Wednesday, September 16, 2009

Keep in mind that Goldman remains our top market bellwether and that it's got plenty of room to run before it smacks into any significant Hidden Pivots.  Be that as it may, I am offering a Pick of the Day in the Diamonds that will attempt to pick a top.

Let me reiterate that, with Goldman presumably bound for at least 192.91, any pullback that lines up with Hidden Pivots is a speculative buy. Yesterday, for instance, I'd flagged a major midpoint support at 175.05 where you might have considered doing so. However, the actual low of a nasty swoon on the opening was 175.46.  Although, with Goldman in such a strong uptrend,  we should expect pullbacks to fall shy of their targets, we can still catch the turns -- and trade them -- using camouflage.  Our edge yesterday lay in "knowing" that the correction would reverse from within spitting distance of the midpoint pivot.

The Diamonds are  creeping up on a shortable Hidden Pivot at ____. It's possible we won't get a better opportunity to lay 'em out than yesterday's 97.31 high, but if the opportunity arises today we can at least be ready.  Accordingly, I'll suggest buying two October 97 puts (DAVVS)  if DIA gets within 5 cents of the target.  A _____ stop-loss would be appropriate.  If you want to use a limit order, I estimate that the puts will be trading for about ____ with DIA at or near _____.

Looks like a minimum _____ from here, enroute to a bigger-picture target at _____ that I have more or less promised.  I won't try to split hairs with chat-roomers who have been monitoring gold's every heartbeat, every microtrend,  but I will pitch in with whatever camouflage entry opportunities may crop up (as one did yesterday morning).  There's another in progress at this very moment (albeit with a caveat), as you can see in the accompanying chart. Notice how Tuesday's high fell between the two labeled peaks to the left.

It’s almost official:  the recession is maybe, probably, technically over. Helicopter Ben said so yesterday, and who are we to argue?  You can hardly blame the guy for having his head in the clouds, considering how retail sales absolutely exploded in August. Sure, it was due almost entirely to a cash-for-clunkers program that taxpayers have yet to pay for. But the program will have been a bargain if it helps foster the impression Americans are in a spending mood again. And if that’s all it takes to get the economy rolling, then by all means, let’s extend clunker status to everything else in America that clunks, starting with Iron City's peerless clunkmeisters, the Pittsburgh Pirates. We’ll personally chip in a TV set in our basement, a flat-screen behemoth that consumes more power than a diesel locomotive and weighs nearly as much. Naturally, Bernanke’s message of Hope (and Change?) didn’t sit well with gimlet-eyed regulars in the Rick’s Picks chat room.  But their mood brightened when someone posted a link to “The 4 Key Reasons an Economic Collapse Is Imminent”. Now that was more like it. Reason #1, in case you’re interested, is that there is a mountain of debt we are not only not dealing with, but which we are enlarging by the day. And we’re not talking about little stuff like the $1.8 trillion deficit baked into the current budget. No, we’re thinking about such longer-term shortfalls as the $102 trillion in unfunded liabilities from entitlements. But we don’t blame Bernanke – and most Americans – for not worrying, since none of us has been taxed a dime yet to pay for it all. That’s the seductive aspect of the bank bailouts, the massive fiscal stimulus, the trillion dollar health care proposal and all the rest:  taxes have yet to be

If I were short right now, wearing my pain on my sleeve, I'd have grown so despairing as to create near-certitude in the minds of contrarians that a very nasty swoon is at hand. We should therefore pay close attention to any signs of trouble -- meaning, for one, pullbacks that exceed their 'D' targets. While we're at it, and because no signs of trouble have developed yet, let's try bottom-fishing at the midpoint shown in the chart.  The trade will of course be viable only if the downtrend plays out in a fashion similar to what I have drawn.  My instructions are non-verbal, but the method you are to use should be accessible to all who have taken the Hidden Pivot course. I would encourage you to share your tactics with those in the chat room who are less adept. 

Here's another sharp rebuke to all the yo-yos who think inflation is just around the corner.  The essay amplifies Hummel's thoughts -- published here recently -- on seigniorage, explaining why hyperinflations can occur only in currency-driven systems (such as Zimbabwe's), and not in nations like the U.S., where money has effectively been replaced by credit. Click here to read the full essay.  Here's an excerpt: "I agree with Pento on every point, except for one – a devastating bout of inflation is unlikely.  In the United States, two camps of thought dominate the marketplace.  The bullish camp believes that government interventions can be fine-tuned to hold inflation in-check, while allowing the economy to expand.  The bearish camp believes that government interventions will eventually unleash uncontrollable inflation that will send the price of gold, oil, and other commodities soaring to sky-high levels – while sending the economy into a prolonged tailspin due to reduced purchasing power. "But more than likely, both camps are wrong.  And the hyperinflation expected by the bearish comp is even more unlikely than the bullish viewpoint.  Why?  Throughout the world’s financial history, there has never been a case of hyperinflation in a country using a monetary-system based on credit.  Hyperinflations only occur in countries that use currency for money.  That’s an important distinction that cannot be overlooked. "A credit-based monetary system prevents severe inflation in two ways.  (1) During times of rising inflation, investors avoid bonds in favor of hard assets.  As a result, bond prices deflate, causing great losses for existing debt holders.  (2) During times of financial stress, bonds backed by questionable assets deflate in value."

Click here for a fine rant from Roger Mason on the true state of the economy.