Friday, February 15, 2008

Are Panicky Bears Spent?

– Posted in: Current Touts

Keen to short the shares of Citigroup, as well as those of the casino operators and certain other publicly traded companies hurtling toward certain disaster, we've patiently awaited the powerful short-squeeze that would finish off recalcitrant bears who survived January's 1,100-point Dow rally. But is it possible that all of the squeezing has already been done, and that the last breath of bearish buying power has been wrung from the market? This glum prospect occurred to us yesterday when the Industrial Average failed, for the second time in as many weeks, to convert a promising rally into something more than a one-day wonder. By our runes, the Indoos should have had little trouble reaching a Hidden Pivot target at 12704, since it lay a mere 150 points above the previous day's settlement price. What we saw instead was a feeble opening with barely any short-covering, and then a six-hour selling dirge that wiped out Wednesday's substantial gains. A similar trend failure occurred in late January, when a 1,000-point rally in the Dow over several days begot a relatively lame follow-through that barely went half as far. (Click on chart to enlarge) So what gives? From a Hidden Pivot standpoint, it's no trick determining exactly when we should turn bullish. All it would take is an uncorrected rally past the two labeled peaks shown in the chart. A 358-point thrust would have sufficed from Wednesday's high, but after yesterday's relapse the minimum requirement is now 560 points. Eager as we are to lay out tightly stopped shorts at such heights, we are beginning to doubt the buying power remains to take stocks there. Only Bears Are Buying Of course, when we talk about buying power, we don't mean bullish buying, but rather panicky short-covering. For, that is the only buying being