February 2009

If the Dow is about to blast off, as some in the chat room evidently fear, the evidence is nowhere to be found on this chart. I'm not saying it couldn't happen, but from a Hidden Pivot perspective, any rally over the near-term that falls shy of the 8217 peak should be regarded as mere noise. That's just 2% above curent levels, so the outlook could change in a hurry, but we should ask no less of the Indoos before we infer that yet another bizarre buying binge is erupting. _______UPDATE: And blast-off the Dow did, blowing to smithereens the minor resistance at 8217. As of 1:20 p.m., the Indoos were trading around 8282, looking as though they could go as high today or Monday as 8395, a Hidden Pivot target with no special pedigree.

Hard to believe Obama is already knee-deep in ethical muck. Even Maureen Dowd has gone on the attack, albeit with 28-ounce gloves: “Obama [was telling schoolchildren] his favorite superheroes were Batman and Spiderman,” the New York Times’ third-ranking Bush-hater wrote on Thursday, but “his own dream of being the superhero who swoops in to swiftly save America was going SPLAT.” Is the honeymoon already over, the huge Inaugural throng on the D.C. mall just a faded memory? Our new President has been perhaps too conspicuously on the defensive, sounding even a tad unctuous in an interview with Brian Williams. Taking the blame usually works better if there is some question as to who should have received it in the first place. Obama sounded more presidential under fire from Fox’s Chris Wallace when he asserted on Tuesday, against a mounting protectionist tide, that “we can’t send a protectionist message”. For sure. But it will be interesting to see if the President stands his ground when unemployment climbs above 10 percent, as seems likely. His stimulus package has had a bumpy ride in Congress so far, but fat-cat Republicans aren’t the only ones having trouble finding the stimulus in it. One decidedly lean cat, Rusty Staff, a beleaguered mom-and-pop business operator who weighed in on the op-ed page of the ultra-liberal Boulder Camera yesterday, had this to say: “I spent four tedious hours poring over the stimulus bill recently passed by the House. I saw money for ATV trails, money for alternative energy research and development, money for climate change modeling development, money for broadband Internet installation in rural communities, money for weatherization, money for family planning clinics in other countries, and money – no, lots of money – for unemployment and food assistance benefits.” Who to Believe? Just so. Obama insists

There are two targets not far below where we can attempt to bottom-fish with a stop-loss as tight as five ticks. The first lies at 121^10.5, slightly below Wednesday's low, 121^17; and the second is at 120^20.

The sharp rally of the last two days pushed TBT to a peak at 49.28 -- not quite high enough to get us filled on our put order. However, the pullback looks like it is developing enough thrust to propel TBT above our original target at 49.59. so I'm going to recommend shorting at 50.55, a Hidden Pivot that looks capable of providing some stopping power. We'll use the March 50 put (TBTOX), which should be trading for around 3.00 (see option calculator). The price is just a guess, which is the best we can do with the target still more than $2 away, but we can hone it by observing changes in the reflected Feb 50 put bid as TBT gets within 15 or so cents of the target. Please note that buying put options in this vehicle is equivalent to initiating a long position in the underlying Treasury future.

Yesterday's action was constructive, but the futures will need to close above 918.10 today in order to avoid squandering short-term bulllish potential that could take them to 945.90. That is the target of an uptrend easily visible on the hourly chart, and once it is achieved, a more important target we've been using at 952.30 will be in-the-bag. Alternatively, moderate weakness today could be expected to find support at 898.90, but settlement below that price would imply jeopardy thereafter to as low as 886.90. Worst case if sellers should surprise with a show of strength: 878.70.

The futures look lower, bound for at least 38.39, a Hidden Pivot, but if they slip past it we should infer that a tradable turn from 38.13 is likely. You can bottom-fish either number with as tight a stop-loss as you please, but the lower pivot would be the more conservative place to try. Alternatively, it would take a print at 42.53 today to signal a likely reversal of the bear trend that has dominated since the January 26 top at 48.59.

The 26.82 downside target we were using caught the so-far low of the week within a single penny, allowing us to short two Feb 27.5 puts at the best price of the day, 1.90. This makes us long the Feb 30-Feb 27.5 put spread twice (or a multiple thereof) for a net credit of 1.30 per. The worst we can do at expiration is come away with a profit of $2.60 with the stock trading 30 or higher, but there is potential to make as much as $760 with BBY anywhere below 27.50. Since this position can't lose, we'll simply let it ride.

We searched in vain for news that might have explained why Bank of America shares collapsed 15% from their highs yesterday. After a head-fake on the opening, the stock fell 67 cents to 4.68, bringing it that much closer to the vanishing point. We are predicting BAC will fall even lower in the days ahead, to at least 3.93. That would represent a decline of 90% since the stock was added to the Dow Industrial Average a year ago. As B of A was plummeting, the shares of another former banking star, Goldman Sachs, were soaring, rising more than $7 at one point during the session. GS settled at 87.50, up 4.69 and miles from the $29 target we have predicted for it. (A hula number, by the way. We have pledged to don a grass skirt and dance the hula in Times Square in the middle of winter if the stock does not eventually collapse to the target within the next year or two.) Considering how B of A was getting demolished, we were surprised to see Goldman explode with glee and the Dow down a mere 121 points at the close. Our hunch is that even if all the bank stocks are eventually going under $1.00, as seems possible, this would be no great shakes as far as Wall Street is concerned. Investors appear to have discounted the prospect that all of the banks – not just here, but in Europe – will be nationalized at some point in the not-so-distant future. In the meantime, investors who hold bank shares, including institutions who will have to dump them if the shares remain below $5, have probably written them off. Stock in some of the biggest financial institutions in the world have become lottery tickets – most like worthless,

There's a Hidden Pivot resistance at 49.59 that we can try shorting with a stop-loss as tight as 49.71. I can't predict exactly how much the Feb 49 puts (TBTNW) will sell for then, but my guess is slightly less than $2. I'll recommend buying two of them using a bid a couple of ticks lower than whatever the market makers are reflecting if and when TBT first touches 49.52 on the way up.