Monday, February 20               Published daily Receive a free trade each day
The Morning Line

The Yellow Flag Is Out

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The Dow Industrial Average now sits within 429 points of a potentially very important ‘Hidden Pivot’ target at 21,049 that was first signaled when the Dow hit 18675 back in November. The target is derived from purely technical calculations, and when I first aired it my gut feeling was that it seemed unlikely to be reached. However, I’ve learned over time to ignore mere feelings and instead trust the charts, especially when they seem to conflict with logic and ‘fundamentals’.  That is the case now, in the extreme. A real estate bust is taking shape and stocks have already discounted the best we might hope for, economically speaking, from Trump’s first year. It is also a concern that AMZN, which I rank as THE most important stock market bellwether, is closing on a potentially very important rally target (see my tout below). Although there is still some upside to be milked from the aging bull market, I have unfurled the yellow flag nonetheless — for purely technical reasons.  Let buyers beware.

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$AMZN – Amazon (Last:844.14)

EST

AMZN closing on a big numberMarket-watchers need only focus on AMZN to read the stock market’s vital signs accurately. Unlike most of the unicorn stocks, it is not just some app that sits on a smartphone. The company sells real things, builds brick-and-mortar warehouses and invests enormous sums in delivery infrastructure. More than 300,000 employees work for Amazon. It plows nearly all of its profits into improvements that will make it even more dominant in the retail world. As far as the stock is concerned, it has been a screaming buy on every dip. Stage-managed earnings ‘disappointments’ have invariably been used by portfolio managers to create buying opportunities.  If the big players were to hold just one stock, for many of them it would be this one.  From a technical perspective, we’ve been using an 875.20 target that comes from a pattern on the daily chart. The chart shown is of monthly degree, however, and it contains an even more important Hidden Pivot target at 885.19; plus, there’s an additional, key resistance at 896.71.  Taken together, these three numbers suggest the stock could have trouble pushing above $900.  Because AMZN’s trajectory holds the key to the eight-year-old bull market’s longevity, we’ll be watching price action at those numbers very closely.  The stock has been an unqualified ‘buy’ for a very long time, but caution is now warranted just above current levels.

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$ESH17 – March E-Mini S&P (Last:2345.75)

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$GLD – SPDR Gold Trust (Last:118.06)

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$GCJ17 – April Gold (Last:1239.10)

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$EUR/USD – Euro/Dollar Crossrate (Last:1.05933)

EST

Euro chart is unambiguousBanksters and others with a stake in the euro shouldn’t get their hopes too high, since the long-term charts point unambiguously to a target just below 82 cents (see inset). There will be rallies, of course, since sellers have been piling onto this no-brainer trade in such preponderance that there will occasionally be no one left to sell. That would appear to have been the case until very recently, two months into a dead-cat bounce that actually tripped a ‘mechanical’ short-sale signal when it hit the green line two weeks ago. A stop-loss at 1.17121 would ordinarily be required for this type of entry, but I’d recommend lowering to 1.12990, since a print at that price would turn the weekly chart bullishly impulsive. There will also be an enticing play at the red line, a midpoint Hidden Pivot support where the odds will favor a precisely tradable bounce.  I’ll keep an open mind if I see uptrending abc patterns of minor degree start to exceed their ‘d’ targets. In the meantime, with Marine LePen looking like a shoe-on to become France’s next president, it is probably safe to treat any rally in the euro, especially a protracted one, as an opportunity to get short.

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$GDX – Gold Miners ETF (Last:25.20)

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$TLT – Lehman Bond ETF (Last:119.65)

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$+SIH17 – March Silver (Last:18.040)

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Expect swift progressThe gnarly rally pattern shown in the chart is a very good one that meets all of our criteria, meaning its 18.055 target has the potential to provide us with valuable intelligence if and when it’s hit. If the futures bulldoze their way past it on first contact, that would strongly imply that buyers have the moxie to shoot for the cluster of highs near $19 recorded on election night. Many bulls would have gotten badly trapped up there, and that’s why the specific level should be regarded as crucially important resistance.  There is not much supply between $18 and $19, so expect a relatively quick move through that range if and when the futures bust past 18.055.  _______ UPDATE (Feb 13, 10:29 p.m. EST):  No change. Please note that there is an open trade on The Scoreboard that is currently showing an $11,000 paper gain. The wide-stop-loss just added to the post is intended to let subscribers who still hold the position swing for the fences. _______ UPDATE (Feb 14, 7:11 p.m.): The peak of today’s gyrations hit 18.090, just a hair shy of an old target at 18.115. If buyers can push above it on Wednesday, bulls can take encouragement. _______ UPDATE (Feb 15, 9:14 p.m.): Bulls continued to lollygag just beneath the 18.115 target. The good news is that the so-far shallow retracement probably has the bad guys — i.e., short sellers — on the ropes. _______ UPDATE (Feb 16, 8:46 p.m.): Another day of lollygagging, although the futures finally touched 18.115 for the first time in this recovery cycle.

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$DJIA – Dow Industrial Average (Last:20619)

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Bulls easy moveSince November, I’ve been at pains to reconcile my extremely bullish technical forecast with a gut feeling that the U.S. economy and the stock market are hurtling toward disaster. The housing cycle has peaked, a farm bust looms, big investors are starting to exit the bubble they created in commercial real estate, auto manufacturers will be going up against a record year, and bullish investor sentiment is at a generational extreme. Despite all of this, I’ve learned to trust my charts above all. And that’s why I’ve stuck for months with a forecast calling for a 1200-point rally on top of the nearly 1000-point rally that occurred in the days after the election. By no stretch am I able to imagine what could be the cause of such a powerful move. Although I have little doubt that the deregulated environment Trump has promised us will significantly benefit business, the stock market would seem to have discounted the most bullish outcome any investor could hope for.

Even under the best of circumstances, with Democrats and Republicans miraculously working together to implement Trump’s economic policies as quickly as possible, it could still take a year or longer for those policies to have a significant and lasting effect. Despite all of this, my forecast that the Dow will exceed 21,000 is slowly coming true without the benefit of any spectacular rallies. The move has been rather unspectacular, actually, having occurred in the form of tedious stretches lasting for weeks, punctuated by intervals lasting for a week or two where the Dow racks up modest gains of perhaps 100 to 150 points per day. We’re in one of those intervals now, and it feels almost as though nothing could cause the trend to reverse, at least not for more than a day or two. It always feels that way at important tops, and so that’s why I am keeping a very close eye on the lesser charts. My Dow target at 21,049 (see inset) can stand, but if I start seeing downtrending abcd corrections on the lesser charts exceed their ‘d’ targets I will sound the alarm. Bullish as I am for technical reasons, I have one foot on the fire escape. Although I have no illusions about getting short at the exact top, neither do I want my subscribers to be caught ‘all-in’ when the market gets there.

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$JYH17 – March Yen (Last:0.88050)

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