to slightly bullish, weather market.


Interest Rates

The yield curve remains inverted and doesn't give any signs of normalizing yet. Long rates continue to show more strength than short rates. The FOMC is meeting on August 8th; I wouldn't expect any major moves until then.

2-year Notes: Neutral to slightly bearish.
5-year Notes: Neutral to slightly bearish.
10-year Notes: Neutral to slightly bearish.
30-year Bonds: Neutral to slightly bearish.


Meats

The advance in cattle is stalled but is holding up well. I am looking for confirmation of the bullish trend. The bullish trend in pork has been weaker but looks like it has already confirmed its trend.

Feeder Cattle: Neutral to bullish.
Live Cattle: Neutral to bullish.
Lean Hogs: Neutral to slightly bullish.
Pork Bellies: Neutral to slightly bullish.


Metals

Solid pennant formations have formed in copper and platinum. Weaker pennant formations have formed in palladium, silver and gold. I am just waiting for the breakouts. I must admit that I am quite bias here, my best trade this year came from trading a bullish pennant breakout in copper. If the break comes to the upside I will be looking toward copper, platinum and possibly gold. If the break is to the downside I will be looking at copper, platinum and possibly silver.

Copper: Neutral, pennant.
Gold: Neutral, pennant.
Palladium: Neutral, pennant.
Platinum: Neutral, pennant.
Silver: Neutral to bearish, pennant.


Softs

Sugar #14 broke out of a pennant, but that market is too thin. The top is in for sugar #11, any short trade setups will be taken. Lumber is also in a solid bear trend. Any bounce can be sold.

Cocoa: Neutral, weather market.
Coffee C: Neutral to slightly bearish.
Cotton #2: Neutral to bullish, weather market.
Lumber: Bearish.
Orange Juice: Neutral, weather market.
Sugar #11: Bearish.


Indexes (Stock Markets)

We finally got a little consolidation/rebound. Although that consolidation took the Dow and S&P up to and almost through uptrend resistance it wasn't enough to even relieve the oversold conditions in the Nasdaq. The markets may take a bit of a rest in August, meandering sideways to higher but I will use this time to pick short entries. As I mentioned last week, I want to build a full short position by the middle to end of August.

Dow Jones Industrial Index: Bearish.
Nasdaq 100: Bearish.
S&P 500: Bearish.


Open Positions (average true range)


Liquidated (trade results)


Jason
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