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COMMENTARY for Friday
TODAY'S ACTION for Friday
Rick's Picks for Friday
Someone in the chat room spied an 1123.60 support early Thursday evening, and although it seemed to be holding, I would limit its use to analysis but not bottom-fishing. The point ‘B’ of the pattern is as sausage-y as they come, having failed to penetrate the juicy 1127.60 low recorded the previous day. That doesn’t mean the target is worthless: it is still the lowest low that can be projected on the lesser charts. But because of the malformed ‘B’, we shouldn’t expect a precise and reliable bounce from the target; rather, we should go no further than inferring from the probable breach of the target that still more weakness lies ahead. (Bulletin 9:50 p.m. EST): Within the last 30 seconds, the futures have spiked down to 1121.60, presumably stopping out 1123.60 bidders. Action looks pretty sleazy overall — DaBoyz setting up for fabulous job numbers on Friday? — and so I would further caution against picking bottoms based on whatever patterns you might be imagining.)
Silver is tracing out a down-pattern similar to the one in Gold Thursday night, but there are subtle differences enough to suggest that a Hidden Pivot at 17.990 can be bottom-fished with a very tight stop-loss. Mainly, it is a matter of using the one-off ‘A’ at 18.280 (15m) to neutralize the sausage quality of the point ‘B’. Notice that this impulse leg, with 18.085 as ‘B’, exceeds the required internal and external lows.
Knowing that this phase of the bear rally will end at 1146.50, or very near there, has taken the fun out of watching. Still, I like the idea of shorting at that price with a stop loss as tight as three ticks. As always, I would encourage improvisation, especially since the target has been drum-rolled so loudly and for so long.
A Hidden Pivot resistance at 46.91 is equivalent to the 1146.50 rally target in the E-Mini S&P. Let’s prepare to short this vehicle if and when it gets to the target by buying two February 46 puts for around 0.75. That is a very conservative price and assumes the implied volatility for this series will remain constant, but you can pay up a smidgen if you need to. The target seems likely to provide precise stopping power, and that is why I am not putting a stop-loss on the order. However, because it is especially difficult here to estimate within a dime or so where the option will be trading, and because the order might fill on a Friday at the closing bell, I have decided not to make it a Pick of the Day trade. For those of you who are new to Rick’s Picks, here’s the lowdown on Picks of the Day: [UPDATE: The Cubes traded no higher than 46.64, so we did nothing on the order.]
From time to time, when we spy low-hanging fruit, we offer a Pick of the Day. The goal is to provide very easy trades that will effortlessly make you back the cost of your subscription. They are for traders of all levels of experience, but particularly for discouraged novices who have never cashed a winning ticket on puts or calls. I do NOT track my P&L, since, as you will already know, such statistics are used mainly to trick skeptical traders into buying newsletters. Rarely if ever do subscribers achieve the level of success claimed by their gurus. However, I would encourage you to ask those in the chat room whether they have indeed made money with Picks of the Day. These trades have seldom been losers, but I’d rather you trust the memory of a subscriber who got nipped for a C-note blindly following my advice before you do so yourself.
Could the shakedown of this stock have been more obvious? DaBoyz are apparently doing a vaudevillian turn on the old saying, “Buy the rumor, sell the news,” since they have sold the bejeezus out of GOOG in the wake of a very significant new product introduction, the Nexus One cell phone. There’s a Hidden Pivot support at 582.15 that we should try to buy, but I’ll leave the logistics to you, since even February calls that are $20 out-of-the-money still sell for around $1600 apiece — way too rich for my taste. A stop-loss at 581.90 should be applied in any case.
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Take any dozen good reasons for being bearish right now and they still don’t equal the bullishness of the chart shown. The undeniably compelling rally objective is 13085, a 4.8% move from current levels, and one can only surmise that the dusting the 12158 midpoint received on the last pullback (12/28) all but clinched a finishing stroke to the higher number. Moreover, it implies that bears shouldn’t get their hopes too high even if, in the next few days, the Dow plummets 324 points to retest the midpoint support. As of now, that would signal not weakness, but a screaming opportunity to get long. Hard to believe, really, but that’s what the charts say.
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From the Rust Belt, a Ray of Sunshine
by Rick Ackerman on January 8, 2010 4:31 am GMT · 7 comments
Here’s a ray of friggin’ sunshine that came a-waltzing into the Rick’s Picks chat room yesterday: “Good afternoon, gentlemen. Everybody loaded up with E-Mini S&P contracts for tomorrow’s POSITIVE jobs report? More good economic news today, retail sales up much better than expected for December. E-Mini probably up 15-20 points tomorrow. Yee- haw!” What makes this comment particularly interesting is that the subscriber who made it lives in Michigan, the very heart of the nation’s Rust Belt. Were we perhaps being churlish to point out that the “much better” retail sales were actually only modestly better than the dismal numbers that had been expected? We did, but Mr. Sunshine was undeterred. “Come on, Rick, he responded. “Things aren’t that bad out there. Businesses around here are actually doing quite well.” Where is “around here,” we wanted to know? And which businesses? “Basically, all businesses,’ he replied. “A guy I went to school with who runs a real estate company said business was up substantially from last year. Our local paper mill is running three shifts steady.”
Now, if the credibility of the alleged global recovery hangs on the fact that one Upper Michigan paper mill seems to be humming, and that one Realtor in the same neighborhood has an upbeat anecdote to tell, we’re just not buying it — especially with no corroborating evidence whatsoever in our own town — Boulder, Colorado. One might think that because Boulder turns up on virtually everybody’s Top Ten Places to Live list, that the local economy would be relatively resistant to the Great Recession. In fact, business-tax revenues have fallen so steeply that the town has had to make unprecedented cuts in services. Moreover, few expect things to improve in 2010, and even deeper cuts are being anticipated for next year. As for the local housing market, although prices have not collapsed as they have in such places as Florida, Arizona and California, the real estate business is on life support. We know about a dozen local Realtors personally, and all of them say this is the worst business environment they have ever seen. One of them who made a lucrative living working the low end — hard-to-qualify buyers — has traded down to the point where he lives so to speak, in a shed and now drives a subcompact instead of a Hummer. Another friend, an erstwhile very successful commercial broker, has moved into health insurance. And so on, and so forth.
If Things Are So Bad…
“If things are so bad,” Mr. Sunshine persisted, “and PEs are supposedly too high, then why is the market continuing higher? If things were as bad as you guys say, the markets should be cratering. I’m not saying its all good, but the economy seems to be improving.” There are of course many reasons why the stock market is moving higher – but none, we would argue, that are tied to the condition of the economy or to prospects for the future. The U.S. stock market and others around the world have benefited from a huge excess of financial liquidity, and that is all there is to it. The final word on this went to a chat-room denizen who was probably less bearish than most of us: “Markets peak during the good news. This one has already priced in recovery. I doubt we head straight down, but with PE’s set to be sky-high, even with decent profits, there has to be a lot more downside than upside.”
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