With index futures down moderately late Wednesday night, sellers looked a little winded. If the lows as of around 11 p.m. have held until the opening bell, look for a short squeeze to start the day. The effect would be heightened if CMG, NFLX, AMZN, TSLA and other institutionally driven lunatic stocks get a running start.
Here’s the Set-Up…Posted Wednesday, October 7 0 comments
$ESZ15 – Dec E-Mini S&P (Last:1978.75)Posted October 7, 2015, 10:02 pm
$DB – Deutsche Bank (Last:28.79)Posted October 7, 2015, 7:19 pm
Hard times have once again befallen Deutsche Bank, which played a key role in blowing the global mortgage bubble that popped eight years ago. On Wednesday, the bank announced a $7 billion loss for Q3 and a dividend cut, sending shares plummeting by 6% on the NYSE. The long-term chart (see inset) suggests the stock is likely to fall a further 68%, to at least 9.10, before the carnage ends. If that price is hit, it would represent a 94% decline from the record-high 158 recorded in 2007.
From a technical standpoint, using our proprietary Hidden Pivot Method, the stock tripped a ‘mechanical’ short to 9.10 in March at 34.38, stop 42.81. Traders who are familiar with our forecasting system will notice in the chart that the target for Deutsche Bank’s bear market is minus $16.18. Although this is a practical impossibility, we know from experience that it could imply that a bankruptcy lies down the road. That proved to be the case for Lehman Brothers and Bear Stearns, whose charts similarly projected into negative territory prior to the Great Financial Crash of 2007-08. Even if DB does not go to zero, we would rate the chances of a fall to at least 9.10 at around 70%.
$TLT – Lehman Bond ETF (Last:122.92)Posted October 6, 2015, 8:59 pm
$NFLX – Netflix (Last:107.95)Posted October 6, 2015, 7:29 pm
$CLX15 – November Crude (Last:48.75)Posted October 6, 2015, 7:07 pm
The dead-cat bounce in November Crude could go as high as 54.45 (see inset), a target that I first broached here a month ago (with a slight adjustment; the original objective was 54.63). I have my doubts the rally will get that far, although mere doubts do not carry nearly the weight of technical indicators at Rick’s Picks. In this case, if the futures are able to push decisively past the midpoint pivot at 49.08 (labeled ‘p’ here), they’d become an odds-on bet to reach a minimum 51.77. Traders could get the jump on any such rally by using a ‘mechanical’ bid at 49.08, but this should be attempted only by those who thoroughly understand the tactic. A tightly stopped short at 51.77 would also be advised, provided you’ve been long on the way to it.
I regard the rally from late August’s lows near $39 as a dead-cat bounce because my long-term price target for crude has been, and still is, $29. A fall to that number would correspond to a catastrophic global deflation, an event that I have been predicting for many years. So why is crude rallying now? I have difficulty imagining it is because of geopolitical tensions. Investors have been completely oblivious to such concerns since the bull market began in March 2009, and I doubt that anything less menacing than a mushroom cloud over the Middle East would spook them. That said, there is probably enough nervousness to goad shorts into covering whenever news from the region turns only mildly scary. Indeed, crude has become extraordinarily sensitive to short-squeeze pressures, since betting against it has been, and continues to be, a no-brainer. The bears are almost certain to be right on this one, but that doesn’t mean they will all make a pile of money effortlessly and without stress. That’s what these rallies are all about: making otherwise ‘easy money’ painful to come by. Under the circumstances, powerful if illogical rallies will continue notwithstanding the growing slack in global supplies and the economic slowdown in China, the crucial consumer of energy at the margin.
$AMZN – Amazon (Last:542.00)Posted October 5, 2015, 10:13 pm
$GCZ15 – December Gold (Last:1143.10)Posted October 5, 2015, 9:57 pm
$TYX.X – 30-Year T-Bond Rate (Last:28.26)Posted October 4, 2015, 6:06 pm
AAPL – Apple Computer (Last:110.38)Posted October 4, 2015, 6:05 pm
A Drexel Hill analyst’s prediction that AAPL, currently trading for around $110, will hit $200 a share sent me to the long-term charts to see who’s crazy, me or them. Drexel believes iPhone sales in China will ultimately boost sales very significantly. I’m not so sure myself, but I’ve been bearish on the stock for other reasons that have continued to accumulate, to wit: 1) Incredibly, with the release of iPhone6, Apple has once again failed to address its embarrassing battery problem, still the elephant in the room; 2) it won’t be long before Xiaomi sells a phone for $60 that can do everything the $600 iPhone does; 3) Apple’s insane profit margins, driven by clamorous cult buying, are far more vulnerable to a global economic downturn than competitors’ margins; 4) Apple has entered the streaming music business 12 years behind the leader, Spotify; 5) Apple has entered the car business a hundred-and-twelve years behind the pioneer, Ford; 6) Apple teamed with Hermes to produce a wristwatch so un-revolutionary that it probably has Steve Jobs turning in his grave. So much for being on the cutting edge. What’s next for Apple — an upscale toaster oven? An iFood processor? iChocolates?
From personal experience, I can also attest that Apple’s software is getting almost as annoying as Microsoft’s. Two-thousand mp3 music files disappeared from my PC-based iTunes — twice — for no apparent reason. I had to re-import them into the application both times to get them to play again. You would think their “Genius Bar” would have an instant fix, but you’d be wrong. Instead, they pretended I’m the first PC guy who has ever come to them with the problem and that they have no idea what is causing it. Yeah, sure.
As Greedy as Microsoft
Even worse is the story of a friend and long-time Apple proselytizer who discovered last week that all of his emails had been deleted — permanently. This happened ostensibly because Apple has gotten as greedy as Microsoft in requiring users to update their hardware and software constantly — far more often than most customers would deem necessary. My friend’s problems began when he tried to update his iPhone and got a message that he would need to update iTunes first. Simple? Guess again. The latest iTunes would require him to update his iPhone’s operating system, and therefore to update his Apple computer’s operating system. He tried, but wound up with his computer frozen, his emails gone forever, and his cell phone, although working, no longer capable of playing iTunes. Apple’s tech support guy conceded that this wasn’t the first call he’d handled concerning this nasty cluster of problems.
From a technical standpoint, I’d have to concede there’s no reason why AAPL could not rally to new all-time highs, or even to $200 a share. If this is going to happen, the stock could first fall all the way to 96.41, a ‘midpoint Hidden Pivot’, before bouncing, and still look promising. More bullish still would be a rally to new highs without AAPL’s even having fallen to 96.41. We shall see. As always, I will let my unbiased technical indicators guide me. Whatever happens, I’d be tempted to short a rally to marginal new highs if there’s a clear price target associated with the move.
$USZ15 – December T-Bonds (Last:158^31)Posted October 4, 2015, 6:04 pm
JNK – High-Yield Bond ETF (Last:35.59)Posted September 28, 2015, 7:22 pm
Although we officially scratched a short position in this vehicle a few weeks ago, a subscriber with more patience reported in the chat room that he planned to stick with it. Why would we have exited if we are so certain JNK will continue to fall? The answer is that our short position consisted of out of-the-money puts that stood to be losers if the ETF died a slow death. That is quite obviously what is happening, and we doubt that buyers of out-of-the-money puts will make much money no matter how far JNK falls.
To be sure, JNK is on its way down to 34.84 over the near term, and to 20.88 on the long-term charts. Even then, I would still regard this dime-store-perfumed heap of financial excrement as wildly overpriced. The decline and fall of JNK would be all to the good, of course, since many of Wall Street’s most delusional fat cats are certain to hold big positions in it till the very end. For our part, the only way to make money on JNK is to be short it. But with puts? Most probably not. The would-be sellers of those options are just as bearish as we are, and they have priced the puts accordingly. At yesterday’s close, for instance, just-out-of-the-moneys were trading with implied volatilities three times that of the underlying vehicle. So short the ETF itself on rallies, by all means. But don’t belabor the carnival midway illusion that you can make money with puts merely because JNK is headed into oblivion.
$GDXJ – Junior Gold Miner ETF (Last:20.81)Posted September 27, 2015, 6:07 pm
$YHOO – Yahoo! (Last:31.84)Posted September 13, 2015, 6:05 pm
Despite the fawning attention of a news media that never seems to tire of stories about corporate mommies who bring their toddlers and dogs to work, we never believed the Marissa-Mayer-as-wunderkind story for a minute. Although she was well regarded as an executive at Google, that’s hardly reason to think she could turn the congenitally clueless Yahoo around. Steve Jobs aside, there are no second acts in the high-tech sector, and by implication no way to re-brand Yahoo for an attempted rise from the ashes. I don’t mean to suggest that it’s impossible — only that it would take a real genius at the helm to succeed. Mayer, for all the hype, was no genius, just a competent executive; and the only reason the stock rose significantly in 2014 was because Yahoo lucked into a big stock position in Alibaba, a now-failing company that for a while got even more hype than Mayer’s career.
Technically speaking, it looks like YHOO shareholders will receive a further drubbing in the weeks ahead. If and when the stock cracks the midpoint support at 29.97 (see inset), it would portend more slippage to 26.16 — a 17% fall from current levels. Click here for Steve Tobak’s trenchant commentary at Fox News, Is Marissa Mayer Finished at Yahoo? _______ UPDATE (September 28, 11:12 p.m.): Yahoo has gotten deservedly trounced recently as anticipated. If you’ve been short, it’s time to start scaling in at least 25%-50% of the position, since the stock is within $1.50 of the target given above. _______ UPDATE (October 6): Adding weeks or even months to Marissa Mayer’s tenure at Yahoo, a nasty, $2.40 short squeeze on Friday has put bears badly on the ropes. It could go higher, too, since the pullback thus far has been shallow. If the move continues to a promising target, we’ll try to get short there. _______ UPDATE (October 7, 10:55 p.m.): The stall precisely at p=31.98 holds promise for getting short at D=33.36, assuming YHOO can get past p. Accordingly, I’ll recommend offering 400 shares short at 33.34, stop 33.51. En route to the target, you can also try to get long ‘mechanically’ on a pullback to p or p2.
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Here’s the Set-Up…
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Fed Must Now Confront the Real Threat: Deflation
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