October 2007

An odd day for sure. The birds were agitated and the dogs were barking, and yet�no earthquake. Around mid-morning, with the DJIA off about 160 points, we would have given odds that the blue chip average would finish the day either down 250 points, or unchanged due to a short-squeeze in the final hour. In fact, neither occurred. The Industrial Average settled at 13984 ‘ down 108 points on the day but 80 points off the lows. A similarly constipated performance characterized the action in two other vehicles we were trading ‘ the Diamonds and the E-Mini S&Ps. Bottom-fishing in both, Rick’s Picks subscribers were advised to get out of the way quickly when the midpoint Hidden Pivots we were bottom-fishing failed to contain downtrends in either vehicle. But instead of falling to the ‘D’ targets associated with those midpoints as we might have expected, selling pressure abated, allowing the broad averages to claw their way back to boringly unsensational losses.

On balance, we view the action overall as mildly bearish, meaning we’ll be looking for stocks to hit the downside targets today that they were unable to achieve yesterday. But it’s going to take quite a bit of ballast to bring down Apple, which looks like it could pull the Nasdaq index 50 points higher all by itself. Yes, it was down yesterday — but only 28 cents, and that was more than $3 above the day’s lows. If the session had been an hour longer, nothing could have held Apple back.

The action in precious metals was almost as unsatisfying, notwithstanding the fact December Gold was up more than $11 at one point and appearing to consolidate for yet another thrust. That didn’t stop mining shares from giving back most of their gains, so that Newmont finished a paltry eight cents in the black. Goldcorp and Yamana did better, but not much. Nor did we get the satisfaction of seeing Comex Gold test a 768.90 target that has been our minimum rally target since the futures were trading $50 lower in early September. We’ve got targets well above that one, but first things first. We don’t care whether December Gold is boring in getting past 768.90, as long it does get past it.

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Forecast Like a Pro!

If you’ve visited the Rick’s Picks chat room, perhaps you came away impressed by the ease and confidence with which graduates of the Hidden Pivot seminar call the turns. Could you learn to do this yourself? Of course. Would it be difficult?  Well, you’ll have to ask KJ, or Harry, or Rose, or Sportsdoc, or Larry, or Hunter, or any of the other grads when you see them in the chat room. But it sure looks to me like they’re having FUN using and mastering their new skills.

If you’ve been thinking about taking the course yourself,  I have good news: It will be offered online the first weekend in November. And this time there’s an added incentive: Register now and you will have immediate, 24-hour access to the full, recorded version of the course. I will also ship you a copy of the 117-page course manual as soon as I’ve heard from you. And if you are not currently a subscriber to Rick’s Picks and sign up by October 21, I’ll throw in a free month’s subscription ‘ a $42 value.

Subscribers Get First Crack

I urge you not to delay if you’ve been thinking of taking this class, since there are only fourteen seats available. Subscribers will have first crack at registering this weekend, since the seminar is not being advertised. But sign-ups will be opened to all readers next week, so the class could fill up quickly.

For your convenience, the seminar will be held on Saturday and Sunday morning, November 3-4, in two three-hour segments. In addition, after you’ve had some time try out your new skills, you’ll have a chance to query me directly during an open-ended, two-hour chart session online.

The Hidden Pivot course could be the best opportunity you will have to learn how to forecast as accurately and confidently as gurus who do it for a living. It doesn’t take a PhD to master the technique either, since you’ll be taught how to look at stock charts as ‘art,’ rather than in the conventional way.

Training Manual & Recordings

Here’s what you’ll get if you sign up now:

� The two-day, six-hour Hidden Pivot course and training manual

� A two-hour Q&A follow-up once you’ve had time to try the system

� Free ‘continuing education’ classes online

� Free 24-hour access to recorded seminars, tutorials and Q&A sessions

� A free-month’s subscription, with access to the Rick’s Pick chat room during market hours

� Access to thousands of annotated charts in the paid-subscriber archive

� Access to the Educational Pages, with simple but effective strategies for risk management and market timing

� Rick’s daily Touts, including detailed trading recommendation for stocks, indexes, futures and options

� Dave McDonough’s ‘Excellent Hidden Pivot Calculator‘

� Rick’s idiosyncratic put-and-call advice, which distills more than 30 years of trading experience down to a few simple essentials

Sign up now and receive all of these benefits and more for just $960! To go directly to the registration page, click here , then on the ‘Upcoming’ tab.  If you would like more information about the Hidden Pivot Method, or about upcoming sessions, including an on-site session in Florida this winter, please click here.

Hope to see you in class!

We continue to view Thursday’s sharp selloff on Wall Street as little more than the beginning, and end, of a fleeting shakeout — one intended to bring stocks down to levels where they can be accumulated at cut rates by Da Boyz before the scoundrels goose shares once again, renewing an all but endless, and seemingly virtuous, cycle of asset inflation. The bullish case is buttressed by several factors that were elucidated in detail in the Touts section of Rick’s Pick last week. For one, the S&Ps, in the form of the E-mini futures, are tracing out a resolutely bullish pattern whose Hidden Pivot target looks sufficiently predictable that we’ve designated it a ‘hula number’ ‘ meaning that if it is not reached, and rather precisely at that, we (your editor, that is) will don a grass skirt and dance the hula in Times Square in the middle of winter.

But there are other factors that point higher as well, including an unachieved bull-market target in Apple shares that lies far above Friday’s settlement price. Precisely how far above is a detail we shall reserve exclusively for Rick’s Picks subscribers. However, suffice it to say, the target is well more than 20 percent above these levels. It is an important Hidden Pivot with a ’sibling’ midpoint at 161.00, and because of Apple’s bellwether status, we are obliged to take it seriously.

Concerning AAPL’s price action, typically, when a powerful uptrend gets too far ahead of itself, the inevitable correction will tend to display a magnetic attraction to the rally’s midpoint. Apple did just that on Thursday, plummeting from a record high $170 to an intraday low at $153 before bouncing back toward 161. ‘Don’t be surprised if the stock’s oscillations over the next couple of weeks’ center more or less exactly on 161, we wrote in Friday’s edition.

(Click on image to enlarge)

We fully expected the correction to eat up at least a week or two, since the midpoint is part of a very long-term bull cycle. In the event, however, although the 161 pivot was obviously central to Apple’s stabilizing swings on Thursday (see chart at top), by Friday the stock was consolidating well above it, mostly in the range $165-$167. The fact that AAPL may end up having required barely a ‘touch-and-go’ at 161 to refuel for further flight suggests that its powerful long-term uptrend is far from over.

If the stock does indeed continue higher in the weeks ahead, we expect it to be joined by that other favorite of the maniacally bullish fringe, Google. However, another stock every bit as important as these two could drag down the whole enterprise: IBM, which need only fall four points from its current perch at 118.19 to hint of serious problems ahead for bulls. Apple’s ethereal rally target would still be viable at that point, at least in theory, but we’d be combing our hula agreement by then, looking for an escape clause just in case. 

I spent yesterday in a Denver courtroom, blissfully beyond the reach of the brain-devouring virus that evidently has afflicted Wall Street in recent months. I was there in support of a friend, Bill S., whose seventh DUI had landed him in jail for a year. Now he was back in court trying to get the sentence reduced, encouraged by his lawyer to think the odds were pretty good. Or so they thought. But that was before the prosecutor spoke her mind. So many times did she repeat the words ’seven DUIs’ that, by the time she was finished, the defense might have wished they’d stayed home.

Now, you’re probably wondering why anyone with seven DUI convictions should even be considered for leniency. But the last of them was six years ago, and Bill has been a model AA story ever since. A fugitive from justice, he turned himself in so that he could put his legal troubles behind him. Since April, he has been on a work release program that requires a daily four-hour bus commute to and from the county jail. With an hour’s stop at AA every night, he rarely gets home before ten.

There were a dozen of his friends in the courtroom yesterday, each ready to testify that Bill is a changed man, no longer the drunken threat he once was on the highways. The judge was impressed with Bill’s impeccable record over the last six years, but in the end he deferred to the prosecutor, knocking just a few weeks off the jail sentence. There were no high-fives as we left the courtroom. I bought Bill lunch in Cherry Creek, then took him back to the county jail. He stashed a pack of cigarettes in his secret spot outside the facility. He’ll be up at 4:30 a.m. on Friday, ready for the commute but not exactly raring to go. Still, since there was no evening commute back to the jail on Thursday, he’ll have gotten a few more hours sleep than usual. Not a great day, but it could have been worse.

With the Dow Industrials down 165 points yesterday, the Nasdaq index and the puts we held on it were in a bullish warp ‘ so much so as to prevent our taking even a small a partial profit. We usually advise doing so early on in each trade, so that even if we are stopped out there will be no loss, not even a small one, after commissions. In this instance, however, the QQQs held steady and were never down more than 18 cents during the day, even when the blue chip average was getting hammered. As a result, puts on the QQQs went nowhere. As for the Dow’s weakness, Boeing shares were a big piece of it, reacting to news that the company’s 787 Dreamliner would be delayed by six months due to assembly line problems. The aircraft manufacturer’s shares accounted for nearly 20 points of the Indoos’ 86-point loss. Factor in Alcoa and Chevron, which both took hits, and yesterday’s decline looked far too narrow to mean much.

Meanwhile, we didn’t exactly throw in the towel on our put options, not yet, but we came close. Here’s the update that went out to subscribers intraday: ‘This short position is all but certain to get stopped out, since the QQQs are refusing to follow the DJIA lower this morning. The QQQs eventually will turn the broad averages higher, rather than the other way around. Google alone could do the job, assuming it is headed to the 662.99 target given today. We’ll stick to the original stop-loss at 53.65, but I doubt there will be an opportunity to reduce the impending loss to zero by taking a partial profit on our put position.’

And so it went. By day’s end, the QQQs had rallied to within 0.08 points of our 53.65 stop-loss, and there was a good chance it would trigger with just a little buoyancy Wednesday night. However, because we had initiated the short near Tuesday’s highs, we’re not likely to clipped for much. A small comfort, for sure, but not without value; for, the most sensitive way to ‘feel’ a market’s reluctance to go down is to be short it. And now, the S&P target we furnished a while back looks extremely likely to be reached, and precisely. Since it’s a pretty good leap from these levels, the opportunities over the near term will remain mainly on the long side.

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Blues Harp Junkies

In Tuesday’s Intraday Notes I provided a link to a Web site that features some blues and bluegrass greats, among them one of my all-time favorite blues harp players, Mark Ford (with brother Robben here). The guy is amazing, so if you’re a blues-harp junkie too, you should check him out. The complete catalogue of CD recordings by Mark Ford (and others) is available on the Bluerockit label. 

Take it from a hard-core permabear: This market is going higher ‘ possibly much higher. We edged our forecast for the Dow Industrials up to 15175 a while back, even as we were telling you that the real estate sector is about to become a Depressionary bog. Are these forecasts necessarily incompatible? Only if you are the sort who thinks logically, as opposed to imaginatively. Take our friend Joe D., who wrote to tell us yesterday that he was throwing in the towel on short positions in Yum Brands and MGM. From a logical standpoint his initial decision to short the shares of these companies seems flawless, even with both stocks currently in uptrends as steep as Yosemite’s El Capitan. Yum! Brands, chicken purveyor to the world through its KFC outlets, is a dead duck as long as the bird flu story continues to grow scarier by the day, which it must. And MGM is even deader meat, since the casino business is more bloated and competitive than ever as the U.S. economy dives headlong into recession-or-worse.

But why should such details matter if equally weighty realities have failed to slow the bullish onslaught of the Dow Industrials and Nasdaq 100? In fact, in a stock market that has turned logic and even rationality on its head, it is the very worst stocks that should be climbing the fastest. And they are, as witness the performance of that indomitable category killer in the auto business, Chrysler. Pondering these in-our-face affronts to reality, and with the urgent goal of removing ourselves from harm’s way, we die-hard bears must be open to the imaginative point of view ‘ i.e., that with the Industrial Average appearing to consolidate at 14000, it’s quite plausible that ‘ are you ready for this? ‘ ‘We ain’t seen nuthin’ yet!’

So get over the notion that the stock market, dumb as a boiled cabbage, somehow looks ahead and sees a robust recovery in the housing sector six months out. It sees nothing other than its own navel, really, and that is all it will continue to see until the day stocks take such a hellish downturn that even Kudlow will run for cover. Of course, in the meantime it can’t hurt for us to monitor some of the telling signs of trouble, including the fact that neither the Transports, nor the Utilities, nor the Banks, are in gear with the Dow and Nasdaq. But just as we should not look to real-world economic events to guide us in our assessment of the market’s prospects, neither should we depend on bedrock principles of technical analysis to tell us when the insanity will end.

Two bellwether stocks, Apple and Google, exceeded challenging Hidden Pivot rally targets yesterday, hinting that they will lead the broad averages higher for at least the next several days. For more than a week, we’d been looking for Apple to reach a minimum 164.22 and Google to hit 602.04. After climbing to within less than a dollar of those targets, both stocks paused yesterday for several hours. But by day’s end, they had blown past them and were steaming still higher, promising to stimulate a buoyant opening this morning.

Not surprisingly, the Nasdaq 100 Index, of which AAPL and GOOG are key components, finished the session with a gain even though the Dow Jones Industrial Average narrowly failed to get into the plus column. The Indoos closed with a small loss, down 22.28 on the day, while the Nasdaq-based QQQs settled at 53.11, up 0.29. At that level, the ‘Cubes’ were not too far from a Hidden Pivot target where we were looking to get short. We remain no less eager to do so now, notwithstanding yesterday’s intimation of buying power remaining to be spent. However, although we were planning on initiating the trade by acquiring some December 52 puts without a stop-loss, we are no longer feeling quite so daring and have therefore modified certain details of the QQQQ shorting strategy given in Monday’s Pick of the Day.

An Attractive Bet

The trade is in keeping with our policy of shorting every promising rally target that deigns to get in the way of this bull market. The fact that we can use Hidden Pivots to do so repeatedly without risking much makes the strategy an attractive bet, especially when our Hidden Pivot target has just the right look on the hourly and daily charts.

Remember, there will be no shorting this market after it breaks, since the initial decline will inevitably occur on a gap-opening sell-off so steep that boarding belatedly will be like skiing into an avalanche. And while there may be no certainties in this universe, the likelihood that said avalanche will follow on the heels of a short-squeeze rally into the previous day’s close is almost as sure a bet as that the sun will rise in the East. Bottom line: We can short only into strength because that is the only opportunity we will have. If we happen to nail ‘a’ top rather than ‘The Top,’ as we have done so often, we can live with that.

I’ve been a Colorado Rockies fan for exactly a week, having jumped on their bandwagon just as the excitement was starting to build here in Denver last weekend. A pair of skybox tickets for the second of three games against the Diamondbacks dropped into my wife’s lap, and so there we were at Coor’s Field last Saturday night, feasting on brats and beer, and high-fiving real fans every time a Rocky crossed the plate. A day earlier, odds that the Colorado team would see any post-season action were remote and sinking, since the Diamondbacks had already taken the first game of the series.

At that point, to reach the divisional playoffs on a wild card, the Rockies needed to win the two remaining games, while elsewhere the Padres would have to lose twice to the lowly Brewers. To the amazement of all, that’s exactly what happened. And now, with a show of determination, panache, luck and daring that has produced one of the most spectacular streaks in the history of baseball, the Rockies have won 16 of their last 17 games, including two playoff games last week in their five-game series against the Philadelphia Phillies.

Whiz Kids

Before the series with Philly got under way, I wasn’t sure how my loyalties would divide. I was a big Phillies fan as a kid, (mutating into an even bigger Pirates fan from 1960 on) and one of the biggest thrills of my young life was taking the Phillies Special train from Atlantic City to Connie Mack Stadium. My heroes back then were Robin Roberts, Richie Ashburn, Stan Lopata, Harry Anderson, Ed Bouchee and a burly, former White Sox player named Carl Sawatski, who will be remembered, if at all, as the only catcher in the game who didn’t wear a chest protector. I remember him as a home-runner hitter, though, since, the first time he came to the plate in the first-ever Phillies game I can recall attending, he hit a line shot over the scoreboard in left centerfield.

But the Phillies who took to the field last week against the Rockies were unrecognizable to me. So much so, that when shortstop Kaz Matsui hit a grand slam to all but clinch Thursday’s playoff game for the Rockies, I rang up an old Atlantic City chum ‘ still a diehard Phillies fan after all these years –to ask whether he was enjoying the game. (He wasn’t.)

Sinking Fast

I haven’t paid enough dues yet to qualify as a true Rockies fan, and the twelve seasons they spent going nowhere after the team was launched in 1995 didn’t faze me in the least. But they must be getting under my skin, since I found myself scouting the Yankees-Cleveland playoff game this afternoon, wondering how the Rockies’ ‘murderer’s row’ is going to hit the 95-mile-an-hour sinker of Cleveland ace Fausto Carmona. Whatever the answer, there’s going to be a lot of great baseball this October.

Microsoft’s Halo 3 has racked up $300 million in sales in its first week ‘ no small accomplishment for a company that has yet to put out a decent Media Player after eleven tries. Maybe it’s because all of the good ideas contained in Halo, as well as the code, came from outside contractors? I don’t know whether that’s true or not, but I’d be surprised if any programmers on Microsoft’s permanent payroll had a hand in creating something that works as flawlessly as Halo.

On the other hand, what choice did they have? The game business is so ruthlessly competitive that even a small misstep can cost a company hundreds of millions of dollars in lost profits. Too bad there’s almost no competition in the market for PC operating systems, since that might have forced Microsoft to put out a product comparable in quality to Halo.

I can attest to Halo’s potent appeal, since my 15-year-old has been practically living in the basement since the game was released at midnight on September 25. That being a school night, in the pouring rain I took his spot in a queue that wound its way through the parking lot of a local videogame emporium. My son had left a downpayment more than a year earlier, so there was no waiting till morning. Came the weekend, he pulled back-to-back all-nighters before crashing into a coma-like sleep from which he did not awaken until late Sunday afternoon. His life has since returned to normal only because I put a lock on the Xbox the other night.

Crude But Engrossing

I experienced the addictive power of videogames myself in the late 1960s, playing ‘Space Wars’ for the first time with some friends in a student lab at MIT. The game was crude even compared to Donkey Kong and Super Mario, let alone Halo, but it was enthralling nonetheless. The individual consoles had just four functions: rocket ship left, rocket ship right, accelerate, and fire missiles. We started playing around 10 p.m., but it felt like we’d only been at it for a few hours when the sun came up.

One of these days they’re going to release an X-rated, 3D videogame that will simulate sex with strangers and starlets so realistically that, even without bringing our sense of touch into play, it will prevent any paying work from getting done. Of course, the Marxists will tell us they saw it coming.

So, the Street supposedly believes the worst of the credit crunch might be over. We’d say that’s a tad optimistic, considering the real estate sector is still weakening and likely to deteriorate even further because of the huge backlog of unsold homes. Regardless, DaBoyz evidently are going to need a story with more sizzle to re-ignite the short-squeeze that has provided nearly every dime of buying power since stocks bottomed in mid-August. Short-covering got the current week off to a strong start, with the Dow Industrials up nearly 200 points on Monday. But since then the market has looked pretty punk, declining for two straight days just when bears appeared to be on the ropes.

In the surprising absence of any follow-through to Monday’s short-squeeze, attention has shifted to the release on Friday of payroll figures for September. Supposedly, investors are hoping for a strong report, since it would imply the economy is on the upswing. If this is so, it would suggest that a significant change has occurred in their thinking. For years, Wall Street’s obsessive concern has been that the economy would turn ‘too strong’ to warrant Fed easing. Now, investors evidently are hoping for statistical evidence of strength even though it could discourage the Fed from opening the taps.

What might account for the change of heart? Our hunch is that many people no longer believe the mere availability of easy credit is likely to jump-start an economy that has become so deeply mired in real estate deflation. While it’s hardly farfetched to imagine that a ’strong’ payroll report on Friday might stimulate a brief short-covering rally, we think buyer’s remorse is likely to follow quickly. Unless the economy can show more than a few blips of phony statistical strength, and soon, stocks will not long continue to defy gravity.