January 2010

The top of yesterday's engineered rally failed to alter the bearish pattern projecting to 1051.00, the target given here yesterday; nor did it change the 1077.00  minimum downside target.  That said, it must be noted that bears were still on the ropes at yesterday's close, since  virtually all of the day's price action took place above an overnight low made on thin volume. We can use  the look-to-the-left peak at 1104.25 to signal us when bulls -- or rather, short-covering bears -- have taken charge.  Otherwise, the downside targets can stand as given.  Bottom-fishing at 1077.00 with a tight stop-loss is still recommended, but the trade will enjoy the best odds if that Hidden Pivot support is hit relative early in the session.

Yesterday’s failed rally demonstrated once again that short-covering remains the only force capable of pushing stocks higher on a given day. It also showed that there are no longer enough nervous bears around to drive the market into a sustainable uptrend.  In this latest show of false strength, the Dow Industrials achieved maximum loft about midway into Tuesday’s session, when they were up about 100 points. But the set-up for this bull-less rally came the night before. As is nearly always the case, off-hours activity in the electronic index futures was used to catalyze buying urgency ahead of the opening. Notice in the chart below how the E-Mini S&P futures were actually down significantly Monday night. Shortly after midnight EST, eight hours after night trading began, the E-Mini S&P hit a low of 1081.00, off 11.25 points from the previous day’s settlement price. At that point, the futures were predicting the Industrial Average would open down almost 100 points on Tuesday.     Lo, over the next eight hours, in the dead of the New York Stock Exchange’s night, they recouped all of the lost ground before dropping back slightly just ahead of the opening bell.  Bears must have been pretty nervous at that point, since the futures had been trending higher for nearly ten hours. The short-covering panic that followed caused the E-Mini S&P to rally 10 points in the space of an hour, and the Dow to surge 84 points. Stocks then pulled back a bit to get second wind, which set up a turgid, 80-point rally over the next two-and-a-half hours. This trick has been used by DaBoyz so many times it’s a wonder it still works. The ploy's success depends on their  finding a price level Sunday night where selling exhausts itself. Once this has been determined and the last nervous

DaBoyz were groping for a bottom early Tuesday morning, aided (or perhaps hindered -- we shall see) by nervous shorts who apparently could not believe their good fortune.  As of 1 a.m., the 1077.00  target in the E-Mini, and thence 1051.00, still seemed enthralling.  Judging from tonight's price action, however, it's not going to be a pleasant short-and-hold opportunity for bears if the targets are reached -- unless, perhaps, shorts from Monday enjoy a free ride via an opening-gap crash. That's possible, since there doesn't appear to be any news driving the selling. When that occurs, weak hands usually exhaust selling before the opening.

The long-term target at 27.15 that we used to protect our gains on stock acquired for 11.01 seems to have caught a major top very precisely. We bought a put and shorted a call just as the stock was apexing, and now we can try to further enhance the risk:reward on the option position. We're long a Feb 24 put for 0.35 and short a February 29 call for 0.60, and I'll recommend offering a February 21 put (UMUNT) short for 0.35, good through Friday. (Note: If you hold the position in bigger size, you should short as many options as you are long Feb 24 puts.)

The dollar is taking its sweet old time to consolidate, but there is no mistaking the energy that is building for a follow-through to last week's impulsive thrust.  The main impediment at the moment is a Hidden Pivot midpoint at 78.54. If and when it gets swept aside, look for a run-up to at least 79.05,  or perhaps to  79.40 if any higher.

Officially, February Gold is still headed down to at least 1074.50, but in practice it is putting up too respectable a fight for us to consider the target a done deal. Also in practice, the futures could create a potentially explosive impulse leg with a relatively minor thrust. Notice in the chart that there are three peaks, two of them external, that are spaced just $1.60 apart. An unbroken push surpassing all of them would be just the thing to energize bulls, but they would rampage on a breach of peak number four on the same push. Camouflage entry on a pullback from just above #3 might be possible, but any rally above #4 is bound to be noticed. The trick will be to use a hair-trigger buy-stop to enter if there's a quick, shallow b-c pullback from just above 1104.80.  Alternatively, if bullion falls, a minor midpoint at 1089.90 should evince support, although the pivot doesn't look sufficiently compelling to bottom-fish.

The market's failure to fall yesterday came as a surprise to me, but perhaps because there are no sellers around who still have their genitals, stocks simply needed a day to work off a mildly oversold condition. In any case, heavier-than-usual selling Monday night was creating numerous Hidden Pivot targets below.  My favorite is the 1051.00 target of the pattern shown in the chart.  The sibling resemblance between k-A and B-C is what drew my eye, and we may get confirmation of this relationship when ES hits the 1077.00 midpoint -- my minimum downside target for the near term.  Night owls are advised to try bottom-fishing there with a very tight stop-loss, since DaBoyz only rarely take stocks down more than that overnight unless they are expecting a selling avalanche at the opening bell. Keep in mind that the oh-so-coy strategy of the klismaphiliacs who work the night shift is to find a level at which selling dries up, and then to hold stocks at that level or above until the opening bell.  Occasionally they guess wrong, however, and they get buried by the unanticipated onslaught of sell-at-the-market orders that have built up just prior to the opening.  (Note to Harry and other eagle-eyed pivoteers:  Yes, I know the k-A segment I've notated in the chart ignores the true point 'A'.  However, when I speak of a sibling resemblance between k-A and B-C, it is the length and breadth of the overall patterns that I am comparing.)

Nothing like a good road trip to clear stock-market and newspaper rubble from the mind. I spent the weekend in Telluride with a college buddy, Peter Ricciardelli, who has lived there for nearly 30 years.  I couldn’t keep up with him on the slopes, since he’s in even better shape now than when we were at the University of Virginia in the late 1960s.  Hiking, biking and plenty of skiing have kept him as fit as a collegiate wrestler. That and plenty of cross-country skiing. He and his significant other, Lisa, a native Coloradan who lives in Montrose, made fresh tracks on Nordic skis Sunday while I took another crack at Telluride Mountain. I had the use of a lift pass that belonged to a friend of Peter’s -- a gold medallion that can be used by the bearer to access nearly every ski trail in North America.  Sort of like the “Letters of Transit” that got Ilsa Lund and Victor Laszlo out of Casablanca, no questions asked. It snowed intermittently the whole time I was there, leaving about two to three feet of fresh powder. The snow fell much harder in the San Juan Mountains south of Telluride, and there were reports that Durango was practically buried in flakes. In Telluride, the locals were ecstatic, since there hadn’t been any snow since just before New Year’s. By all accounts, business during the Christmas holidays was strong, notwithstanding a two-day power outage that left quite a few restaurants temporarily dark. Telluride is not easy to get to, especially in bad weather, and that’s why it appeals so strongly to corporate execs who can fly there in Gulfstreams. Arnold Schwarzenegger was the first big-time celebrity to arrive on the scene, and Tom Cruise followed.  Regular folks in Telluride don’t gawk at

Skiing in Telluride this weekend has been heavenly, but I'll be headed back to the Denver area Monday morning. Don't look for me in the chat room, since it'll be a six-hour drive even if the roads are clear and dry.  To the many new subscribers who came aboard in the last week or so: Don't hesitate to ask questions in the chat room, since a spirit of helpfulness is always present there.  FYI, I expect the Dow to be down more than 100 points today at some point, but I wouldn't hazard a guess as to where it will settle.