Wednesday, May 27, 2009

If Goldman breaks above a midpoint Hidden Pivot at 142.32 identified in today's tout, the stock is likely to be unstoppable until it reaches a minimum 150.72. Skeptics should keep these numbers well in mind if an urge to short into the rally should threaten to compromise your discipline.

Let me reassure you that this vehicle looks TERRIFIC from a Hidden Pivot perspective.  For one, the apex of last week's strong thrust exceeded the 375.60 target shown in the accompanying chart by a whopping 10 points. Also, the spike created a fresh bullish impulse leg of daily-chart degree by surpassing a key high at 359.79 recorded back in September. My hunch is that HUI will need to rest for at least 5-8 days before taking its next leap, but if and when that occurs, we can use 391.16 as a minimum objective. Please note that it will have to do somewhat better, exceeding the 413.32 high from last July, to refresh the bullish trend on the daily chart yet again.

Our presumably infallible stock-market bellwether is about to uncork an 8-point rally, provided it can tackle a not-so-daunting midpoint resistance at 142.32 that lies just 25 cents above yesterday's peak.  The actual target lies at 150.72, and the way Goldman has been going, that shouldn't be more than a day's short-squeeze away. Accordingly, let's be ready to short up there by buying two October 110 puts (GSVB).  I estimate that they will be trading for around 3.80, but you should be able to narrow it down by watching the bid/offer spread for the puts when the stock gets within a point or so of the target.  The 3.80 guess is likely to be somewhat low rather than high if it misses, since put options tend to pick up volatility as a stock rallies.  I've included a snapshot of my option calculator that shows how I arrived at my estimate. Meanwhile, if opportunity should present itself intraday in the form of temporary weakness, we may attempt to leg into a calendar spread above these levels -- a strategy that has produced profits for us in the past. Stay tuned!

At Tuesday's close the futures looked like they needed to come down to a midpoint support at 943.10 to find traction. This would present a buying opportunity, since the Hidden Pivot is so nicely defined. Accordingly, I'll recommend bottom-fishing via a 943.20 bid, stop 942.60. Keep in mind, however, that if the support gets pulped, the futures would be telegraphing more downside over the near term to at least 931.40, the 'd' correction target associated with 943.10

Bears needn't cower in fear after yesterday's bullying thrust, since all the rally did was gap through weak supply created by the two do-nothing days that ended last week's dirge. The buyers left untested some real supply not far above in the form of three peaks, respectively, at 923.50 (May 20), 927.75 (May 8), and 929.50 (May 7).  There is no need to go out on a speculative limb here, since Mr Market will tell us what's on his tiny, malevolent mind by either getting past those peaks soon or not. If the resistance gives way, however, you can bet that the rally will continue to at least 940.50, the Hidden Pivot of the pattern shown in the accompanying chart.

The stock market further distanced itself from reality yesterday as the Dow Average tacked on another 200 points to its nearly 2,000-point gain since early March. It's hard to say what caused this latest outburst of irrational exuberance. It may have been the news that North Korea had thumbed its nose at the world by testing A-bombs underground. That story dominated the headlines over the holiday weekend and was said to have been the cause of global "concerns." Lately, though, such concerns have been the bread and butter of Wall Street pros who go bargain-hunting every time stocks sell off. For them, it's not a case of bad-news-is-good-news, but rather, of all-news-is-good-news.  Yesterday, for instance, the day's most important economic headline was that home prices are now sinking faster than ever, having registered a 19.1 percent drop in the first quarter. That's the worst three-month decline since the S&P/Case-Shiller home price index was created 21 years ago. Now, one might have thought that such news would have caused some sober reflection on the Street, since, as some readers may recall, deflation in the real estate sector was what started the U.S. economy on its downward spiral. But if anyone found this news depressing, it wasn't apparent in the behavior of investors yesterday, nor even among supposedly tapped out consumers. In fact, Joe Sixpack astounded the rest of us with the most upbeat consumer confidence numbers since who-knows-when. The Conference Board reported that its index of consumer confidence had risen to 54.9 in May, up from 40.8 in April. The spinmeisters lost no time drawing the wrong conclusion: "While confidence is still weak by historical standards, as far as consumers are concerned, the worst is behind us," said a spokesman for the Conference Board Consumer Research Center. We prefer the explanation