June 2007

Here's a modest proposal: Let's flush Paris Hilton into oblivion.  A beautiful, crazy, dream?  I don't think so. This can work. Let me explain. No turd is so big that it won't flush. A little stool softener, and Paris will swirl quietly out of our lives. I promise. Ridding ourselves of the world's most celebrated fellator is going to be much easier than it sounds. Didn't Monica Lewinsky simply go away? To hasten this eventuality, here is Step One: Ignore her. That 's right: Just tune her out. If she turns up on Larry King, or on E!, or opposite Barbara Walters, or as Greta Van Susteren's topic du jour, change the channel. When these shameless, unmitigated feces-peddlers feature Paris Hilton, they aren't even pandering to the lowest common denominator, since, as far as a disinterested observer could tell, there is little or no grassroots demand for Paris Hilton. Food for 20 Trillion Flies This statement may seem paradoxical, especially considering H.L. Mencken's time-tested dictum that no one ever went broke underestimating the taste of the American public. In this instance, however, as word of Paris Hilton's latest, worthless exploits continues to spew from all media outlets no matter what she does, it would seem that the panderers have indeed finally underestimated popular taste. Moreover, in their overweening eagerness to sink to the level of paparazzi, it is as though the news media had sought to validate that dubious T-shirt graffito, 'Eat s**t ! Twenty trillion flies can't be wrong.' Although I cannot prove that the demand for gossip about Paris Hilton is almost non-existent, I can feel it in my bones. Is there anyone among us who actually knows someone who wishes for more 'news' and images of the woman? I can't imagine that such a person exists. In

Comex Gold has been moving with near-absolute fidelity to our Hidden Pivot targets lately, so there is little reason for subscribers to agonize over where the 'Auggies' may be headed next. The answer, unfortunately but obviously, is lower. But the good news is that this particular phase of gold's decline has the potential not only to engender a low that can be bottom-fished aggressively with a micro-tight stop-loss, but also to carve out an intermediate-term bottom. The precise target is repeated in the Touts section of today's newsletter for those of you who may have missed it the first time around. Chat room regulars will already know that our Hidden Pivot price targets for gold rarely miss, and that even when they do, it is usually by no more than a tick or two. Sometimes these turning points seem so very predictable that we designate them as 'hula numbers,' the implication being that, if they should fail to work exactly as forecast, we will subject ourselves to the humiliation of donning a grass skirt and dancing a hula in Times Square in the middle of February. We have yet to lose this bet, but neither are we eager to overdo it, since Times Square in the middle of winter is not an especially appealing place for the partially clad. Nevertheless, we are sufficiently confident in the current downside target to suggest that it be leveraged aggressively by anyone who feels that gold has gotten the better of him or her in recent months. Happy hunting!

For a few hours on Monday it looked as though the Dow Industrials were on their way to headline gains. Up 130 points in the early going, the blue-chip average appeared unstoppable, even when crude oil quotes began creeping back up toward the $70 level around mid-session. But that was before nervousness over the mounting debacle in subprime mortgages supposedly overtook investors, causing stock-market gains to evaporate faster than dew on cactus. Just why investors would initially have been unconcerned about the rapidly metastasizing disaster in subprime mortgages, only to be 'overtaken' by such worries later in the day, we shall probably never know. But that's the way a Wall Street Journal online wrap-up saw it, quoting one firm trader as saying that 'headline risk' would continue to weigh on stocks as the mortgage story evolves. No argument on that one. But there was nothing particularly earth-shattering on the subprime front yesterday ' only a report that Bear Stearns is trying to work its way out of the hole, and another noting that some of the subprime paper issued by Goldman Sachs was getting downgraded faster than everyone else's paper. Radioactive Portfolio We expect plenty of smart guys to get burned before the debacle has run its course, although it's hard to imagine they could be much smarter than the partners at Goldman. In the meantime, a possible rescuer has surfaced in the form of some college endowment funds that evidently are flush with cash and looking to do some distress buying. If so, the fire sale can't happen soon enough for Bear, which may already have reaped enough bad publicity to turn the remainder of its portfolio radioactive. Unfortunately, in the investment banking world even the tiniest mote of notoriety could conceivably add a few crucial basis points to

After Friday's dispiriting performance on Wall Street, we're starting to think something actually has changed. But has it? Have we entered a bear market? We asked that question here two weeks ago but decided that any attempt to answer it would be premature. Give it another six months, we said, and maybe we'll have a better handle on things. But with each passing week, as our borrow-to-consume economy lopes toward recession or worse, we can't help wondering whether the answer is solidifying before our eyes. Regardless, we must confess that we've been in there buying the dips aggressively, just like the many whack-jobs on Wall Street whose intelligence and discernment would seem to barely exceed that of leafy photosynthesizers. Pondering a global economy that has teetered for years on the edge of a deflationary abyss, we see ominous thunderclouds where the 'smart money,' aka private equity capital, evidently sees only sunshine and rainbows. But there we were on Friday nonetheless, licking our chops at the prospect of scooping up some Merrill Lynch shares at the Hidden Pivot bottom of a predicted swoon. To say that we were confident of success would be an understatement. In fact, we stated explicitly that the trade looked like a terrific opportunity for Rick's Picks subscribers to recoup the cost of a year's subscription. (The actual recommendation is reprinted below.) And get this: With the Dow off 185 points on Friday and sinking like a brick at the final bell, we still like the trade. Some kind of permabear, eh? Catch the Falling Piano Concerning Merrill, our forecast called for the stock to plunge by a whopping $3.28, to $84.02. Although we didn't foresee this happening in a single session, we were nonetheless prepared to buy the dip on Friday by acquiring July 85 calls.

August Gold slid nearly $10 lower yesterday before gaining traction two ticks above our minimum downside target, 650.30. Had the carnage continued even $1.00 further it would have signaled a possible fall to a Hidden Pivot support well beneath these levels. (See the Rick's Picks archive for the exact number.) Thursday's weakness had been telegraphed by the narrow failure of the August Comex contract to surpass a small prior peak on the intraday charts at the tail end of its most recent rally (see chart below). (Click on chart to enlarge) The shortfall led us to put out the following analysis and trading recommendation Wednesday night: 'By two ticks, Gold has failed to extend its two-week winning streak, leaving a small but nettlesome look-to-the-left high at 665.90 unbreached before turning sharply lower. Now, my minimum downside objective is 650.30, a midpoint Hidden Pivot support that you can bottom-fish cautiously if you please. I would suggest an initial stop-loss no wider than 4-5 ticks. We should monitor the action closely if and when that support is reached, since an easy penetration would hint of further downside over the next 2-3 weeks.' Bearish Tripwire Officially we did not get in at the low, since our bid was two ticks beneath it. However, the forecast should have tempered the enthusiasm of subscribers who were long gold, and the pivot support itself will remain viable as a bearish tripwire. Similarly, the Bond futures have provided clues literally each step of the way concerning the future direction of long-term interest rates. We noted here the other day that the failure of the September T-Bond futures, by a single tick, to reach a Hidden Pivot rally target on their first bounce from the depths indicated that this rally could prove to be nothing more than a

We've been monitoring the T-bonds' vital signs closely lately, looking for evidence that yields may have peaked, at least for the time being. Unfortunately, it looks as though any respite for borrowers, particularly mortgage borrowers, will be short-lived. Bonds prices had fallen quite sharply last week, causing yields on the 10-Year Note to spike to 5.25 percent, their highest level in more than five years. At the same time, the yield on 30-Year Treasurys surged to 5.12 percent from 4.96 percent in a single day. Because mortgage rates follow the 10-Year Note, just one more turn of the screw could push the benchmark 30-year fixed-rate loan to 7 percent. (Click on chart to enlarge) The surge in yields has abated since, giving way to a bond rally that so far looks unimpressive, especially considering how extremely oversold the bonds had become. At the rally's outset we were looking for the September T-Bond futures to hit 107^12 on the first bounce, and to get short if and when they got there. Alas, they came within ten ticks of that price yesterday before relapsing to 106^13. Short Unfilled The short recommendation appeared in the Touts section of Wednesday's newsletter and was given as follows: 'The futures are stealing up on a minor Hidden Pivot at 107^12 that can tell us whether a significant turn in interest rates has occurred. If this rally is something more than a bear-market blip, the September contract should have little trouble eating through the target within hours of first encountering it. You can try shorting there with a 3-tick stop, but you'll be on your own if the order fills. This is meant as a scalp-trade, so a pullback of as little as 8-9 ticks should be viewed as a profit-taking opportunity.' The fact that the September

For lurkers who are curious about what goes on inside Rick's Picks, I've reprinted yesterday's actual Touts below, along with intraday updates and charts. Surely you didn't think the service was all about Brainy Babes of Hollywood and other cheesecake we've featured here from time to time ' all gratuitously and at no extra charge. I would have included below a snippet from the chat room, but the bird flu discussion we had near the end of the day might trigger a panic on Wall Street. Anyway, below is a sample of what lay behind the speakeasy door on what turned out to have been a fairly routine session. The forecasts were disseminated on Monday night for action on Tuesday: Updates for Tuesday Mini S&P (1544.50) 06/18/2007 20:12:38 Stocks began the week more timidly than we'd expected, but when selling failed to abate after the first 15 minutes, we grew sufficiently cautious to stay out of serious trouble. Personally, I'll be bottom-fishing at 1540.25 overnight Monday with a two-tick stop-loss, but I wouldn't recommend trying it at home. The compulsion to be buying at these rarefied levels has caused in me a paradoxical sense of foreboding -- one that asks whether the mere fact of my eagerness to "buy the dip" is a warning that this dip will be a trap. ______ UPDATE: Surprise, surprise. The futures bottomed at 1540.50, a single tick from my bid, then began a rally cycle that so far has gone on for about 30 minutes and four points. However, if the ES should come back down to the exact target, I won't be a buyer, since my "hidden" support is no longer hidden from all the bozos, having become a visually obvious turning point. (Click on chart to enlarge) August Gold (660.20) 06/18/2007 20:26:21

Yesterday's brain-congealing tedium held the S&Ps within a three-point range for more than five hours, daring traders to take their eye off the ball for even a moment. But if past is precedent, we have to assume the whole boring day will turn out to have been a consolidation and that stocks will be pounding higher as usual when trading resumes this morning. Or is that scenario beginning to sound a little too pat? We've made the argument here before that the deranged buyers who have been driving stocks higher seem to thrive on negative news -- and what news could be more negative than the looming specter of 7% mortgages? Once rates have spent a little time above that level, household spending is bound to collapse, right? Whatever happens, we're forced to acknowledge that consumers have shown rather more resilience in the last year than we might have expected, especially considering how much the real estate market has already deteriorated. Speaking of real estate, we had a chat over the weekend with a guy we used to quote here regularly who qualifies as a true expert's expert on the mortgage markets. We can no longer quote him by name because he's working for a respectable Wall Street firm. However, he has been one of the more patient bears around, having gone on record a few years ago with the prediction that a housing bust would take much longer to materialize than most bears expected. His reasoning was that in a severe economic downturn, to keep a roof over their heads homeowners would continue to make mortgage payments long after they'd stiffed other creditors. Well, quite a few mortgage lenders are seeing borrowers walk away from homes in record numbers these days. But according to our astute friend, the economic

Precise forecasting does not necessarily make for successful trading, as the two examples, both from Friday's Rick's Picks, make clear. In the first instance, we used price action in the Bond futures Thursday night to project a tradable low at 105^19. Here's the way the recommendation appeared in the newsletter: 'Here's a night owl special that seeks to leverage a delicate looking Hidden Pivot support at 105^19 that looks like it could get hit overnight. Bid there for a single contract, stop 105^17, good till 8 am ET. You'll be on your own thereafter, but a trailing stop is advised if the trade goes 8-9 ticks into the black.' (Click on charts to enlarge) As the chart above shows, the bonds made an important low just two ticks beneath our target, then trampolined higher. Unfortunately, we'd allowed only a 2-point stop-loss, so we got shaken out of the trade on the low tick of the day. Exactly 119 Points The second recommendation was based on a prediction sent out early Thursday evening that the Dow would rally exactly 119 points on Friday. Here's the actual Tout as it appeared in the newsletter: 'A very unintuitive ABC pattern suggests the futures will run up to exactly 13807 today if the bulls take charge. You can short there with a four-tick stop, but I wouldn't advise doing so in the final hour, nor would I carry the position over the weekend. Switch to a 10-point trailing stop on a pullback that touches 13785, and use 13767 as a minimum objective.' Now, look at what happened. In the chart below we see that the futures rallied exactly 120 points, to 13808, allowing us to get short a single tick below a promising high. A ten-point drop followed, but then a last-gasp rally took the