A Hidden Pivot at 1675.00 looks like a good place to try shorting with a very tight stop, provided the target is hit before the final hour. You’ll be on your own thereafter, but I wouldn’t suggest carrying a position overnight.
From the monthly archives:
August 2009
Subscriber Peter Montgomery, editor of Pot o’ Gold, thinks the Fed is paying top dollar for mortgage paper that many investors wouldn’t touch:
“What I find extremely interesting is the timing of quantitative easing relative to rally this summer. Market commentator Bill King notes that since June, the Fed has only twice purchased Mortgage Backed Securities (MBS). The first time was options expiry week in July for $80 Billion. The second time was the past options expiry week in August for $67 Billion. Arguably, most MBS are trading well below 50 cents on the dollar with some below 10 cents on the dollar. The Federal Reserve will not disclose how much it is paying for MBS and from whom it is buying.
“Bernanke is railing against any kind of audit, which probably means what he is doing is wrong and does not want their actions to see the light of day. My suspicion is they pay full face value. IMO, Wall Street likely uses the freshly printed script to pay off some liabilities but puts the rest to work in equities. The July $80 Billion injection week broke the back of the stock market slump turning it into the rally we see now. Last week’s $67 Billion succeeded in pushing the markets to 2009 highs. These two large MBS buys could also be timed to push liquidity into the system to make bond auctions AND the stock markets do well in tandem.”
In his latest dispatch, David Rosenberg, chief economist at Gluskin Sheff, says no one should feel guilty taking profits in a market trading at 130x trailing earnings:
“Boy, with all that good news – Case-Shiller, housing sales, durable orders, consumer confidence, Bernanke (!) – one would have thought that we could do better than 2.6 points on the S&P 500 in the last two days. It could well be that the buying momentum is subsiding. Indeed, over 50% later, it would make perfect sense for the market, which investors were buying on rumours five months ago, to begin to sell on facts; nothing wrong with taking profits in a market trading at 130x trailing reported earnings. Moreover, sentiment is a clear obstacle here with Investors Intelligence flagging a 51.6% bullish chorus with just 19.8% of respondents in the bear camp – like Tuesday’s bull-bear ratio in the August consumer confidence report, we haven’t seen market sentiment this smug since the autumn of 2007 (right before the fall). Is that all there is? Despite the good news the S&P 500 is up only 2.6 points
“The real enemy for the equity market is Mr. Bond – that pesky Treasury market that just won’t sell off and validate the great reflation trade. Indeed, if we were seeing a real asset allocation move on the part of investors, as opposed to massive and ongoing short covering, then the 10-year Treasury note yield would be trading close to 5.0% – especially with these freshly minted Obama debt forecasts. But instead, the 10-year note is now getting perilously close to the July 10 low of 3.32%. Keep in mind that July 10 was the day when Meredith Whitney gave the green light to Goldman, and Roubini declared the recession to be ending, and what a spark that provided to this last leg of the bear market rally. Now what if Doug Kass’ declaration yesterday that the major averages have hit their highs for the year proves as prescient in the other direction? Come on, not only is the market trading at a nutty 130x multiple, but September-October is right around the corner (as is H1N1).”
We hold the Jan 130 – Oct 130 put spread four times for 3.40. We’ve been trying to buy an out-of-the-money call as a hedge, so far with no success. However, option volatility has been falling, and we could catch a lucky break today if we underbid the market. Accordingly, I’ll recommend bidding 2.10 for a single September 170 call, contingent on the stock trading 164.20 or higher. ______ UPDATE (12:44 p.m.): Lower the bid for the call to 2.00 with no contingencies, day order. _______ FURTHER UPDATE (4:00 p.m.): We bought the call for 2.00 (after they’d traded as high as 2.83 intraday). It’s a good thing we didn’t try to buy them for a dime less, since the unregenerate scumballs who make markets in GS options spread-traded them down to 1.91. That’s their way of buying them for a great price without having to let retail customers in on the trade.
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If bulls can get something going today, they’ll announce it with a close above 954.70. That’s the Hidden Pivot midpoint of a pattern stretching back to July 29 on the 30-minute chart. Success would hint of more upside early next week to at least 978.00. A success of greater magnitude would be predicated on a rally leg that is unbroken on the 30-minute chart between 959.90 and 963.10.
Yesterday’s trampoline rally looks like it needs more corrective action to set up a C-D follow-through. However, its potential power is unmistakable, given the fact that the intraday high exceeded two external peaks (see chart). As of 9 p.m. Thursday I could find no handholds for night owls to bottom-fish the so-far shallow correction. What this implies is that you will need to find camouflage on the very lesser charts to enter with the trend when it turns bullish again. I cannot predict at this point whether the opportunity will come at night, or after the opening, but it looks like it could be worth your patience and diligence. _____ UPDATE (12:33 p.m.): DaBoyz evidently sensed there was not enough buying power on the opening to take stocks seriously higher, so they instead goosed stocks into a fleeting short squeeze that allowed them to unload the inventory they’d accumulated overnight. In the wake of this bull trap, ES has sold off 15 points, but it may be ripe for bottom-fishing momentarily. To that end, I’ve posted a 1019.75 correction target in the chat room, and you can bid there with a 1.00-point stop-loss. I’ve also suggested entering on camouflage, using the first signaled point ‘X’ after 1019.75 is hit or approached within a few ticks. [Epilogue: The futures went no lower than 1022, so we did nothing.]
The stock rallied away from our bid, but we’ll keep trying. There are two attractive bottom-fishing options at the moment: at 0.1369, a Hidden Pivot midpoint; or at 0.1199, its ‘d’ sibling. For today only, I’ll recommend bidding 0.1204 for 5000 shares.
Putting aside the broad bullishness of today’s commentary, the lesser charts suggest that stocks are too overextended to embark on a new leg up without some sort of pullback first. The hourly chart of the Dow (see inset) yields only one logical target at the moment, at 9947, but the imagination balks – mine does, anyway — at the notion of another thrust as steep as the A-B impulse leg already concluded. Just in case, though, the midpoint pivot associate with the target is 9703. Strictly speaking, it should serve as our minimum upside objective for the near term.
Rick’s Picks Weekend Edition
by Stephanie DeMaria on August 29, 2009 12:01 am GMT
My Barber Shares Secret of His Wealth
(In the years leading up to the dot-com boom, I freelanced an investment column to the Sunday San Francisco Examiner. Following is one of my favorites. It tells how Louie Piro, my barber when I lived in Mountain View, became a multimillionaire by investing his spare cash – amounting to all of $5 a week – in promising companies when he started cutting hair in the 1950s. Louie was still cutting hair long after he could have retired, but his weekend getaways were anything but ho-hum: marlin fishing in Cabo, golfing in Las Vegas and Hawaii, and casino junkets to Atlantic City. RA)
If there is a single word to sum up the success of investor Louis Piro, that word is “dull.”
Piro has never made a killing on a stock. He doesn’t play hunches and he runs from hot tips. He says he passed up Pfizer not long ago because its shares were too pricey even before…
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Diamonds, E-Mini S&P Dance to Our Tune
The Diamonds and the E-Mini S&Ps followed our script precisely yesterday, allowing Rick’s Picks subscribers to get short from the intraday highs in both. Because the E-Minis were raising some hell Sunday night, we allowed for a rally to as high as 1046 on Monday – equivalent to about a 200-point thrust in the Dow Industrials. However, we saw an opportunity to get short at a lower target, a Hidden Pivot at 1034.00, and put out the following trading recommendation: ”…a lesser target at 1034.00 can be shorted by scalpers with a 1.25-point stop-loss provided it’s hit in the first hour and 1020.50 hasn’t been exceeded…
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A Timely Apocalypse Could ‘Save’ Debtors
If nothing else can stop a runaway stock market, there’s always the astrologers. Pick any day of the year, and odds are it’s circled in red on some star-gazing guru’s End of Days calendar. The higher stocks go, the louder their predictions of disaster. Not that we haven’t joined the chorus of despair ourselves from time to time. How else is a guru supposed to gin up business during the dog days of summer? At the moment, the sexiest prediction out there is the Mayan apocalypse slated in 2012. Perhaps the Mayans would have pushed…
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Abolish the Fed? That Dream’s Dead for Now
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…
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DJIA Winning Streak Just a Warm-Up?
It’s been more than two years since we’ve seen the Dow Industrials rally for eight consecutive days, but it happened yesterday with a little help from Boeing, which gapped almost $4 higher on the opening bell. If you’re wondering how the Dow’s winning streak in April of 2007 fared, it turned out to have been just the beginning of a spectacular run-up that carried the blue chip average to its all-time high six months later, in October. The rally stalled along the way and went into a nasty dive in July, but the recovery was…
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