October 2008

GDX has bounced sharply from a low well above the $14.24 target projected a while back in the chat room. The target is still valid and will remain so unless 38.73 is exceeded first. However, the midpoint pivot tied to the target lies at 26.48, and that is a logical price objective for the current rally. If the target is achieved, it would represent a nearly 50% retracement of the downdraft from late September's high, 38.73. The fact that the most recent bottom failed by 1.59 to achieve the target is an incipiently bullish sign, but we'll be better able to judge if and when GDX encounters a lesser midpoint resistance at 22.05. If it is easily brushed aside, that would affirm the likelihood of a move to 26.48.

The Gold Bugs Index did everything we asked of it and more yesterday, justifying the optimism we'd expressed at the outset of the move. Immediate upside potential is to 223.22, a Hidden Pivot, but HUI will need to get past its sibling midpoint at 203.74 first. Applying the same criteria we used in today's analysis of the Gold Miners ETF (GDX) yields an upside target of 246.98, so we'll make that our minimum expectation for the next 10-12 days. If it is to remain viable, minor-trend pullbacks should not exceed their 'D' targets -- should in fact go no farther than their respective c-d midpoints.

We took a good look at this vehicle during yesterday's tutorial session and concluded that the sharp drop from Tuesday's 87.88 high is a correction, not a major trend change. There are two reasons to infer this is so: 1) the high exceeded a clear target on the weekly chart by more than 3 points, and 2) it also exceeded some daunting look-=to-the-left peaks recorded back on 2006. Rallies rarely achieve such feats only to die ignominiously, so we'll assume there is more upside to come. That said, the pullback looks like it has farther to go, since it continues to exceed 'D' targets on the hourly chart. The nearest one with analytical value is 83.33, so we'll make that our minimum objective for now. And easy move through it would spell more weakness over the near term.

Don't get your hopes too high if you went home Wednesday thinking the selloff would continue. In fact, the futures were chomping at the bit in night trading, threatening to run up to a midpoint resistance at 964.00 that would fall 7 points shy of yesterday's high. That would all but clinch a test of the peak, and if it's swept aside, the futures could be revving up for a shot at its 'D' sibling, 1013.50.

In mid-evening trading, the futures have speared a 767.20 midpoint resistance, suggesting they are game for a shot at its 'D' sibling, 786.80, at least. Just one minor obstacle lies along the way: 777.40, a minor Hidden Pivot. If it's breached by more than three ticks, the remaining 9 points to the target should be a cruise. _______ UPDATE: The futures made it no higher than 778.30 overnight -- a negative sign for perhaps the next 2-3 days. Another hint of further weakness to come is that the pullback has exceeded the 767.20 midpoint. A close below it would add to the tired picture.

Years from now, when the Dow Average is wallowing below 3000 and we hear some windbag brag about how he made a fortune shorting the bear market the whole way down, we’ll remind him of the short squeeze that occurred on October 28, 2008. The rally was Mr. Market’s way of telling bears that it’s not always possible, let alone easy, to make a pile of dough by betting on the sure thing. And we do think that the ongoing collapse of the stock market is a sure thing, even if there will always be interruptions such as yesterday’s. But when the hubris dies down, stocks will still be in a bear market, the economy will still be slipping into the deepest bog since the 1930s, most of the largest banks in the world will still be verging on failure, home prices will still be dropping like a brick, and credit deflation will still be threatening to asphyxiate borrowers and lenders alike. (Click on charts to enlarge) In short, nothing will have changed �' even if Kudlow is saying that the stock market, supposedly prescient as always, has glimpsed recovery in 2009. In fact, the stock market is about as prescient as a meatloaf, and nascent bull markets do not so much predict economic recoveries as engender the psychological changes that cause them. We are confident this cyclical turn will occur eventually �' just not before the Kondratiev cycle’s scheduled bottom around 2015. In the meantime, we’d suggest that speculators do breathing exercises while contemplating a monthly chart of the Dow Industrials. Note in candlestick rendition above that Tuesday’s maniacal short-squeeze did not recoup even half of October losses represented by the final bar. That would require yet another thrust to at least 9368 -- 303 points above Tuesday’s settlement

When I proffered a 9050 target in the chat room yesterday with the Dow trading 600 points lower, I didn't imagine it would be reached in mere hours. Be that as it may, the target is a Hidden Pivot midpoint, and the fact that it was exceeded by 30 points intraday means its 'D' sibling at...9955 (!) is now in play. But before we give the bull the further benefit of the doubt, let's stipulate that the rally touch 9383.40. That would be solidly impulsive on the hourly chart, surpassing an "external" peak along the wall of last week's decline. The 9955 target sounds a bit extreme to me, since I cannot conceive of anyone, even panic-stricken shorts, finding a rationale for buying at those levels. However, one should never underestimate the potential of a short-squeeze, especially in such very interesting times as these.

The 134.17 target given here earlier is dismal to contemplate, so we'll look on the bright side today instead. And there is potentially good news to offer, since it wouldn't take much of a rally to put bulls solidly in charge of HUI's short-term prospects. The accompanying chart shows why: A thrust exceeding the external peak at 179.51 would create a quite promising impulse leg on the hourly chart. That's just 6.52 points above yesterday's high, and so we have something to root for. With any luck, we may be able to get long on the breakout, or possibly on the follow-through rally if it triggers subtly enough.

I'll offer up a 32.11 rally target, but it's for experts only, since, the way stocks have been moving, this pivot could be chopped liver two seconds after the opening bell. _______ UPDATE The Cubes have been as high as 32.08 in the first hour, subsequently pulling back to as low as 31.41. If you shorted near the high, a break-even stop-loss should be used so that there is no loss even after commissions if you get stopped out. Profit-taking on half the position is also advised at this time.