| The problem with having any kind ofpositive view on bond prices and the dollar is that the sum of copper and crude oil has just completed what looked like a crash top/consolidation and is now driving higher. When this happens prices tend to continue to rise for some time and given the inverse relationship between copper and crude oil compared to the TBonds and the DXY... prudence would suggest that bonds and the dollar are going lower. This is why we stressed the 105 level as support for the TBonds on. That and the fact that the U.S. employment data is due out today. The chart below compares the Chinese equity market (Shanghai Comp.) and Wal Mart (WMT). WMT tends to trend inversely to both the Chinese equity market AND gasoline futures prices (which is why we showed the potential divergence between these two markets on page). 
The point here is that WMT isn’t showing any strength as of yet and gasoline futures are still grinding higher. The Chinese equity market looks somewhat suspect but it hard to find conviction without confirmation from the other markets. Below we show Canada’s West Fraser Timber (WFT on Toronto) and U.S. 3-month TBill yields. The simple point is that lumber prices tend to rise after the funds rate begins to decline so the share price of WFT tends to be at a low around the end of a Fed rate hike cycle. Similar to the gold/copper ratio on page 1 the market is gradually removing the ‘hope’ that short-term yields will decline as WFT moves lower after rallying late last year. Short-Term Views The chart shows in the most basic way possible why we continue to believe that commodity prices are in a down trend. We have argued in the past that the home builders were leading commodity prices and as best as we can tell the home builders are still making new lows. We would expect some sort of bottom for the home builders around the time that stocks like CAT move back below their 200-day e.m.a. lines. One of our basic views is that on the continuous chart the peak for corn futures prices is made in June or July and if this top is broken after the end of August... one has to get long and stay long corn futures into the middle of the next year. With this in mind we show corn futures and the S&P 500 Index futures below. Notice that the peak for corn and the SPX have occurred at the same time and that corn prices have turned upwards AFTER the SPX futures have gone on to make new recovery highs. In other words... when the SPX futures break solidly above 1555 recent history argues that it is time to look at long corn futures positions once again. In yesterday’s issue we mentioned that if the SPX was going to resolve higher KO should make new highs but if this is similar to 1997 then KO would break back below 51. Given our obsessive need to time the markets we wanted to point out that about half way through a ‘top’ the SPX tends to reverse sharply higher and that this appears to have happened in late June. The point is that it could still be about two weeks before we have to really worry about a significant break lower in the SPX. 
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