BOTTOM LINESeptember is the ugly month for thestock market, the past few years notwithstanding. Leading indications from thelumber and eurodollar COT Report data say that we should see a temporary selloff, likely bottoming Sep. 9-12. But then we start the bullish bias of the 3rd year of apresidential term, which typically starts from a low in late September of the 2nd year. Gold is working on finishing up the business of its 13-1/2 month cycle bottom, which could still see a dip to below$1200. It does not have to get that low, but it could; traders should get ready to turn their attention to catching the next up move in gold, once it starts, because itshould be a powerful one.

What To Expect Stock prices should see a bottom Sep. 9-12, although we cannot say yet whether that will be THE final bottom before the next up leg.T-Bonds have started downward as expected, but show another top due Sep.11 (as stock prices are bottoming), then still another due Sep. 18. The downturn looks good, but we should be mindfulof strong signs of another upturn.Gold has started down toward the 2nd twin bottom as part of the 13-1/2 month cycle. That initial down leg should see a bottom Sep. 3, followed very quickly by a top due Sep. 4-8, En route to what looks at the moment like afinal low for at least the mining stocksdue on Sep. 19.

Eurodollar COT Data Call For Continued RallyReaders have written to ask why we have not featured the leading indication from the eurodollar COT data, and thereis a simple answer: it stopped working right. The deeper answer is that it actually inverted and got all screwy. Wehope that’s not too technical of an explanation.The first chart takes a long term look at this relationship. For newer readers, what we are showing is the netposition of commercial traders of eurodollarfutures. This is not a currency contract, but rather reflects interest rates of dollar denominated time deposits inEuropean banks. Perhaps it should have its name changed to 3-month LIBOR futures, but we are not in charge of that.

The COT data is shifted forward by a year to reveal how the stock market generally follows in the same footsteps a year later. We uncovered this relationship back in 2010, and we wish we had known about it in 2008-09m, when it gave us a nearly perfect picture of what the SP500’s behavior would looklike a year later.It got into big trouble in 2013, when the Fed had its $85 billion/month thumb on the scale. The market almost perfectlyinverted from what the pattern had said was in store, then it disinverted, and inverted once again. At that point, we put it on the shelf as an analytical tool, although we have keptupdating it and watching it. So far in 2014, it appears to be back on track and acting as it once did before, perhapsowing to the Fed starting the process of backing away from its huge QE program.

The lower chart zooms in on just the most recent months. There we can see that the correlation has been pretty good, although we would have thought there would be a bigger drop in March and April than the SP500 actually saw.But if one remembers that the Nasdaq and Russell 2000 really did see a big dip then, and right on schedule, then it becomes an issue of the SP500 not seeing a response to that moment of turbulence,whereas other parts of the market did. The top seemingly at hand right now also appears to be on schedule, and a slight depression immediately ahead of us fits nicely with the idea of a seasonal soft spot for the market in September.But then it is back to the mission of grinding higher for manymonths into the future, helped along no doubt by the bullish effect of the 3rd year of a presidential term

The stock market enters the typically weak month of September at an already overbought state, making the task of falling victim to negative seasonality that much easier. The chart here on page 2 shows a very simple indicator which counts how many updays the DJIA has seen over the past 20 trading days. Readings at or above 14 show an overbought condition, although that does not necessarily have to stop an uptrend. Readings at 6 or below aremuch more reliable markers of bottoms than high readings are at marking tops, although these high readings are not without value. Several have marked at least a pause point, and late in an uptrend they can mark the more important tops.Bottom Line: The prognosis is for higher prices, but not until we get past the standard weakness that comes with the month of September, and which other indicators are confirming that weshould see this time.

Gold and Silver Poised to Launch After Final BottomWe are still waiting for gold to finish up its work for the 13-1/2 month cycle bottom, which was supposed to have arrived in July 2014. It is normally a cleaner looking bottom, and amore robust start upward in the new cycle than what we have seen so far, which leads to deep interpretational problems.One possibility is that the price bottom has actually split into two, with the center of mass of those twin bottoms in the right place. We saw an example of that back in 2012, in the middle of thechart, and it also happened back in2006 (not shown). If so, then this latest downward push could be the final act.

One problem with this cycle is that we have not seen the Dec. 2013 midcycle low get taken out. That typically happens whenever there is “left translation”, meaning that the price top before the mid-cycle low is higher than the one after. That Dec. 2013 low was at $1193/oz, based on near-month futures, and the June 2 low only got down to $1244. But silver prices did take out their own mid-cycle lows, as seen in the middle chart. Silver has been making a classic looking basing pattern, which should eventually support a big move upward. But at the moment, the commercial traders of silver futures are notyet showing the right sort of condition to mark a final price bottom. A little bit more time, and price decline, should set things up better for both metals to advance.

Natural Resources Rally Looming: COT DataCopper prices have finally broken out of their 3-year downtrend, but that breakout move seems to be taking itssweet time to go anywhere. Sometimes a breakout can “fail” and see prices drop back down below the brokendowntrend line. We have not seen that happen (yet), and copper prices have survived a test of that line. The lower chart on page 4 shows that commercial traders of copperfutures are slightly net long as of the latest Commitment of Traders (COT) Report. Earlier this year, they wereshowing a multi-year extreme net long position to mark the lowest price low. The current reading does not provide asmuch potential energy to support a rally, but neither does it preclude one.

It is normal to see COT data transition from a bear market range to a bull market range as prices change the longterm trend. So having prices break out with the commercial traders in a neutral stance allows for a lot of upside movementfor prices. At the left end of the chart, we can see that a neutral stance was good enough to mark a really important bottom for copper prices back in 2010, when copper was in an uptrend.Looking to other commodities, there is an even more compelling reason to expect an up move. Falling oil priceshave brought gasoline futures prices down in a big way overthe past 3 months. Gasoline futures prices saw their normalspring price peak back in April, a phenomenon related to the

changeover of refineries from winter grade to summer, andalso to preparations for greater gasoline in the summer driving season. But there was also a late price peak in June 2014 over worries about the armed conflict between Ukraine and Russian-backed rebels. But that has not panned out as a real factor affecting the global oil market as much as some traders thought it might.Right now, we are seeing commercial gasoline futures traders at a very low net short position. It should beunderstood that these traders have been continuously net short since late 2004, to varying degrees, and so the game

consists of evaluating their current position in relation to its recent range. Low net short position readings like the currentone are reliably associated with meaningful price bottoms for gasoline futures prices. So to all of you Winnebago and Hummer owners, we are sorry to be the bearer of bad tidings.A perhaps even more interesting phenomenon is taking place in the COT data for natural gas futures, as shown below. A decade ago, these data worked really well for marking the swings in natural gas futures prices, although the occasional hurricane might come along to throw the market off, at least for the near month contract where supply disruptions could be felt.

But then the fracking boom starting in the mid-2000s seems to have thrown everything out of correlation. We sharethe important insights from each week’s COT Report every Friday in our Daily Edition, since Fridays are when thatreport is released. We stopped featuring this chart for several years, because the data just seemed screwy in comparisonto what natural gas prices were doing.That screwiness seems to be abating, and a better correlation has returned to these data starting in around 2013.There is still a bias to the net long side, where the commercials have been exclusively since 2007 except for aforay to the short side in early 2014, when the “Arctic Vortex” was chilling much of the U.S. Now, the commercial

traders are back to a big net long position, the biggestsince early 2012. The implication is that the shift to an uptrend for natural gas prices is bringing a return to more“normal” market behavior, as reflected in the COT Report data, and that natural gas prices are at a low right now.The larger implication we take from these 3 charts is that a setup is at hand for rising natural resource commoditiesprices. Getting gold and silver prices finished with their business for the 13-1/2 month cycle is likely the key forseeing this commodities rally get started