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Broad market Once again the markets are down, and commercials remain disinterested. Commercials are sellers at the current price levels, and they probably won’t be buying much until we see prices decline further. How much further? That is anybody’s guess. I am in the belief that the next few years might be very ugly. f you were following the major indexes this week, you would notice how quickly the market can sell-off. This Thursday, I remember watching the Dow being down around 100 points, the next thing I know, the Dow is down nearly 200! Why is the market acting like this? The answer is in the Commitment of Traders report. Not only are the commercials sellers in this market; unusually so: the large traders have also been sellers in the broad markets these last two weeks. The small traders are stepping up, big time, buying the dip, and probably trying to catch a bottom. What I am really trying to get at, is that buyers are scarce while the sellers are many. And as the sellers are starting to wake up to this fact, they quickly find out that the buyers left party. The hangover eventually wears off, and any sell off in the market is exacerbated due to this balance, or more appropriately, imbalance, between buyers and sellers in the market. So, maybe the small traders can support the broad markets? And maybe I will win the lotto 649! Maybe, “after all, anything is possible”, but probably not. In short, it’s damned if you do, damned if you don’t kind of situation. If the market manages to rally, commercials will probably become even more bearish, and then the market will fall, and fall hard. On the other hand, if the market continues its recent downtrend, then commercial players will probably start buying. But just because they are buyers in a market does not mean that the market is going to rally. In fact, it is quite the opposite, typically when you see commercials on the buy side; the market is in a slump. Right now, the market is in a slump, and commercials are not yet willing to buy into it. Like I said last week, commercials are probably not buying ‘weakness’ today, because they are expecting more ‘weakness’ in the future. Since last week, the May reaction lows were violated, here are the updated numbers: June Reaction lows (roughly) Russell
– 685 Crude oil Commercials still sellers. If oil is going to re-test its 200 day moving average, I expect commercials to become aggressive buyers in this market. So far oil has been doing a whole lot of nothing, and I would not be surprised to see oil re-test its highs at $75 before we get down to the 200 day moving average, currently at 64.76. However, any rally to new highs, without commercial participation, is probably doomed to fail. Gold Gold is down for the week, commercials were buyers, and large traders were sellers. The market is getting setup for a rally. This week’s cot data does not include gold’s new low of 604 set this Friday. Unless something significant changed in how the market participants view the gold market, I would expect commercials to continue buying while large traders continue their selling. I am looking for gold to reverse its downtrend and put in a bottom in the near future. Ciao, James ©
2006 James West Updated weekly COT charts can be found @ www.buythebottom.com Mailing
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