October 2009

This rally's on probation, as far as I'm concerned -- although if it gets far enough to trip the short I've recommended in the Diamonds, bulls will likely have the edge when next week begins.

There's a promising Hidden Pivot resistance at 101.79 where we can attempt to get short. Buy two December 100 puts (DIAXV) if the stock rallies to within three cents of the target, and place a stop-loss at 102.01.  I estimate that the puts will be trading for around 2.45-2.50, if you want to use a limit order. ______ UPDATE: The Diamonds never got higher than 101.20 on the last thrust, so we'll scrap the offer.

The pogo-stick bounces from moderately important Hidden Pivot supports have not been able to sustain loft, hinting of still lower prices to come. As a result, although short-term lows have been precisely predictable, bottom-fishing has yielded gains only to scalpers.  The 72.93 target given here earlier is still where I think DXY will get traction, but here are two lesser pivots you can use in the meantime as minimum downside objectives:  74.36, and  73.79.  Either can be bottom-fished with a very tight stop-loss, but as always, a decisive breach will indicate more downside to the next.

The futures turned and burned after faking weakness in the early going, rallying 22 points from low to high. Impressive?  Not really, since buyers didn't have to push past even a single external peak on the intraday charts. We'll hold our enthusiasm in reserve pending the completion of a bullish pattern that projects to 1106.25.  If you're looking for camouflage entry opportunities Thursday night or Friday morning, I suggest using the two labeled peaks for cover. An impulse leg 'B' falling between those peaks would be just about perfect, although you'll probably have to be nimble to get on board with a buy-stop. _______ UPDATE (12:51 p.m.):  The pattern is playing out as illustrated (although there was no reason to expect this; the illustration was intended as a "what-if" map), yielding an entry at 1094.50, a stop-loss at 1093.50, a 1095.25 midpoint, and a 'D' target at 1096.50.  _______ FURTHER UPDATE (10 a.m,. EDT): The fact that the futures couldn't even reach the 1095.25 midpoint of the puny rally pattern I've referenced telegraphed the weakness on the opening.  This weakness was impulsively bearish on the 15-min chart, by the way, but that was not telling us much. 

Our key bellwether has bounced robustly from Wednesday's lows, although it did not quite come "roaring back" as the stock has done so many times in the past.  That said, the afternoon stage of yesterday's rally was strongly impulsive, since it surpassed three peaks, including the required "external".  That implies that any pullback from the next peak would be a screaming buy.  Hidden Pivot aficionados might be interested to know that the impulse leg is not as powerful if you display it on the hourly chart. That's because it changes the values for #2 and #3 tops so that they are equal.  In that light they would both be "internal" highs, and so the rally would not qualify as truly impulsive.

With draconian pay cuts looming in the banking industry, the last thing we’ll have to worry about is mass defections of talent. In fact, the financial sector is deflating these days as fast as the Heene’s balloon, causing the number of job openings for “financial products” specialists to shrink by the hour. How times have changed! Just a few short years ago, Ken Lewis, Bank of America’s recently deposed CEO, might have taken his whole team of traders and MBAs and started a new bank. These days, though, they’re a glut on the market. About the only place the leverageurs are getting sympathy is on the op-ed page of the Wall Street Journal -- the last sanctuary in America for the crackpot belief that a company needs to offer $50 million in salary and bonuses to get the right person for the job. Some might argue that these guys are worth every penny of it, since a well-run company can increase in value by far more than $50 million a year. But this ignores the fact that the stock market’s cyclical ups and downs are a far more powerful force in driving share prices than a company’s actual performance.  Looking back at the collapse of the technology bubble earlier in the decade, and the more recent collapse of financial stocks, one might infer that the higher a company’s share price, the more recklessly the firm was run. If and when the banks recover, we can only hope their shares trade at the kind of earnings multiples that have obtained in, say, the fast-food sector.  After all, why should banks be growing so much faster than McDonald’s or Taco Bell?  If banks must leverage their capital 30-to-1 to turn an impressive profit, the incentives will always verge on insanity -- or criminality.  

Here's something to buck up all you libertarians:  Michigan Rep. Mike Rogers' opening statement on health care reform.  It's heartening to know that there are still a few men of conviction on Capitol Hill.  Click here   for the YouTube segment.

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.