The 726.25 downside target is still valid, but if Friday’s short-squeeze gets second wind, pushing the futures above 838.50, bears had best put it out of mind. Consider Squeeze II under way if a booster-stage rally of at least 16 points erupts from somewhere not far below 789.40. _______ UPDATE: Squeeze II triggered in the orthodox manner anticipated above, producing an overnight waft that pointed toward 849.25, a Hidden Pivot. This number was posted in the chat room this morning with the futures trading in the low 830s. It can serve as a minimum upside objective for the near term.
From the monthly archives:
November 2008
The rally did not surpass even a single “external” peak, although any congenital weakness we might be tempted to infer from this would be negated by a print today at 8187.25. More bullish still, and hinting of a change in the short-term trend, would be a rally that surpasses 8310. From a Hidden Pivot standpoint, 8259 is about as far as any rally should be expected to go. _______ UPDATE: This morning’s juicing got the Indoos to 8406, reflecting a gain of about 350 points. As of 1:46 p.m. the Dow had pulled back to as low as 8229, sufficient to be presumed ready for another leg up. Assuming the pullback low endures, the second big leg would trigger at 8464; if the low is breached, the trigger would occur 44 points above the new low.
The Cubes looked bound for at least 26.84 when the clock ran out last week, but they’d could go as high as high as 27.47 today or tomorrow if the hysteria persists. If that number is touched, it would just barely turn the hourly chart bullish, creating a weak impulse leg. However, it would take a print at 28.79 to distinguish a promising rally from mere noise.
My outlook for the dollar has been quite bullish for months, but it wouldn’t take much of a decline from here to warrant caution. Specifically, if DXY breaks beneath both of the “external” lows shown in the chart — the lower of which lies at 8717 — without pausing to correct, it would create a bearish impulse leg of minor degree. It would take a much sharper plunge, to below 8505, to turn the hourly chart bearish, but it behooves us to use the more sensitive indicator, since, when the dollar finally turns, the swiftness of its collapse could be breathtaking.
The futures exceeded the highest target I could have projected on Friday based on the hourly chart. That’s bullish going forward, but since we’ve exhausted the supply of Hidden Pivot targets, at least for the moment, we’ll need to use a Fibonacci-based target at 839.00 as a minimum upside projection. That would represent a 0.618 retracement of the declne from the 936.30 high recorded on October 10. However, before we infer that 839.00 is in play, we’ll stipulate that the futures first move decisively above 808.75, the exact midpoint of the October selloff. Friday’s high at 807.10 fell just short of it.
Crucial resistance in the form of a midpoint pivot lies at 9.915, but if the futures can break decisively above it, that would hint of more upside to as high as 11.055 over the near term. Let’s require a two-day close above 9.992 before we get excited about the prospect.
We forecast an 1800-point plunge in the Dow Industrials here yesterday, but an even scarier prediction appeared in the Touts section of yesterday’s edition �’ i.e., that Citigroup’s shares would fall to $3.58 — accompanied by the sound of “trumpets from on high.” The way the stock has been crashing though Hidden Pivot supports lately, there was little reason to doubt it eventually would reach the target. But we did not imagine it would happen as early as this week. Now it seems likely. In just the last two days, Citi has plummeted 48%. If you go back to November 14, when the stock traded as high as $14.68, the losses total 70%. Yesterday Citi settled at 4.67 after rebounding in the final minutes from an intraday low of 4.39. We held a small long position coming in yesterday, having bought a few January call options the day before as the stock unraveled. But we told subscribers to dump them for a 35% loss at the opening, fearing (as we wrote at the time) that the former banking giant’s shares were nearing the “vortex of bankruptcy”.
Until recently, Paulson & Friends had managed to keep Citi out of the headlines. Although there have been recent announcements of huge layoffs at the bank, the last time they made waves on the front page was when they tendered a bogus, $2 billion offer for Wachovia at the same time Wells Fargo was offering $15 billion in more or less real money. Citi initially had the chutzpah to threaten Wachovia with a law suit in order to force the deal through, but someone way up in the chain of command must have told them to back off and keep their mouth shut. Which they did. But if Paulson was hoping investor scrutiny of Citi’s terminally shaky portfolio would wane, those hopes were dashed when sellers sent the stock into a potential death dive yesterday morning.
Shades of 1991?
Now, unless Paulson and Bernanke can pull one helluva rabbit from the hat, this could be Citi’s swan song, since institutional investors and pension funds cannot own stocks priced below $5. If the company’s shares don’t levitate above $5, money managers would have till the end of the quarter to dump them. It wouldn’t be the first time Citi lay within a heartbeat of flatlining. It happened during the allegedly mild recession of 1990-91, when a bond issued by Citi looked like it was going to be undersubscribed. This would have caused a Moody’s downgrade of the bank’s debt that could have been fatal. Fortunately, the Federal Reserve came to the rescue, changing the rules in the ninth inning so that Citi was effectively allowed four strikes. The Fed’s shenanigans saved the day, but it was a piece of cake compared to what the central bank is dealing with this time. (If you’d like to have Rick’s commentary delivered free to your e-mail box each day, click here.)
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Last Class in 2008
Because the November 5-6 Hidden Pivot Seminar was sold out, we will be offering the class again on December 3-4 for $1150. The fee includes entry to weekly tutorial sessions for an entire year. For more information, click here.
I thought I might be able to finagle a reprieve for the Indoos by rejiggering my Hidden Pivot calculations, but even under the most optimistic assumptions, the blue chip average appears to have slipped beyond redemption. Specifically, I slid my point ‘A’ backward to the 11867 high recorded in mid-August, effectively lowering the ultimate target to 5812 from 6196, but also lowering its associative midpoint. Unfortunately, even the lower midpoint, 7803 (vs. 7995), has already been decisively breached, increasing the odds that the Dow is about to go much lower. Under the citrcumstances, a rally up to either midpoint should be used as an opportunity to get short.
Both of the Hidden Pivots flagged here yesterday supported tradable bounces, but the fleeting nature of the rallies warned of the weakness that was yet to come. After hours, DaBoyz were playing squeeze-o-rama, but ineffectually so, since thre 759.25 peak as of early evening was well shy of the 772.25 print it would take to turn even the lowly 1-minute chart bullish. My minimum downside projection for the near term is 726.25, a target that looks quite compelling in the accompanying chart.
Street Celebrates Business-as-Usual
by Rick Ackerman on November 24, 2008 6:23 pm GMT
The Dow’s 500-point rally on Friday was being attributed to President-elect Obama’s choice of New York Fed chief Timothy Geithner as Treasury secretary. Over the weekend, the Wall Street Journal effused over Geithner’s supposed “prescience” in having foreseen the risks — if not, apparently, the unraveling — of the credit cycle. However, in the gimlet-eyed newsletter world, the prospect of having a Fed policy wonk in charge of the U.S. Treasury is about as heartening as having Harvard’s history department run the Armed Forces. We’d much rather the market had rallied 500 points on word that Obama plans to abolish the Federal Reserve.
Fat chance, you say? For sure. But could anything conceivably be more bullish for the stock market and the economy? Instead of having the wonks throw yet more trillions of dollars at problems they’ll probably never fully understand, the nation could start fresh with some old-fashioned, Adam Smith-style capitalism. That would all but ensure that every precious dollar Americans are able to save from this point forward will be deployed to best effect, economically speaking. Doing away with the Fed would lay the groundwork for an enduring recovery rather than a centrally managed one that, from the looks of the bailout so far, would probably come to resemble Stalin’s five-year plans, but without specific goals.
Ghost of Keynes
We’re not suggesting things would get better right away, since even under the most optimistic circumstances the economic crisis could take five years or longer to run its course. But the way in which we choose to handle this very severe economic dislocation from the outset matters a great deal, since we know from the experience of the 1930s that Keynesian stimulus, public works programs and good intentions alone are not sufficient to overcome deflationary drag. Many economic historians, even liberal ones, now concede that it was nothing FDR did that finally lifted the economy from its depressionary depths, but rather the gearing up of U.S. production for World War II. Are we headed down the wrong path once again? (If you’d like to have Rick’s commentary delivered free to your e-mail box each day, click here.)
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Last Class in 2008
Because the November 5-6 Hidden Pivot Seminar was sold out, we will be offering the class again on December 3-4 for $1150. The fee includes entry to weekly tutorial sessions for an entire year. For more information, click here.