Thursday, October 22, 2009

We spotted the ugliness unfolding in this stock in real time yesterday during the weekly tutorial session. Goldman was trading around $184, down moderately on the day, but a bearish target at 179.70 beckoned like a magnet.  The stock dove for that number in the final hour, sinking along with most other stocks, and it looked for a short while as though our target would contain the plunge precisely to-the-penny.  Alas, when the support gave way eleven minutes later, after the stock had bounced to 180.38, stop-loss orders sent GS plummeting a further 60 cents in a trice.  Here's my outlook, posted in response to a query in the Rick's Picks forum:  I shun dramatic predictions and those who make them because they are wrong perhaps 97% of the time.  That said, I am alert to the possibility that Goldman's top last week could mark the psychological turning point that eventually will bring about the dropping of the banking system's other shoe.  From a technical standpoint, Goldman will create a menacing, bearish impulse leg on the hourly chart -- its first in as long as I can recall -- if it dips below 173.16 this week.

We spent some time during yesterday's weekly tutorial session pondering DXY's recent, annoying ups and downs, which reversed Hidden Pivot assumptions with diabolical aplomb. Our bottom line now calls for a potentially tradable low at 74.97, a Hidden Pivot broached here earlier that so far has been exceeded by a technically negligible 0.03 points.  Bulls will still need a rally to at least 76.10 to put the bearish case temporarily on ice; otherwise, the 72.93 target identified here a while back will remain very much in play.

Our short offer at 101.82 got stranded despite an encouraging short-squeeze on the opening. The Diamonds never got any higher than 101.20, and because they fell so hard into the close, we're likely to have plenty of company if we continue to look for a short entry. Let's give it a day and see if option volatilities continue to climb out of sight.

Turns out, one of the nastiest, most pernicious bear rallies in stock market history is just a wuss without the boldly deranged leadership of Goldman Sachs, J.P. Morgan et al.  So what problems do the banks have now that they didn't have two weeks ago? Answer: Mainly, it's a matter of perceptions. To help shape your own perceptions, here's a link to a widely read Rolling Stone article by Matt Taibbi that should leave no doubt as to whether the banking system's other shoe is yet to drop.

Apple all but guaranteed higher prices in the weeks ahead by blowing past a 205.49 target yesterday that could not have been more compelling. A Hidden Pivot at $231 is still my minimum upside objective,with bullish implications for the U.S. stock market as a whole. The chart shows the pattern that projected to 205.49 -- a delicate beauty.

The recent top at 1099.00 came close enough to the 1101.25 target shown in the chart that we should monitor the correction attentively. In addition, yesterday's plunge in the final hour was bearishly impulsive on the hourly chart, although it hasn't developed sufficiently yet to yield a downside target.  Last Tuesday's low at 1063.00 is a logical objective, but if it were to be exceeded, that would double the implied power of yesterday's bearish signal.

Gold's price action is still too choppy to watch, although the best way to board more or less risklessly for the next leg up would be to hunker down on the 5-minute chart and simply wait for the first speck of evidence of a breakout. We did some hunkering down during yesterday's weekly tutorial session, aware that the somewhat bigger picture -- i.e., the hourly chart -- promised little in the way of excitement.  The day's ups and downs invalidated a 1073.00 rally target identified here yesterday, however, although not the prospect of higher prices in the near future.  A 1080.00 target looks like a turkey shoot in the accompanying graph, but it raises the question of why gold would be consolidating so diligently right now if its next leap is only going to be a 20-pointer.  For now, we'll accept the obvious answer -- that a more important target at 1134 will be in play when buyers return in earnest.

Long-time subscribers may recall my occasional paeans to Howard Hill -- the Mozart of fixed-income instruments, as far as I'm concerned. I used to quote Howard regularly on the site -- until he took a 9-to-5 job with an investment firm that did not allow him to be quoted, at least not publically.  As a result of massive layoffs in his sector, however, Howard has returned to café society and the salons of cyberworld as a blogger.  I would encourage you to visit his site, Mind on Money, by clicking here, and to experience a dialogue that promises to be as high-minded and enlightening as any you will find on the Web.  He really knows his stuff.

With Goldman shares mired in a cyclical dither, we expected Google to lead the market higher yesterday. And so it did, although the net effect was a merely weakly buoyant Dow Average that crashed in the final hour. With hubris alone driving stocks higher, it would seem there’s no substitute for the un-real thing. Which is to say, Goldman’s flashy, smoke-and-mirrors modus operandi will always look more impressive to traders than Google’s old-fashioned focus on advertising revenues. Google was up nearly $8 at one point, and nearly $32 since Friday, on perceptions that it is among the few companies in America with a hot enough earnings story to persist even if the U.S. economy slip into Depression. That’s great for Google, but is it enough to drag the shares of Wal-Mart and McDonald’s higher? Apparently not.  We already know how the Goldman story will turn out, since it is at the leading edge of a financial sector in its death rattle. What will a share in Goldman Sachs be worth after the term “financial product” has been banned from the English language a few years hence?  By then I will have danced the hula in Times Square, but my detractors shouldn’t kid themselves about whether my $29 forecast for the stock is still viable.  Caterpillar Uptick Speaking of what’s viable, more green shoots sprouted to the top of the Wall Street Journal’s front page yesterday:  “Business Spending Looks Up”. What a crock! Caterpillar and Parker Hannifin, two heavy-duty manufacturers, evidently think the worst of the recession is past. Now let’s see how eager they are to expand. The payoff for America, if they’re serious, would come in the form of higher capital spending. But how much of an offset would that be when measured against asset shrinkage in the financial sector