Tuesday, August 18, 2009

Someone mentioned in the chat room tonight that there are perhaps too many well-regarded bears out there for the market to collapse.  Indeed, quite a few of the pros I swap letters with are moving toward the exits right now. That doesn't mean we should arbitratily take a contrarian stance -- only that we should be more cautious than usual about being influenced by anything but our own good judgment.

We took a flyer on this stock a while back and lost $200, but there's a midpoint support where we can try again that will afford us better protection against risk. Bid 17.07 (3 cents above the actual pivot) for 400 shares, stop 16.97, day order.

I'd be tempted to recommend shorting a Hidden Pivot at _____ aggressively were it not for its close proximity to a visually obvious high at 31.63 made two weeks ago. Let's try it anyway, very gingerly, by naked-shorting a single September 32 call (SYJIF), stop ____, if and when SKF gets within a six cents of the target.  By rough estimate the calls should be offered for around ____ at the time, but you should try to do no worse than a price midway between bid and offer.

I've just mentioned in the chat room that the 13.805 target is still theoretically valid but unappealing as a place to try bottom-fishing, since the bounce from a somewhat higher low at 13.820 has gone on for so long. The futures would need to keep going all the way up to _____ to make a statement, but that appears unlikely because of the feebleness of the bounce so far. A bit of unexpected news could change that in an instant, but without it the futures appear to be headed lower -- presumably to test a moderately important low at _____ recorded on July 31.

A print at _____ this week would be needed to turn the hourly chart bearish again; failing that, the futures could grope their way down to early July's 907.60 low in search of traction. Once beneath the low, it would take an uninterrupted fall exceeding _____ to do even minor damage to the daily chart. More immediately, the rally off Monday's lows has shown no particular exuberance, having stalled at a 940.70 high that is just two ticks from the highest target we could have projected using the lesser charts. (A=931.80, B=937.60 at 11:15 a.m., 5-minute chart.)

From our friend Levente Mady, who tracks and recommends bonds for Bob Hoye's Institutional Advisors, here's a tactic you can use to beat the high cost of gasoline. (He is responding to a post in the forum by a concerned reader): "If you are worried about the price of gasoline, you should convert your car to run on propane.  If you look at the price relationship between crude oil and natural gas, it should cost you about 3.5 times less to fill up with propane than with gasoline these days.  In other words, if it costs you $100 to fill up your car with gas, you can get the same amount of mileage for less than $30 of propane.  There is hundreds of years' worth of natural gas supply in North America.  It is dirt cheap!  It is clean!  Why not put it to good use?   "A bit of background in terms of practicality:  the technology is there and it costs $3,000 to $5,000 to convert a larger automobile (SUV or truck) to run on propane.  Obviously, natural gas is the cleaner fuel and there is a massive abundance in North America -- that is why it is so cheap.  As a matter of fact, some states - Arizona, for example - provide tax credits for the conversion expense as well as for running the car on propane instead of gas.  Uunfortunately right now there just does not seem to be much talk about using natural gas as transportation fuel.  Natural gas is supposed to be used more or less exclusively for heating.  The choice fuels for transportation are crude oil derivatives (diesel, gasoline, jet fuel, etc.).  "The silly thing is that there is a ton of money spent on non starters that are decades away from making economic sense

The darned thing did practically everything a bear could have asked of it yesterday --except continue to fall after the overnight lows got taken out.  What could account for sellers' apparent faint-heartedness when they had bulls on the ropes? Lack of conviction?  More likely it is fear that was lacking, although we shouldn't rule out its emergence this week, since it could easily start to snowball if the futures fall even moderately over the next day or two without finding good traction.  Night owls will find moderate camouflage if the futures pop above _____ in the wee hours, but this might excite enough buyers to necessitate our entering after the first point 'C' has been stopped out.  I have sketched this scenario in the accompanying chart for your guidance. 

Yesterday's selloff on Wall Street was attributed to disappointment over consumer spending data that suggest a hoped-for surge in recent weeks is looking more like a blip. Who could possibly have believed the economy was returning to life in the first place?  Actually, one guy does come to mind - our telegenic friend Larry Kudlow -- but we suspect that even he didn't really buy into the "green shoots" story - other, perhaps, than as a metaphor that engaged the fancy of credulous news editors for a few short weeks. There's The Wall Street Journal, for one, where editors have found reason to celebrate an uptick in retail sales even when it has been caused mainly by rising gasoline prices.  But the Journal is hardly alone in trying to turn every clump of statistical crabgrass into a putting green. Virtually every major newspaper in America seems to believe - fervently - that a rising stock market is telling us everything will turn out okay for the economy.   What amazes us most is that the reporters who push this fantastic story line are themselves in danger of extinction because of collapsing advertising revenues. Under the circumstances, you'd think they might have a pretty sensitive nose for downbeat news. In fact, it would appear they'd rather trust a short-squeeze rally on Wall Street than their own lying eyes.  Aren't they surrounded, like the rest of us, by homes worth less than they are mortgaged for?  Don't they talk to friends who are struggling harder than ever to pay the bills?  Isn't the local mall deserted and pock-marked with vacancies?  Bullion's Dive No Threat An innocent bystander in yesterday's carnage was bullion, which dove for the second straight day. We'd anticipated the weakness but told subscribers not to worry:  A selloff in Comex

Here's an excerpt from a must-read essay by James Lewis that you can access by following the link at bottom: "[Obamacare] is the result of fanaticism, not balanced thinking. That seems to be President Obama's way. This White House defines a goal like Arab-Israeli Peace in the Middle East, or Health Care for All, and goes hell for leather, damn the torpedoes, full speed ahead -- without ever pausing to think, or to listening to people who have spent decades dealing with these questions -- if they dissent from Obama orthodoxy. Any opposition is interpreted as bad faith rather than reasoned disagreement. Critics must be evil or racist. That is the state of mind of jihadis going on suicide missions. It is not how intelligent policy makers operate." (Here's the link:http://www.americanthinker.com/2009/08/on_being_ruled_by_fanatics.html)