April 2007

The Dow Industrials have risen on 18 of the last 20 trading days ' not too shabby, especially if you've been on the right side of the move. You'd have to be an old-timer to remember the last time that happened, since it was in�1929. Of course, we've seen many a comparison to 1929 fall by the wayside as shares have risen, and continued to rise, in recent years. We think any comparison to the 1920s is pretty farfetched, since, economically speaking, things were in far, far better shape back then, before the country was thrown into depression. For one, the dollar had not been completely hollowed out by inflation and was fundamentally sound. For two, the country produced actual real goods rather than, mainly, 'financial products.' And three, job specialization had not reached the point where a worker could carve out a fabulously lucrative niche trading in something so arcane and inscrutable as, say, Brazilian reverse floaters. In fact, about a third of the U.S. economy was tied to agriculture, and it would therefore be no exaggeration to say that we were living off the land. One could also say that we live off the land now as much as then, since inflated property values have been a crucial source of economic growth in recent years. Not only that, we're living better than ever, even if all those folks who inhabit 1950s photo albums seem to be having a pretty good time. Hard to believe anyone would have thought life worth living when there were only three television channels to watch. The first time I ever saw a color television was in the late 1950s, in the home of a friend whose father eventually would become a TV executive. There were almost no shows broadcast in color at the

A bullish stampede made short work of our years-old Dow target at 13045 yesterday, telegraphing even higher prices in the days and perhaps weeks ahead. The target was intended not as kamikaze number for permabears, but rather as a logical place to short aggressively using a tight stop-loss. This we did, laying out shorts not only in the mini-Dow futures, but in the Cubes as well. (A third recommendation, to buy puts in the Diamonds, was canceled when the underlying issue slightly exceeded our rally target; and a fourth, a short in Goldman Sachs, has yet to play out.) So cautiously did we approach yesterday's opportunity to get short that the total theoretical loss for anyone who took all of the trades advised would have been under $100. Surviving to play another day is an important part of the game, and this we have tried our utmost to ensure. We view the breach of the 13045 Dow target not as evidence that Hidden Pivots do not 'work,' but rather as very reliable evidence that the bulls' all-but-insatiable eagerness to buy stocks is still not spent. Now, what to do? Usually, when a rally target has been exceeded, we simply slide backwards along a stock's price history to find a lower point 'A.' By definition, this will give us a higher target on the other end of the pattern. In this instance, however, the original point 'A' was so clearly the correct one demanded by our 'one-off' rule that there didn't appear to be any alternatives. However, yesterday's surge past the target has caused us to take a fresh look to determine whether a further, upward target adjustment can be made without breaking any important Hidden Pivot rules (of which there are just a few). Turns out, there was a single

Has the stock market been scaling the proverbial wall of worry -- or has it simply gone 'mental' in a so-far bloodlessly postal kind of way? Investors' apparent obliviousness yesterday to dreadful numbers from the housing industry should have left no doubt about the answer: This time, it would seem, Wall Street really has gone off its rocker. The Dow Industrials were up as much as 75 points during the day, closing with a 35-point gain after it was reported that existing-home sales had registered their biggest drop in 18 years. This would have been scary enough if the statistic had come out of the blue. However, the glum report was no aberration, but rather one more manifestation of a trend that has persisted for quite some time and which seems to be waxing rather than waning. Although this already has caused the congenitally buoyant homebuilding industry to scale back production and ratchet down its forecasts each month, it hardly seems to have fazed equity share buyers, who very recently pushed the Dow Industrial Average to new all-time highs. Tuesday's spate of bad news was further compounded by a drop in the median home price from year-earlier levels as well as a decline in consumer confidence. Investors took it all in stride, sprinting for a respectable gain like some running back so hopped up on pain killers that he doesn't even know he's ripped a ligament. If the news should worsen and shares continue to waft higher nonetheless, it will no longer be a case of a runner sprinting with a torn ligament, but of a decapitated drum major leading a confetti parade down Wall Street. Power Lunches But would anyone even notice? The financiers have been so busy rolling up private equity deals in the $10 billion-$30 billion range

(Click on chart to enlarge) Trades do not always work as precisely as the one in Citigroup did on Friday, when we shorted a spike opening three cents from the intraday high, then took profits on half the position on the nasty pullback that followed. The strategy we used is worth reviewing, since some crucial elements came together to help us beat a game that is rigged to allow Da Boyz to effectively fleece retail customers without breaking any laws. In coming out ahead despite the odds, we were competing not only against the dirtballs who dominate the options game (full disclosure: I was an options dealer myself for a dozen years), but with their arse-bandit mentors on the NYSE, specialists and firm traders who deftly manipulate stocks to their advantage for a living, particularly in the opening and closing minutes of the day. The rally target we were using was a Hidden Pivot at 53.72 that nearly precisely caught the acutal, panic-driven high at 53.75. Here is the recommendation exactly as it appeared in Friday's Touts section: (Click on text to enlarge) Initially, I doubted any subscribers could have bought the May 52.50 puts for 0.55, since only ten of the 4383 that changed hands on Friday were done at that price, the low of the day. However, one person in the Rick's Picks chat room said he'd bought them as directed, so I established a tracking position intraday, and recommended that half the position be covered for 0.70 at that time for a small gain. This reduced our cost basis for the remaining half of the position to 0.40, providing us a cushion that will endure as long as Citi does not pop above Friday's short squeeze-driven high. It may do exactly that, of course, but our risk at

Below, from our friend Steven Fair, is a patriot's passionate response to Thursday's featured essay here on 'gun nuts.' A wildlife sculptor who exhibits and sells his impressive work in Oregon and at festivals across the U.S., Steven is well qualified to address the topic, having worked in law enforcement and having been certified as a Distinguished Expert by the NRA. He notes, among other things, that a requirement to be trained in the use of firearms, and to participate in an unorganized militia, is an obligation of U.S. citizenship. Here are some excerpts from his letter to me: 'I grew up with a 30-06 and a 12-gauge shotgun in an unlocked closet by the back door. The shells were on a shelf next to the guns so that said guns were not worthless pieces of metal stacked in a locked closet. I was taken out at a very young age and shown how a rifle would blow a water-filled jug to pieces. I was taught that a gun is used to kill, and there is no bluff about it. If I point a gun at a Thing, it is to kill it; make no mistake about my training as a small child. I also shot competitively from the time I was 12 in a controlled environment at a gun club, and I qualified for a Military Garand - Match Grade from the federal government when I was a teen. A Tyrannical Government? 'I never mishandled a firearm, and I never touched a firearm without the permission of my father. So my friend, what is different today? Could it be that a tyrannical government and people desire to be able to enforce their will upon the People with no fear of being held accountable ? 'I believe that if one

The 'Zimbabwe Effect' continued to rule yesterday on Wall Street, setting up the Dow Industrial Average for an almost certain push to new all-time highs in the coming days. Recall that Zimbabwe's stock market reportedly has been the hottest in the world, notwithstanding the fact that the nation itself is one of the worst basket cases on the African continent. The U.S. economy is not a basket case, at least not yet, but certain factors that could conceivably make it so, including a looming housing bust of epic proportions, are so palpable that one can only infer that buyers of U.S. stocks at these rarefied levels must be in the grip of some Zimbabwean-like madness. [Insert photo here] And what makes us so sure that stocks are headed into record territory? Simply this: A futures contract that we trade and recommend regularly has yet to reach a rally target that has been more than a month in coming. Specifically, we're looking to get short the E-mini S&Ps at exactly 1393.25, if only as a swing- or scalp-trade. Yesterday this vehicle got as high as 1384.50 ' a six-year peak ' but that's still a tad shy of our target. Assuming it gets there -- which it will -- the Dow Industrials would need to rise by about 100 points to keep pace, putting the blue chip average at new record highs. We'll lay out some conservative shorts if the opportunity presents itself, but we shouldn't expect to catch The Mother of All Tops. For more important targets, including our immediate objective for June Gold, check out the Touts for Thursday at the Rick's Picks home page.

I am hardly what you would call a gun-nut, although as a summer camper I did participate avidly for a few years in the NRA's target-shooting program for kids. Later, just out of college, intending to buy a handgun, I applied for a permit under New Jersey's very stringent rules. I needed the local police chief to vouch for my good character, and my fingerprints were taken and sent off to the FBI. I went through this approval process twice over the years, both times letting the permit expire unused. Here in Colorado it is easier to purchase a gun, but I own only one -- a .22 Ruger rifle that I use for target shooting. But I do not own a handgun, and I have serious reservations about buying one, since I worry that my kids would somehow find it, disable the trigger lock, load and fire it without my permission. I know this is so because, as a teenager, I inadvertently came upon the combination to a vault that lay behind a secret panel in my father's bedroom closet. The combination was written on a scrap of paper that I found among some cummerbunds that he kept in a box. If I was able to find the combination to his safe, and to open it (as I did), then my kids could surely find a way to get into mischief with anything I might try to hide from them. Zero Impact But Monday's deadly shooting rampage at Virginia Tech has caused me to reflect on my mild gun-shyness. The incident will doubtless be seized upon by many gun-control advocates as yet one more reason to ban handguns. Personally, I feel very strongly that this is the wrong answer ' that even a total ban would have zero impact

Toward the end of 2004, when the Dow Industrials touched a bullish tripwire at 10542, we raised our long-term target to 13045. This very important Hidden Pivot resistance has always seemed as good a place as any for bears to get short aggressively and dig in their heels. But when the blue chip average dove in early March after hitting record highs 250 points shy of our target, we thought the opportunity had expired. Now we're not so sure, since the Indoos have once again wafted into thin air and are within easy striking distance of new all-time highs. Once there, a further push to the target would probably take no more than two or three days. And then? Well, we'd probably 'go away in May,' as the adage goes, hoping the summer of 2007 turns out to be just as blissfully dull as the last four summers. But it's hard to believe a do-nothing summer is in the cards, given the rapidly metastasizing threat of a full-blown estate collapse in the U.S. Not that that prospect seems to have troubled Wall Street recently. Don't blame the money managers for being out of touch, though. They've had such an unbelievable run of good fortune in the last few years that, probably, the only kind of fear that keeps them awake at night is the fear that a deal to buy some Westchester County mansion for twice what the last owner paid for it will fall through. Anyway, we can be sure that Carl Icahn, Sam Zell and their ilk have not made their fortunes by being risk-adverse. To the contrary, Zell in particular, by buying a couple of big-city newspapers, seems to have bought into the 'Zimbabwe factor,' which implies that, in the investment world, too much of a bad

A trading alert in Rick's Picks on Thursday morning caught the start of a $15 rally in Comex Gold to the exact tick, but it's what happens next that will tell us whether this is the thrust that finally vaporizes the $700 barrier. By my runes, the real barrier lies at 693.20, a Hidden Pivot that we've been using as a minimum rally target since early April. Gold has been moving rather precisely to our intraday numbers lately, and that is why we should look to this one to tell us what's likely to occur next. Here's what to watch for: If June Gold exceeds 693.20 by more than a few ticks within 30 minutes of first touching it, that would be a subtle but reliable sign that $700 is likely to yield just as easily. Furthermore, if the June Comex contract closes above the pivot on the first day it touches it, that would imply even more strongly that this month-old rally is about to leave $700 in the dust. Regardless, on the first approach, scalpers can short 693.20 with a stop-loss as tight as 90 cents, since the pivot looks every bit as promising to me as the one that caught Gold's 675.60 low last week. Keep in mind, though, that if the stop-loss gets tagged, another Hidden Pivot at 694.80, and yet another at 700.50 ' both shortable if you're very nimble -- will be the next stops on the way to a more important threshold at 724.10. Once above that last number, June Gold would become an odds-on bet to challenge May's watershed high at 752.90. *** Online Seminar April 21-22 There are still a few seats left for the online Hidden Pivot Seminar on April 21-22, Saturday and Sunday morning, and for the May 19-20