April 2005

Oil down, stocks up. Can we look forward to more of this? Sure looks like it. Bids for crude got savaged yesterday, and although the decline left prices sitting above a key low near $51 recorded ten days ago, the support looked unlikely to endure. Once it gives way, look for the June contract to sink to at least 49.19, a hidden pivot that should turn things around, if perhaps for no more than a day or two. The behavior of the futures at that price can help us determine whether we're witnessing a pause in a downtrend to as low as $46 over the near-term, or instead the last gasp of a correction enroute to $60 per barrel. To be more specific, any breach of the 49.19 pivot by more than 5-6 cents -- or, more bearish still, a close beneath it -- would strongly imply that still lower prices impend over the next four to six days. (Click on chart to enlarge) Would that be bullish for stocks, as yesterday's decline seemed to be? Possibly, although to anyone inclined to see the glass as half-empty, the DJIA's paltry 47-point rally wasn't much of a celebration, even if buying was restrained by a horrendous durable goods report. Keep in mind that another few days like yesterday in the oil pits could conceivably turn our biggest air carriers profitable once again ' and wouldn't that be dandy news. Regardless, the Dow chart I reproduced in Wednesday's Touts suggests that stocks are likely to rally over the near term no matter what happens to oil prices. The clue is in the subtle divergence between stochastic and price lows since late March. You can see in the chart above that the recent bottom near 10,000 got somewhat less oversold than the rolling

For the past several days, we've eagerly awaited the opportunity to short the S&Ps futures at exactly 1170.75, a hidden pivot that promised to be the fat pitch of a trader's dreams. It never occurred to us that so very modest a target would remain beyond the reach of bulls. But so far it has been -- despite the fact that as recently as last Thursday, the occasionally thundering herd had the testosterone to push stocks to their biggest one-day gain in months. A bull trap? It's certainly starting to look like one. But I hesitate to assert, as so many seem to be doing these days, that this so-far brief stretch of lackadaisy portends the imminent, and possibly spectacular, decline of shares. By now, bulls and bears alike should have developed a healthy respect, and not a little fear, for the canny way in which the stock market has continued to outwit all comers. Even for those nimble enough to play the game from both sides, there has been the excruciating vigil of watching market volatility recede to the threshold of coma. For our part, we've laid in a supply of June QQQ puts whose cost basis has been reduced by some judicious profit-taking. Buy More Puts We will likely stick our necks out a bit further by bidding for some Spyder puts ' a practical alternative to subjecting ourselves to yet one more day of the S&P futures' come-hither undulations. My hunch is that the S&P 500's next big move will be down ' presumably to a hidden-pivot target near 1100 that I've pinpointed in today's Touts. But come what may, we cannot allow boredom to influence our choice of tactics, nor cause us to agonize over�nothing. If the market allows us but one good trade per week, that should

NBC led the evening news Monday night with the rhetorical question, 'Can a troubled GM save its bottom line?' We've discussed GM's mounting and seemingly intractable problems here many times before, most recently under the heading 'Shrinking to Survive.' General Motors is getting smaller, all right, but the process has a very different connotation to the company's Japanese competitors, for whom shrinking means having a lighter, smaller and more economical car to sell to American motorists as they acclimate themselves to $2.25+ gasoline. In fact, Toyota, Lexus and Honda all offer hybrids that customers have been lining up to buy. The newest is a full-size SUV that, despite delivering considerably better mileage than the conventionally powered Lexus it is designed to replace, yields more horsepower and better overall performance. How did Japanese car makers find themselves once again in exactly the right place at the right time? It wasn't blind luck, that's for sure, and they weren't responding to a spike in gas prices, as we hope GM eventually will a few years down the road. Rather, at least five years ago, Honda and Toyota (which makes the Lexus) evidently foresaw America's swing back to fuel-consciousness ' for whatever reasons ' and decided to act. At the time, some of you might recall, GM was gearing up production of Hummers and Suburbans ' behemoths that they later would have to practically give away to make room for next year's models. 1.5M Cars Recalled GM's mounting problems are nothing new, and it would appear that the story NBC originally had planned to air concerned the manufacturer's latest recall -- of 1.5 million cars with a possible seat-belt defect. But the editors must have decided the recall news would provide perfect cover for airing a much bigger GM story ' one that,

Investors had plenty to worry about on Friday, with oil quotes sharply on the rise and rumors circulating that North Korea would test a nuclear weapon over the weekend. These and other factors, including the usual earnings worries, were said to have spooked the markets late in the day, causing the Dow Industrials to close down 61 points. But if bulls were unnerved by the news, bears appeared to be just as nervous that the weekend might pass without a nuclear detonation. Thus, in the final 20 minutes of the session, did they chase stocks as though Monday morning might find us all inundated by bliss. The flurry of buying launched the Dow into a 90-point spike from intraday lows that had been recorded only moments earlier. (Click on image to enlarge) Who can say what might have happened if there had been another hour in the day? Perhaps bulls and bears alike would have realized that the worst-case scenario is not a nuclear test in North Korea, but a nuclear test in some sovereign neighbor's air space. Remember, this is a country that once bragged that it could hit L.A. with an ICBM. And it is run, not by a garden variety dictator but by a Cognac-guzzling Michael Jackson fan who trails only Mao and Stalin in the number of fellow countrymen he has starved to death. Kim Jong Il is also known as a ruthlessly efficient manager of his country's famously scarce resources, so why would he waste even a grapefruit-sized quantity of the scarcest material of all, weapons grade plutonium, just to make something go 'bang'! Better to stretch those military dollars by killing two birds with one stone. Japan, for instance. My guess is that we could have bought off Kim years ago by sending him

Even IBM got in gear with yesterday's strong rally, registering its first gain in fifteen trading sessions. You may recall that it was Big Blue that stoked the broad market's decline a week ago, when Q1 earnings came in a nickel below expectations. When the news hit the tape after the close, investors wasted little time dumping not only IBM shares but nearly everything else. In retrospect it's clear they needn't have panicked, since a multitude of other companies have announced quite respectable earnings since. Yesterday's corporate news was particularly pleasant, including as it did strong quarterly numbers from UPS, Motorola and Nokia. Altria, a Dow component, leaped 3 percent, not just because earnings the day before had beat estimates, but also because of news that the company's Philip Morris unit is close to a deal with the Chinese that would allow Marlboro cigarettes to be made and sold there. Tobacco usage is no longer growing in the U.S., but China, which already consumes a third of the world's smokes, is viewed as a market with huge untapped potential (read: virgin lungs). (Click on image to enlarge) From a technical standpoint, though, Thursday's rally did not sound an all-clear signal for bulls. In fact, it left much to be desired, since a few broad-based indexes still lag the S&P 500 by a wide margin. Although the S&P 500 cash index popped above its 200 day moving average to close on the high of the day, the Dow Industrials ended the session well below that benchmark (illustrated above), as did the Nasdaq Composite. Relative to some key hidden pivots, it would take a rally almost two-and-a-half times the magnitude of yesterday's for the S&P 500 to create a bullish impulse leg on the daily chart. Specifically, the index, currently trading around

The 'core' rate of inflation, whatever the hell that is, came in at 0.4% yesterday -- twice what had been expected by economists -- causing pundits' usually feeble imaginations to leap farther than we can ever recall in a failed attempt to rationalize away our concerns. Are you ready for the number one reason why we shouldn't be too worried? Here it is: The 0.4% figure was due to rounding; the actual number was 0.351. And here's the number two reason: Supposedly, much of the gain came from a spike in hotel prices caused in part by the NCAA tournament, as well as by drunken revelers on spring break. Does this mean grad students will have a reason to go down to Ft. Lauderdale every March ' so that they can document the macroeconomic impact of Girls Gone Wild? T-bonds took the news in stride, presumably because of the NCAA factor and all of those naked, pseudo-inflationary breasts. But shares were less sanguine, continuing a six-week decline that had begun to steepen last week. Perhaps equity investors are more sensitive to the smell of manure? We'll probably never know. In any event, the Dow Industrials finished the day down 115 points, a tougher number to rationalize than the 'whatever-turns-you-on' figure that we are given to contemplate each month by the Bureau of Labor Statistics. Who are these guys, anyway? Let's hope they're keeping two sets of books, since the prosecution's going to need some real numbers if we're ever going to put them safely behind bars where they can't hurt anybody.

Sellers who had inundated the stock market on Friday seem to have overslept yesterday, getting the week off to a ho-hum start. The Dow Industrials were never down more than 70 points intraday, and they finished off a mere 16 points, mocking those investors who may have spent the weekend steeping in anxiety. Considering the nearly $5 hit that 3M shares took, it's probably a bullish sign that the blue chip average wasn't down significantly more than it was. From a hidden-pivot perspective the major indexes were never in any danger. We were focused on the Nasdaq 100 Trust, or QQQs, after they ended last week precisely midway between two important, very tightly spaced hidden pivots. The lower one lay at 34.65, and although it was exceeded intraday, the breach was just a hundredth of a point. (Click on chart to enlarge) The bad news is that, even though the support can be considered to have held, the subsequent bounce was so feeble as to be almost imperceptible on the hourly chart. Should we therefore expect the QQQs to head at least somewhat lower this morning? I'd say yes, although my bearish bias would intensify if the Cubes take out the hidden-pivot support at 34.26 identified here earlier. There is one additional place where we might look for a bounce -- at 34.49, a minor hidden pivot where all of you bottom-fishing artistes are encouraged to ply your trade with as much delicacy as you can bring to it  If you do so, please keep in mind that a analogous downside target for the S&P futures that was advertised in yesterday's edition is still viable and can also be bottom-fished.

Stocks tumbled to their worst weekly finish in more than two years Friday, prompting some old-timers to wonder whether it might be the beginning of a 1987-style meltdown. For reasons that I will explain shortly, I doubt it. But we shouldn't get our hopes up that, come Monday morning, the NYSE will announce that we were all punk'd. No matter what happens, though, Rick's Picks subscribers awill be well cushioned against the blow, since we hold sixty June 34 QQQ puts that traded Friday for nearly three times what we'd paid for them. I had recommended selling a third of them if they reached a juicy enough price, which they did. Subsequently, with the market threatening to come unhinged around mid-day, I put out a bulletin reiterating this advice, lest some of you have second thoughts about squandering precious ammo ahead of a catastrophe. That thought crossed my mind too ' that we might be giving away puts that could double or even triple in value yet again when stocks get rolling on Monday. (Click on chart to enlarge) What convinced me that it was time to take at least some profits was the nearness of two major hidden-pivot supports beneath the QQQs. I identified them precisely in a bulletin posted intraday: 'There is very solid support in the range 34.65-34.72 -- so solid, in fact, that it's possible the QQQs -- and presumably other broad averages -- might go no lower on Monday. But here is an important caveat: If the QQQs do head south, breaching the bracketed support range, it would be a warning that the stock market might be about to crash.' A Nerve-Wracking Low We'll know soon, since the Cubes made the most nerve-wracking low imaginable on Friday -- exactly midway between 34.65 and 34.72. Had I not

There are days when Wall Street easily could have shrugged off word from IBM of a five-cent earnings shortfall, but yesterday wasn't one of them. Big Blue reported 85 cents a share for the first quarter, but the analysts' "dartboard number" evidently was a nickel higher. The announcement came two days earlier than expected, but judging from the way the stock has been falling all week, everyone on the Street knew what was coming. Ordinarily, experienced investors might be looking for a bullish opening this morning, since rumors of earnings weakness obviously have been factored into Beamer's current share price. But the actual news came out after the close, and that's bound to create intense selling pressure overnight (assuming world peace doesn't break out in the interim.) Meanwhile, those able to dump stock in after-hours trading have sent IBM shares plummeting 5 percent, all but guaranteeing that Big Blue will open this morning at a new 52-week low. The broad averages were also getting hit, raising fears of a first-hour avalanche. At the very least, tech stocks are likely to get savaged for IBM's shortcomings. But does bad news from a single corporate bellwether mean that all of the other techs are likely to disappoint? The answer hardly matters, since, as we all know, survival in this game often comes down to racing a bunch of idiots to the fire escape. My guess is that, when the opening bell rings, the optimists will be in short supply. One final, technical note: If a hidden-pivot support at 84.89 fails to turn IBM around, then look out below.