October 2009

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

Evidence of a conspiracy to suppress the price of gold sometime surfaces in ways that should give pause even to die-hard skeptics. Click here for Antal Fekete's very interesting ruminations on "bad" gold supposedly on offer by the Bank of England, paper-shuffling to obscure the crime, and, get this now, the prospect of a global short-squeeze on physical.

During this session, we considered the underlying psychology of price patterns on various gold charts. Although we routinely use Hidden Pivots to trade, they are indispensible for understanding price action at a deeper level.. The ability to “read” stocks is a skill that some students may not even know they possess. Recall how the Karate Kid unknowingly built up his muscles painting fences and waxing cars. He didn’t know he had those muscles until he began to use them for karate. Similarly, as we become increasingly skillful at the mechanical task of finding Hidden Pivots, we subconsciously improve our ability to read the markets with discipline and detachment. This in turn can help bring us to a fundamental understanding of its basic rhythms – which is to say, its psychology.

Stocks looked pretty punk yesterday, even Goldman.  Google looks unstoppable, though, and so we should look for a possible change in leadership until investors' awareness of the banks' fatal problems fades once again beneath the din of bullish hubris.