Wednesday, March 11, 2009

It's perfectly okay to hoot and guffaw at this rally, but just because it has begun as a short-squeeze dog-and-pony show doesn't mean we can afford to be distracted if and when it shifts into a higher gear. Notice that for the E-Mini S&Ps, this wouldn't take much:  just a print at 724.50, a mere 5.50 points above where it is trading now, at 3:02 a.m. EDT.

"Can Citigroup continue to lift the stock market?" The online Wall Street Journal asked this question in a headline Tuesday night, but you need to look at the chart reproduced alongside to see just how silly the question is.

We hold the June 25-June 23 put spread, having legged it on six times for a 0.08 debit. This means that although we can lose no more than $48 on the position if the underlying is trading 25 or higher at expiration, we have a chance to make as much as $1152

Shortly after midnight, the futures were working on a modest rally that promised to deliver 903.60 provided a Hidden Pivot midpoint at 900.20 can be surmounted. It would take a bit more than that, though, to turn the 15-minute chart bullish. Specifically, a print at

If you were impressed by the 40-point thrust, take a look at the chart to see how feeble it was relative to the downtrend that has dominated for so long. It would have to go another 125 points to turn the daily chart bullish. That said, it would take merely a print at

Yesterday, it was buy stocks, sell gold till your head caves in.  What a bizarre inversion of reality --  a gusher of pent-up stupidity! Next thing you know, there will be a huge stampede out of U.S. Treasurys. That would sound the "All clear!" right around the time nuclear-tipped inbounds start showing up on the Fed's Erector-set radar. The exuberance that greeted yesterday's 379-point surge in the Dow recalls the frolicking of Munchkins after Dorothy's house dropped on the Wicked Witch of the East.  As you may recall, they celebrated for all of about ten minutes before the even Wickeder Witch of the West showed up. We give this short squeeze another day or two, ending just as CNBC's benighted minions start piling into such oversold value plays as GM at $2 a share, Fannie Mae at 50 cents, and Goldman Sachs at $90. Investors will be loaded for bear at that point, only to find the forest inhabited by nothing larger than squirrels, skunks and rabbits.  Incidentally, the rally was not difficult to foresee, as indeed we did with this tout sent out to subscribers Monday night: "Monday's chat room buzz had it that a strong rally could erupt at any moment.  Perhaps, but there's no use cluttering our minds with such ugly speculation unless the futures pop through the three peaks show in the chart without drawing a breath." As it happened, the futures popped through those three peaks, allowing us to  capture a fair piece of the rally with some timely trading guidance in the chat room 30 minutes into the session. Comex Gold Target Nor had the weakness in Gold been unanticipated. We'd forecast a $35 drop in Comex April Gold, to around $881-$885, and the futures got about 60% of the way there with Tuesday's selloff. That's