We've been hearing saber rattling for most of the summer. But it now looks like the swords are coming out of their sheaths.

Let's look at the recent rhetoric and action that suggest it's only a matter of time before the U.S. will go to war to oust Iraqi leader Saddam Hussein. President Bush has said that "Hussein is a serious threat the U.S. must deal with" and that "doing nothing is not an option for the United States."

Vice President Cheney and CIA Director George Tenet have briefed congressional leaders, flying the war banner at speeches before war vets along the way. White House spokesman Ari Fleischer has said that Bush believes and Congress agrees that the evidence seen is "sufficient to require regime change."

Bush has sought the support of world leaders in Europe, Russia and Asia and will appeal to the United Nations on Sept. 12 to back him in getting rid of Hussein. Bringing the case to the public, many in Bush's Cabinet are slated to appear on talk shows this Sunday to present the administration's case against Iraq.

On the military front, the U.S. and Britain bombed Iraqi air defenses using more than 100 planes yesterday. This means helicopter gunships can now operate unfettered within a few hundred miles of Baghdad. And the U.S. Army has already moved equipment into neighboring Kuwait capable of supporting a brigade of 8,000 troops.

The question is no longer

if

-- but

when

-- the U.S. will go to war with Iraq. The oil market has been confirming this view with steadily higher prices. On Thursday, October

crude oil

(CLV2:NYMEX) broke out to a fresh contract high, finishing just shy of the $29-a-barrel mark. As the administration appears likely to remain on the warpath, the chances that this breakout will follow through dramatically increase. So what's oil's potential now that the war drums are pounding ever louder? Oil hit $41 a barrel before Operation Desert Storm in 1990.

A surprising decline in U.S. inventories is only working to exacerbate the situation, adding to the bullish case. The American Petroleum Institute said inventories of crude oil fell to nearly an 18-month low last week, slipping 2.1% to 295.6 million barrels.

While October

crude

(CLV2:NYMEX) pulled back early in the week, it held within 5 cents of the 27.65 level pointed out in

my Aug. 29 column. This is a level that will be difficult to break should we pull back again.

On Wednesday, October

hogs

(HGV2:CME) had their biggest up day in two months, rallying the exchange imposed limit of 2.000. Revisiting the chart from

last week, you can see that Wednesday's big up move came at the 100% measuring objective pointed out in the column. This market still has plenty of downside momentum, so aggressive traders will look to sell into resistance out of a pullback from the low. As the accompanying chart shows, 33.30 and 34.30 stand out as resistance.

Three-Strike Rule

October

cotton

(CTV2:NYBOT) has been trading in a range between its major moving averages. But its attempts to break to new highs have failed, leaving a pattern setup that can be the kiss of death for a market. Here's the Three-Strike Rule pattern: First, a market makes a new high. It tries to break out again, but fails, leaving a lower high. This occurs a second and then a third time. But like a criminal recidivist, after the last failed upside breakout, the market is a three-time loser, and traders put it away to do hard time at the big house.

Le Cafe

While any single bar does not necessarily make a pattern, Thursday's action in December

coffee

(KCZ2:NYBOT) stands out. After a torrid, six-day rally that took the market up 15%, coffee opened more than a penny a pound lower, matched Wednesday's high intraday in a double-top pattern and then closed on its session lows.

This price action left a harami candlestick (an inside bar whose body is completely encapsulated by the previous day's wide-ranging bar) that is doing double duty as a tail: Either of the two candlesticks is a reversal pattern. Reversal patterns are always more significant after steep moves, and this one came and was halted just below the confluence of the 38.2% and 61.8% retracements of the major swing highs seen in the next chart. This recent double-top high also comes at the exact 100% projection of a prior corrective rally, giving us three strong points of resistance.

Previous Markets

December

soybean oil

(BOZ2:CBOT) notably diverged from the grain complex Thursday, closing just two ticks from a one-month closing low. Bean oil has surpassed the initial downside target

set forth last week, making the downside targets at 19.74, 19.40, 19.17 and 18.77 loom larger and seem more attainable.

October

live cattle

(LCV2:CME) came within two ticks of the revised make-or-break level that I pointed out

on Aug. 29. Cattle stampeded from there, exploding Thursday to close at a one-week high.

Marc Dupee is an independent trader and co-author of the book

The Best: Conversations With Top Traders. Dupee was formerly markets analyst and futures editor for TradingMarkets Financial Group. At time of publication, he held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he invites you to send your feedback to

Marc Dupee.

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