Thursday, August 27, 2009

There was discouraging news yesterday for anyone hoping that Rep. Ron Paul's bill to abolish the Federal Reserve might make it to the floor during the current Congressional session. The way things look right now, H.R. 2755 may not come up for a vote for quite a while - at least for the duration of Mr. Obama's presidency. By nominating "Helicopter Ben" Bernanke to a second term, the President made clear that the political champions of a so-far catastrophically unsuccessful status quo will continue to rule our economic lives, at least for the foreseeable future. If that weren't bad enough, Mr. Bernanke's "success" is likely to be judged on the basis of how well he sustains the flow of easy credit in an economy on the verge of being crushed to death by debt. The reasoning behind Mr. Obama's choice was made clear in the lead story in yesterday's Wall Street Journal. The headline, "Calm in Crisis Won Fed Job," suggests that the President was understandably reluctant to rock the boat, presumably by appointing Larry Summers, the only other guy who had been mentioned as a serious contender for the job.  A second headline was more telling, however: "Next Term Could Be Tense if Rates Rise".  Imagine being appointed to the most powerful position in the banking world, only to be told that your main responsibility would be to hold interest rates down.  It is a benighted political class that would demand such a thing, of course, and an economically unenlightened populace that would come to rely on it, as we surely have. Crazy Eddy If holding rates down is Bernanke's main job, perhaps a separate czar should be appointed to goad us into borrowing and spending the excess cash that lower rates could produce. That would spare the Fed chairman the unseemliness

Higher prices seem likely -- go with the flow -- but stocks seem to lack the oomph it would take to push into a higher range without a pullback first beneath the range of the last three days.  Please note that my short-term forecast for bullion is mildly bearish, but there may be an opportunity if the futures drop.

Day three of deathly tedium was even more (i.e., less) impressive than the two days that preceded it, yielding an intraday range of exactly 11.75 points. I suggested taking the day off to those who attended yesterday's tutorial session, but it might even be possible to stay away until Labor Day without missing much. The prognosis is bullish nonetheless, although I would expect the futures to drop beneath the lower threshold of the three-day range -- meaning below 1018.25 -- to get some running room for the next thrust. A 0.618 retracement of the rally begun a week ago from 976.75 would bring the September contract down to 1000.00. I would suggest buying near there only if there is a camouflaged ABC rally to get you on board. ______ UPDATE (3:51 p.m.): The futures have followed the script given above, falling to 1015.00 this morning before roaring back with a strong impulse leg on the hourly chart. Bears should consider this a shot across the bow.

We hold the January 130-October 130 put spread four times for ____ and are still looking to hedge the upside exposure thereof. Let's bid ____ today for a single September 170 call (GPYIN), good as long as the stock is trading 165.20 or higher. Our bid is on the stingy side, but I would not recommend paying up if we get close.

Which way will December Gold break when it emerges from a pennant that has been forming since late July? Signs point lower, but if that's the case, there may be a good buying opportunity down at _____, a Hidden Pivot with a fine pedigree (see chart). Stay tuned!  (Note to pivoteers:  I am not using the one-off  'A' to project a target in this instance because the chop that followed the more obvious high did not exceed any prior lows.)

The dollar has been defying gravity, technically speaking, but we should never assume the Powers That Be are simply going to let it collapse -- especially while the stock market's silly rally holds the masses in a state of delusion.  DXY has indeed pulled back from the brink, but not in very impressive fashion, since there is not even an impulse leg on the hourly chart to suggest the rally is likely to go somewhere. For now, let's set a bullish alert at _____, a single tick above an obscure look-to-the-left peak recorded July 15 on the way down.