July 2009

Let me reiterate a 173.10 target that will be worth shorting if and when Goldman gets there. Alternatively, I'd sound a bear alert on a print today or Monday at 155.51.

Wednesday's surge to 79.66 merely tied a previous peak, so we should view this rally cautiously. However, a print today exceeding 79.78 would put bulls in the driver seat, at least for the near term.

I have my doubts that yesterday's top will endure, even though stocks sold down pretty hard into the close. My hunch is that the selling was catalyzed by all-too-widepsread expectations that the final hour would see yet another short-squeeze rally. My own commentary argued against this, but the logic of it got lost, as it often does, in the heat of the moment.

Our very own Duke, self-styled trader and family man, nailed the high in the chat room yesterday and thinks it could have been THE top, so we'll need to pay extra-special attention to the pullback that has ensued. The intraday peak was at 994.00, a bit shy of the 999.50 Hidden Pivot I had suggested using as a minimum upside objective. I wouldn't quibble about a few points, although a print at 1002.00 would have presented a real problem for bears, since it would have created (and might still create) a fresh, bullish impulse leg on the weekly chart (see inset). The selloff so far has been ineffectual, since it would need to hit _____ to damage the hourly chart.  My gut feeling is that the weakness into the close will abate -- that it was simply a consequence of too many traders expecting yet another short-squeeze in the final hour. In any event, we'll set an alert at _____today, come what may.

During an impromptu webinar yesterday, we calculated that our $13 strangle will have recouped about half its value if the stock reaches a 475 target that looks like a decent bet. Even so, bid/asked spreads were too wide on way-out-of-the-money September calls for me to recommend buying them, at least right now. _______ UPDATE:  We'll book a $1300 loss on the strangle, which will go down as the worst trade Rick's Picks has recommended in the 12-year history of the service.  Google has no special ability to fool us, so we'll be looking to recoup every dime of that loss in the next round. Stay tuned!

Sadly, another venerable American institution has lost its way: the New York Stock Exchange. We read the other day that the Exchange is building a fast-trade hub in northern New Jersey that supposedly will help secure its future in an increasingly electronic world. But raising capital for companies that could conceivably help Build a Better Tomorrow is nowhere on their agenda. In fact, "fast trading" will be about as helpful in achieving that goal as placing five hundred slot machines in the NYSE's lobby. Instead of one-armed bandits, however, the Exchange will be installing in its new Mahwah facility some very sophisticated computing equipment that will allow hedge funds and other firms to engage in high-frequency trading. This type of trading is all the rage these days, and the firms that do it will be trying to get the jump on other traders who lack the hardware to execute scores or even hundreds of transactions in mere seconds. Firms on the cutting edge will be better able to exploit order flow in ways that traders could not have imagined even five years ago. Our guess is that fast trading was invented by the same geeks who gave us program trading. Who'd have imagined they could one-up themselves with yet a new game to further destabilize the markets? The NYSE will say that more efficient markets will better serve the public. Having worked on an exchange floor ourselves for a dozen years, we think fast trading will better serve white collar criminals whose tactics have yet to be imagined by the regulators. Stick to 'Gambling' and 'Prostitution' It would be bad enough if the NYSE viewed fast trading as just another profit center. Unfortunately, the Exchange sees it as its bread and butter. "When people talk about the New York Stock Exchange, this

Expect more sloppy action in the days ahead, perhaps with a mild downward bias. My do-little forecast is based not on dueling impulse legs, but on bullish and bearish targets that are not getting achieved. Although Wednesday's selloff  "should have" come down to at least 920.40, the actual low was 927.60. And while yesterday's bounce "should have" exceeded 940.50, it went no further than 939.40. Night owls looking to scalp a few points can try bottom-fishing at 932.90, stop 932.40. Bulls should take encouragement from any rally exceeding 940.50. ______ UPDATE (2:45 p.m.): Today's sharp upthrust is encouraging, especially since it came off a low that failed by 80 cents to reach our 932.90 correction target. However, for bulls to move into position to trample sellers, they'll need to push the futures above two prior peaks on the daily chart that have yet to be challenged. They lie, respectively, at  962.70 (July 27) and 969.90 (June 10).  An unpaused rally surpassing those two peaks would greatly shorten the odds of a sustained move into autumn. 

Our favorite cycles expert, Peter Eliades, is getting the second-highest overbought readings in 40 years from his New 10 TRIN indicator. However, the conclusion to be drawn from this is not so obvious as you might expect. Here's Peter:   "It would seem simple to say that such a reading must be marking a market top if it is the second most overbought reading of the past 40 years.  But as we have pointed out so often, extreme overbought readings on virtually any momentum-type indicator can turn out to be bullish rather than bearish.  In fact, if we trace back all the readings on the S&P 500 New 10 TRIN lower than .40 over the past 37 years, almost all of them occurred soon after important bottoms were formed and almost all of them marked low risk territory for the market.  They occurred in October 1982, January 1987, January 1988, May 1990 (this was one of the few readings that was registered near a market top), October 2003, November 2004, and the current readings in July 2009."

With yesterday's takedown in gold, the bullion bankers showed that they eat big trading funds for breakfast. Click here  for a link to Dan Norcini's think-piece posted at Jim Sinclair's site.