Monday, January 23               Published daily Receive a free trade each day
The Morning Line

The Good News, and the Bad…

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Yet another day of gratuitous, grueling ups and downs, punctuated around mid-session by a swoon that had been nearly recouped by the time we went to press. If traders are thinking what I think they are thinking, they are expecting the stock market to find direction — possibly with a vengeance — once Trump’s inauguration is behind us. But suppose not? That would certainly seem paradoxical, since the transition from Obama to Trump arguably will represent the most radical political shift in American politics since the Civil War.  For the moment, and perhaps for the next four years, it would appear that a quite sizable number of Americans still can’t believe November’s election results, let alone accept them. So how will Wall Street react now that the feel-good period is about to run out of steam? The good news is that it hardly matters, since the bull market has been fueled not by decision makers, but by a torrent of digital money created out of thin air by the central bank. The bad news is that there is no such thing as a perpetual motion machine, and sooner or later a stock market that has seemed to defy this immutable law will succumb to cyclical forces that lie not only beyond the control of hedge funds and money managers, but beyond all understanding.

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$ESH17 – March E-Mini S&P (Last:2266.50)


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$AMZN – Amazon (Last:807.33)


one-last-push-for-amznAmazon’s impressive leap on Thursday left it within easy distance of an 819.90 target first broached here a month ago with the stock trading around 760. If it pushes past this Hidden Pivot resistance with little effort, or closes above the pivot for two consecutive days, an even more ambitious target at 885.19 would become my minimum upside projection. Over the past year, I’ve offered numerous rally targets because there are at least a half-dozen ABC uptrends in different time frames simultaneously pushing AMZN higher. The one at 885.19 bears close watching, however, because it is so near a target of lesser degree at 875.20. The implication is that the stock could make its bull market top within that 10-point range, presumably at one number or the other. It also gives the target range enough ‘magnetic pull’ to get the stock there relatively quickly, meaning within two to three weeks. Because Amazon is arguably the most important stock market bellwether of them all, my bullish forecast implies that the broad averages have at least one more strong upthrust left in them before we might see the re-emergence of the bear after nearly seven years of hibernation. If bulls surprise by obliterating the 885.19 resistance on first contact, they would still face one more hurdle in the form of a midpoint Hidden Pivot at 896.71. Above that number, however, it would be clear sailing all the way to 1018.31 — a 25% move. If the Dow and the S&P 500 were to rally proportionately, the former, currently trading for around 19,891, would hit 24,863; and the latter, currently at 2270, would top out at 2837._______ UPDATE (Jan 18, 10:04 p.m.): The stock has pulled back $18 so far after marginally exceeding our ‘easy’ target at 819.00. The final stage of the upthrust did not exceed any prior peaks — that would have required another $10 of upside — so I have turned cautious for now.

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$DJIA – Dow Industrial Average (Last:19805)


djia-easy-move-pastThe 19727 target we were using to stay on the right side of the rampaging bull has gotten trashed, suggesting buyers are in need of no rest, even after climbing 2550 points from the election night low. A run-up to 20,000 seemed in-the-bag when 19727 got taken out a week ago, but here’s something more ambitious to contemplate: 21,101, the rally target of the pattern shown. Judging from the ease with which the Dow blew past the 19492 midpoint pivot, odds of a further run-up to 21,101 in the first quarter of 2017 look quite good — about 75% in my estimation. The chart also implies that a pullback to the red line would be a ‘mechanical’ buy if it were to occur four to six weeks from now. ______ UPDATE (Jan 18): I’ve refreshed the chart to show how the Indoos are rolling over after having smashed through the midpoint Hidden Pivot resistance. A pullback to the red line would be a ‘mechanical’ buy in theory, but a further 600-point fall to the green line would be a less risky place to try it. For now, though, getting short looks like a better bet.

This is a free forecast (Tout) by Rick. Get a free trial of Rick’s Picks to see full member content.

$TYX.X – 30-Year T-Bond Rate (Last:3.032%)


breach-of-p-by-tyxYields on the 30-year T-Bond have taken a huge leap since bottoming in July at 2.106%. They hit 3.196%  on Monday, slightly breaching the red line, a midpoint Hidden Pivot resistance at 3.163%. Now, if TYX were to close for two consecutive days above the line, I’d infer that T-Bond yields are a good bet to reach 3.409% before the surge ends. Alternatively, it would take a drop below 2.917% to suggest that the rise in rates had run its course.  At 3.409%, yields would be up by 62%, since summer. Presumably, that would choke off the housing market, which in turn would cause long-term rates to fall. A complex feedback loop, to be sure — especially if counteracted somewhat by a U.S. economy freed of the crushing regulatory environment that has metastasized under Obama. Since the dynamic interaction of these forces cannot be predicted with any great confidence, you can count on me to stick strictly with the charts as 2017 unfolds.  My gut feeling is that interest-sensitive trading vehicles, including copper, have already discounted more inflation than is possible over the next several years. In any case, we are about to find out. _______ UPDATE (Jan 3, 10:28 p.m.): I’ve refreshed the chart to show not only that the 3.409% target for interest rates on T-Bonds is still viable, but that this vehicle is close to signaling a ‘mechanical’ buy at the green line.  I am not recommending the trade, however, because the recent highs near 3.120% failed to exceed a distinctive ‘external’ peak at 3.241% that was recorded back in July 2015.  This doesn’t necessarily mean that the upward correction in interest rates has run its course, but it does argue for caution in taking the other side of the bet.  _______ UPDATE (Jan 5, 9:59 p.m.): The interest rate has fallen sharply in recent days, easily breaching the 2.986% target of a downtrend begun in mid-December. This strongly suggests that the 2.917% rate at which this vehicle consolidated ahead of 2016’s push to a 3.197% peak will be breached, opening  a path to 2.8% or lower. _______ UPDATE (Jan 12, 10:37 a.m.): The imputed interest rate on the long bond has bounced this morning from p=2.906% precisely (A=31.29 on 1/3). A decisive breach of that midpoint Hidden Pivot would imply more slippage to 2.813%. _______ UPDATE (Jan 17, 11:17 p.m.): Friday’s hiccup has slightly lowered the downside target to 2.792% (see inset), my minimum objective for the near term if p=2.906 is decisively breached. If the target fails to engender a bounce, 2.767% would be the next stop. _______ UPDATE (Jan 19, 10:17 p.m.): Bulls have  gotten second wind, turning the ratcheting downtrend of the last three weeks into a impulsive upthrust that is likely tol get legs if it can surpass the 31.29 peak from January 3.

This is a free forecast (Tout) by Rick. Get a free trial of Rick’s Picks to see full member content.

$DXY – NYBOT Dollar Index (Last:101.26)


dxy-is-closeWhen you look at the accompanying chart of the U.S. Dollar Index, do you see an ominous head & shoulders pattern?  If so, you’ve probably got plenty of company, including dollar bears and chartists who see bogus H&S patterns everywhere they look. I mention this because those dollar bears have ratcheted up the hubris in recent weeks for the usual stupid reasons: collusion by America’s enemies to usurp the dollar’s unshakable global hegemony; an imminent outbreak of inflation; an overdue bear market; seignorage envy. The usual claptrap. When I look at the chart, however, I see a rally so powerful that it not only blew past centennial resistance and a daunting Hidden Pivot at 100.55, it is now tap dancing on those erstwhile obstacles as though intending to launch powerfully anew. Don’t get me wrong, the dollar could still pull back, perhaps sharply, before it embarks on a renewed tear toward targets as high as 120 that I’ve broached here, and in countless interviews, before. From my technical perspective, insatiable dollar buyers from around the world have made chop suey out of an erstwhile granite ceiling. So color me bullish — and a deflationist until the cows come home. ______ UPDATE (Jan 5, 11:03 p.m. ET): The dollar has come down hard this week, but the selloff has done little technical damage so far to the daily chart. However, a fall exceeding 100.73  would turn the chart impulsively bearish and trigger a yellow flag. ________ UPDATE (Jan 12, 10:36 p.m.): It’s tempting to ignore the fact that the little sonofabitch printed 100.72 (!) at the intraday low.  Still, an impulse leg is an impulse leg, and we’ll have to treat it as such for purposes of targeting. First, though, let’s see how far this bounce from a crystal-clear target at 100.81 goes (60-min, A=103.44 on Jan 3).  _______ UPDATE (Jan 17, 11:33 p.m.): The dollar appears bound for the 99.50 target shown. Moreover, it would become a ‘mechanical’ short if the so-far weak rally touches the red line at 100.62. ________ UPDATE (Jan 18, 10:23 p.m.): This afternoon’s ratcheting short squeeze was bullishly impulsive on the hourly chart and would invalidate the 99.50 target given above with just a little more upside. The rally need only exceed 101.73, the point ‘C’ high of the downtrend to put bulls back in the driver’s seat..

This is a free forecast (Tout) by Rick. Get a free trial of Rick’s Picks to see full member content.

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