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Broad Markets Russell 2000: http://buythebottom.com/russell.html NASDAQ 100: http://buythebottom.com/nas100.html So why am I only cautiously optimistic? Well, because commercial net-position in the Dow Jones index – on the other hand – actually decreased by roughly 15 000 contracts. Dow Jones: http://buythebottom.com/dow.html In a nutshell, I am more constructive on the markets in the short-term. I will be looking forward to next week’s COT data to see if all commercials finally align on the markets: one way or the other. HOWEVER: (And this is a big however) I am still bearish on the stock market in the intermediate to longer-term. On May 14, 2006, I warned investors that commercials were getting out of the stock-market and that the market was setup to decline. Since the May peak the markets are down in the range of 10%. (Russell 2000 is down 14%). The point that I am trying to make is that we are probably seeing a bear market correction, and not the start of a new bull market. Recent commercial buying only occurred after an extended decline in the markets, this probably means that if the market were to put in a rally, commercials would use that opportunity to sell out. This is actually very reminiscent of the 1987 crash. Back then the markets also rallied to new highs before they crashed. Unfortunately I cannot see into the future, so I do not know whether the markets will crash or not. What I do know, however, is that the smart money knows a little bit more than I do. So I will continue to follow their lead, which currently leaves me short-term bullish and longer-term bearish. And I will change my opinion on the market, as soon as the commercials change theirs. Gold - http://buythebottom.com/gold.html The gold market is setup for the much awaited summer rally. There is a fair chance that gold will consolidate further before it rallies, and a small chance that we will re-test June’s reaction lows. Thus far commercials are bullish on gold, virtually everybody else is bearish, and hence, I see any weakness in the metal as a buying opportunity. Oil - http://buythebottom.com/oil.html Crude oil is almost there. Commercials net-position is increasing, while large traders are sellers of this market. I think one or two more weeks of range-bound trading for oil, and this market will finally be ready for a summer rally. In the past I wrote that I expect oil to retest its 200 day moving average at around $65. With every passing day that oil stays up in the $70 range and commercials are buying it up, the chances of a 200 day moving average re-test decrease. In fact, as of right now, I would have to say that we will probably not see oil go much below $68. If, however, oil was to reach its 200 day moving average at $65, that would be a gift in terms of a low-risk, high-reward ratio trade. ©
2006 James West Updated weekly COT charts can be found @ www.buythebottom.com Mailing
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