April 2008

We've been bullish on the stock market in recent weeks, but not very. It's hard to get worked up when you're convinced, as we are, that the rally may be setting up stocks for a crash from even higher heights. At the moment, however, Hidden Pivot analysis points at least somewhat higher, implying there is a strong but perhaps brief rally ahead that could bring the broad averages to an important top. We haven't been touting this target as a possible Mother of All Tops because, frankly, that game got old a long time ago. But we are confident nevertheless that our target will be short-able if it's reached, since the S&Ps have been dancing with Hidden Pivots on the hourly chart recently as though they were Pavlova and Nijinsky. Yesterday, for instance, the E-Mini S&P hit a 1404.50 rally objective that we'd been touting since mid-April, when the futures were trading 35 points lower. In the recommendation that went out Sunday night, we suggested shorting there with a three-tick stop-loss, risking about $40. As it happened, the high of the day occurred at exactly 1404.75, a single tick above our target. And although the subsequent pullback was relatively gentle, if the short had been covered at the low, it would have returned a profit of about $450 per contract -- more than ten times what we had risked, in theory, on entry. Officially, we covered for a profit of $350 per contract. This was done by way of an intraday update disseminated on the Web site when the futures were trading at 1397.50. We cannot predict whether 1404.50 will turn out to be an important high, but we are pretty confident that if the E-Mini gets past it by more than a few ticks, the rally target alluded to

I put out a fleeting buy signal yesterday on Sirius Satellite Radio after a chart alert I'd set earlier this year warned that the stock was approaching a long-term target at $2.87. SIRI shares were hovering closer to $4.00 when the forecast was made, and although the implied 30 percent drop seemed like overkill, we've learned never to second-guess our technical indicators, especially Hidden Pivots. In this instance, those indicators fortunately tempered our enthusiasm for accumulating a stock that had traded as high as $60 during the dot-com boom. It's hard to imagine Sirius would not be a bargain at these levels, but perhaps not. That's because SIRI's funereal dirge yesterday exceeded our Hidden Pivot target at 2.87 by nine cents ' a seemingly trivial miss that in our book is as good as a mile. We stopped ourselves out of the long position after holding it for several hours, although one guy in the Rick's Picks chat room confessed to having ignored my instruction to exit the trade if SIRI fell even a little, to 2.79. We admonished him gently, noting that our enthusiasm was never so much for the stock itself as for the Hidden Pivot at 2.87 that had looked so promising. The fact that this support was exceeded by a relatively whopping nine cents implies that still-lower prices impend. From a fundamental standpoint, we would infer that it may be yet a while longer before Sirius finds a profitable business model, assuming it ever does. World-Class Mouth Expectations for Sirius were nothing less than circus-is-coming-to-town giddy after Howard Stern signed on a couple of years ago. In retrospect, it is clear that it was Stern's world-class mouth that helped pump up SIRI shares. Indeed, he was as relentless a promoter of the company as he has

We can't recall the last time we even looked at a trendline, but our friend Peter Eliades mentioned the one below in his latest update, and we just had to see it for ourselves. As it happens, the bullish implications of this graph are somewhat aligned with our own, mechanically bullish, ideas at the moment. We say 'mechanically bullish' because, Kudlow & Friends aside, only a deaf, dumb and blind algorithm could be bullish right now, given the parlous state of the economy. So, bullish we are, algorithmically speaking. But not very. In practical terms, this means we think the Dow Industrial Average should be able to grope, claw and stumble its way to at least 13247 before it finally gives up the ghost. That's according to a Hidden Pivot calculation, and the target lies about 2.8% above current levels. It is closely coincident with a bullish target we've been using for the E-Mini S&P ' against all logic and instinct, we would have to concede. Logic and instinct, so essential for enabling one to decide where to cast one's fly, or how to handle a mugger who has demanded to be taken to your ATM, nearly undid us early in our trading career. But that was before that fateful day in 1990 when we stumbled on the coldy mechanical Hidden Pivot system while gigging frogs in the South Jersey marshlands. The system has been a godsend ever since, mainly because our instincts had been wrong about the timing of major price swings at least 116% of the time. Armageddon Countdown Now, armed with a mechanical crystal ball, and knowing that at least 355 Dow points remain before Armageddon, we've been preparing for the worst, laying in a supply of bottled water, curing venison, putting up canned peaches and pears ' and,

Citigroup's shares have rallied 45% since bottoming five weeks ago. That might sound impressive, but the chart below puts it in proper perspective. As you can see, the stock has quite ways to go before long-term investors might be feeling anything close to a sense of relief. Citi lost two-thirds of its value relative to the highs of last summer, but it would need to more than double in value from current levels just to get back to where it was. Miracles do happen, of course, but our inclination, deeply skeptical as we are of any lasting recovery in the banking sector, is to short the bejeezus out of the stock, using a penny-ante stop-loss, each and every time it rallies to a particularly juicy Hidden Pivot. We've had just such a target in mind for the last week or so, and this time for a change it looks as though Citi might actually get there. Detailed trading instructions are included in the 'actionable advice' section of today's Rick's Picks. Subscribers who were in the chat room yesterday might already be short in Apple from within pennies of yesterday's high, since, on-the-fly, I advised naked-selling May 170 calls for a tad less than $700 apiece. The options seemed a little pricey considering the stock was trading for less than $169 at the time. But only time will tell, and I've recommended an 8.10 stop-loss on the calls in any event.) Concerning Citi, in the chart above, notice how the entire rally from the $18 low recorded in mid-March has yet to surpass even a single major peak on the daily chart. We'd need to see it get past two of them ' to hit 35.30, that is ' before we'd believe that the current binge might be something more than

Is it just our imagination, or have the stock market and the election campaign been tracking pretty closely lately? One day, we read that Obama has clinched the nomination; the next, that his name is mud in Pennsylvania. He's Mr. Clean in a Newsweek feature story, then he gets tarred-and-feathered four days later by the Chicago Tribune for his alleged ties to some sleazy local businessman. At more or less the same time, the stock market soars because 'the worst is behind us;' then it tanks three days later because crude oil prices are out of control. Not a week later, it surges anew, supposedly because investors are thrilled when they discover that the big banks are reporting Q1 losses of no more than about $6 billion apiece. How much more of this schizophrenia are we going to have to put up with? Will the stock market have to break out of its 2008 range before we have a clear winner in the Democratic primaries? Or, conversely, is an Obama victory in the upcoming North Carolina and Indiana ballots needed to send stocks soaring/plummeting decisively? If the picture doesn't clear up before the Democratic National Convention in Denver this summer, we may be forced to take the gas pipe. Meanwhile, whatever happens, it can't happen too soon, since the tedium of the last few weeks seems to be driving Rick's Picks chat-room denizens to the edge of madness. Try to imagine what your neighborhood would be like if nearly everyone in it spent six hours a day tracking the price movement of Comex Silver on a five-minute bar chart. A snippet of dialogue: Harry: Say, Bob, it looks like that pear tree of yours survived another Colorado winter. Bob: A=17.25, B=17.67, C=17.53, D=17.96. Harry: What time-frame are you using? Bob:

The Dow fell a mere hundred points yesterday ' an amazing show of strength, considering the disturbing tenor of the news. For starters, it was reported that existing-home sales for March fell by 2%, pushing the median price down to $200,700, or 7.7% less than a year ago. On the energy front, the price of a barrel of crude set another record, closing at $119.37 a barrel. Airline stocks were in a state of collapse as a result, with the shares of UAL (shown in the chart below) and American Airlines in particular suffering devastating losses. Meanwhile, the Dollar Index was extending its losing streak, hitting a new all-time low versus the euro. Under the circumstances, we might have expected the Dow to fall by at least 500 points. Instead, it was off by just 100, and a few of the stocks at ground zero, such as Citigroup and Merrill Lynch, actually eked out small gains. This suggests that the bear rally begun in late January still has some life left in it. Whatever the case, cyclical forces that have been holding an avalanche at bay in recent weeks appeared to be a more powerful influence on investors yesterday than any bad news that may have crossed the tape. Wall Street's mellow attitude reminds us of the old saw, that if you can keep calm while all those around you are panicking, then you probably don't understand the situation. This would appear to be true in spades right now, given that the Dow is within 12 percent of record highs and continuing to hang tough against recession, a real estate collapse and a dollar headed toward oblivion. One further, disquieting item that got shoved off the front page yesterday concerned a leap in California foreclosures to their highest level in

Bank of America got off easy yesterday after posting a 77% drop in earnings. The stock fell just $1.06, suggesting that investors may have gotten used to big banks routinely announcing multibillion losses every quarter. In B of A's case, the actual write-downs totaled nearly $8 billion, including $1.91 billion for losses from investment banking and another $6 billion from bad credit. Considering the foregoing, the Wall Street Journal's market wrap-up was inscrutable: 'Investors have excused financial firms for some poor earnings reports recently,' the Journal noted, 'but they're not going easy on Bank of America.' (Click on chart to enlarge) Maybe it's a relative thing? After all, when Citi announced a $5.1 billion loss last week, the stock soared. Seen in that light, the two percent markdown of Bank of America shares yesterday might seem pretty harsh. To give B of A it's due, it has taken a few months for big losses to surface, and although many banks have been drowning in red ink since the beginning of the year, B of A's problems, whatever they might be, have barely attracted a dishonorable mention on any top ten lists of troubled banks that we've come across. Perhaps the spin doctors have been grooming it to take over Lehman Brothers if the need should arise? A dirty job, for sure, but someone's got to appear qualified for the task. Short Squeeze Next? The Dow Industrials fared about the same ' which is to say, no worse than prayerful bulls might have hoped. The blue chip average was down a hundred points in the early going, most of the slippage having occurred on the opening bar. But by day's end the Indoos had recouped all but 24 points of the loss, and we'd be surprised if this show of resilience

The week ended on a felicitous note, since we'd shorted some S&P mini-futures Friday on the exact high of the day, 1398.25. The advice that went out to subscribers the night before, with the S&Ps trading 26 points lower, was as follows: 'If there's a reason to go with the flow right now -- to follow the lunatics right to the edge of the cliff, if need be -- it is the clarity and persuasiveness of the bullish pattern shown in the accompanying chart. The hourly bars yield some of the most reliable targets we've seen in this vehicle, and it looks like another doozey is on its way. The actual pivot lies at 1398.25.' And so it went. The position was showing an unrealized gain of $550 per contract at the final bell, but we've learned not to count those chickens before they hatch, since what Mr. Market giveth, Mr. Market might rescind before we've had our first cup of coffee Monday morning. Even though we were prepared for the S&P futures to top exactly where they did, Friday's tidal surge came as surprise, triggered as it was by the announcement that Citi had lost yet another $5 billion in the first quarter. Had we known that such rotten news would greet investors on Friday, we probably would have gone home short the night before. But we would have been dead wrong, and we would have been sporting a brand new orifice before the session was even an hour old. Who knew? For, far from being alarmed by the news, Wall Street took it as reason for celebration. (Click on chart to enlarge) We've explained here a dozen times that these rallies have just one cause: short covering. Seen in that light, Friday's surge occurred simply because sellers, having

Sometimes we hear on the evening news that the stock market finished up or down only slightly on days when the averages have swung wildly all day. Yesterday was not one of those days. The Dow finished up a mere 1.22 points, and that pretty much tells the story. Most of the vehicles that we trade made their respective highs or lows early in the session, and from that point on, the biggest challenge for anyone monitoring the markets would have been staying awake. If you're getting a sense of d�j� vu, it might be because we were in almost exactly the same place, both literally and figuratively, a week ago. At the time, we found ourselves hoping that Friday's traditionally whacky price action would provide some comic relief. It did, and we got our wish in the form of a 250-point drop in the Industrial Average. Will lightning strike twice as yet another tiresome week draws to a close? We certainly hope so, since we don't want to be found slumped at our desk, dead of boredom ' not with the local weatherman predicting a weekend of sunshine and warm temperatures. That would be a nice change for the Denver area, which usually trips and stumbles its way into summer with a series of snowstorms punctuated by all-too-fleeting periods of spring-like weather. Jersey Drizzle We're not sure where in this country the springtime of poetry actually occurs. In New Jersey, where we grew up, spring was a cold, ceaseless drizzle that eventually gave way to a hot and muggy summer commencing after Memorial Day. Here in Colorado, spring weather is freakish rather than merely drizzly, and it can snow as late as mid-June ' did snow, in fact, not long after we moved here in 1999. It was a