January 2010

Goldman has overshot a 153.13 correction target on the daily chart, so we should assume it will fall at least to the 149.95  target of a minor extension of the pattern. The target is somewhat interesting because the relevant point 'C' (see chart) occurred in night trading above the regular-session high. I wouldn't rate the support as a high-confidence number to bottom-fish, but it's worth a shot if you can abide a penny-ante stop-loss. _______ UPDATE: The stock bottomed at 148.27, presumably shaking out any longs from 149.95.

A print today at 1117.50 would turn all of the intraday charts bullish, but any less than that won't significantly diminish the odds of a fall to at least 1075.40 over the near term.  The first point at which I would turn speculatively bullish, however, would be at 1102.00, since a print at that price would refresh the bullish impulse on the lesser charts.  Because the futures appeared bound for a minor, 1102.20 target late Sunday night, traders should look for a camouflage entry opportunity that approximates the pattern shown in the chart. ______ UPDATE (10:30 a.m.): Bulls failed to leverage a move slightly above 1102.20 overnight, and the futures dropped back without triggering a buy signal. More recently, as of 10:27 a.m., they've slightly overshot a 1093.00 downside target and are rebounding sharply. The presumably gratuitous rally, currently at 1097.60, will start to look slightly interesting on the two-minute chart if its hits 1101.10

Don't forget, we've got a $2 nag in the race via the two March 144 puts we purchased last week for 0.72. Officially, we are trying to spread them off by way of the short sale of two March 39 puts for 0.77, good till canceled.  Unofficially, however, to those who may have done this trade in greater size, I would recommend taking profits on 30%-40% of the position now, since the puts have more than doubled in value in the two days we've held them.

The hog traders, having short-squeezed as much of a rally as they can get away with on an eventless Sunday night, have leveled off the futures at +5.00 points around 1 a.m. EST.  Presumably, they are waiting for the microspeck of good news that would allow them to double the power of the squeeze; but if none comes, expect to see the futures ease lower between now and Monday's opening. There are too many downside targets to choose from for high-odds bottom-fishing, but I'd pick 1074.25 if someone held a gun to  my head. FYI, pivoteers: A=1138.25 (15m, Jan 21); B=1101.00,C=1111.50. Shorting with the trend looks like it will be very difficult, since bears are already mildly on the ropes of the minor (up)trend. _______ UPDATE (3:13 a.m.): Drop down to the two-minute chart to find the 1099.75 target that has coaxed the futures still higher. (A=1090.50, from Friday.) The futures have gotten with a tick of it, but there are no handholds on the lesser charts for forecasting anything higher, so I won't try.

The following comes from Van Hoisington and Lacy Hunt, whose thoughts have appeared in Rick's Picks before: "Since 1990 Treasury bond yields have steadily moved downward in line with a more benign inflationary environment. Those yearly declines in yields continued last year with an average interest rate of 4.07% versus 4.28% in 2008. Obvious sharp reversals have occurred in their downward trend due to shifts in psychology reacting to generally transitory factors, as we saw in 2009. To remain fully invested in long Treasuries in this high volatility environment requires a simple discipline based on the academic literature which demonstrates that over time bond yields move in the same direction as inflation (Fisher equation). "Presently, we view the inflationary environment as benign because: 1) the U.S. economic system is overleveraged and academic research confirms that this circumstance leads to deflation; 2) monetary policy is, and will continue to be, ineffectual as efforts to spur growth are thwarted by declining asset prices, loan destruction, and adverse regulatory influences; 3) the federal government's spending spree will necessarily cause taxes and borrowings to rise, further stunting any economic growth. These factors ensure that inflation will be quiescent. Interest rates easily can and do rise for short periods, but remaining elevated in a disinflationary environment is contrary to the historical experience. We are owners and buyers of long U.S. Treasury debt."

Wall Street seems to have caught more than a whiff of the Great Recession last week. More like the scent of a corpse, notwithstanding the full court press by Government and news media to convince us there’s a recovery going on.  The insane energy that had been pushing stocks higher since last March now seems to be failing. Notice in the chart below how the Nasdaq index has suffered two sharp setbacks since November. There is nothing bearish about this per se, since all uptrends need to correct now and then. However, it is the price action that followed the breaks that raises doubts about the veracity of the ten-month-old bear rally. The thrusts were noticeably tepid compared to the spectacular surge that lifted stocks from a funk in July, taking the broad averages to new recovery highs.    What this suggests is that short-covering, the main source of power for bear and bull rallies alike, is running out of fuel. And it’s not because shorts are so certain about the economy’s death spiral than they can no longer be spooked. More likely is that they have simply left the game in order to survive. To be sure, even a relative handful of panicky shorts can goose stocks sharply higher on a given day, and there are probably still enough of them around to levitate the Dow by 150 points on whatever faintly encouraging speck of bullish news crosses the tape.   Margin Calls Such buying is driven by margin calls and feeds on itself, and that is why it is far more potent than merely bullish buying, able to push stocks through resistance levels. But the take-no-prisoners rallies of summer have given way to a wafting uptrend that has ceased to spook bears or much impress the public. The market’s tepid

From our friend Phil Calderone, a possibly timely note concerning 3Par, Inc.: "I recommend taking a long position in 3Par Inc. (PAR) immediately at this price level, around $10 per share. Upside appreciation potential between 35-100 percent. Downside risk should be no more than 5%. Minimum price target is 15-16 but being a likely takeover candidate, more likely to see 18-20. Buy tomorrow, Monday 1/25. Earnings coming out Thursday 1/28 after the close. From a Hidden Pivot perspective, 3Par has upside potential to as high as 15.42 0ver the next 4-6 weeks.  The stock has already breached midpoint resistance at 11.89, and its daily chart therefore remains bullish despite a sharp pullback from early-January's highs near $14.  I offer Phil's recommendation with the usual caveats that apply to "hot stock tips".  I have not done due diligence myself and proffer only a technical picture that looks promising to me.  Here's a description of the company from Google sources: "3PAR Inc. is a provider of utility storage for mid-sized to large enterprises, financial services firms, cloud computing service providers, consumer-oriented Internet/Web 2.0 companies and government entities. The Company’s customers include organizations that generate and retain data use enterprise-level storage systems, such as the Company’s for storing, protecting, and recovering electronic information in the form of digital data. Its target customers are primarily organizations, including external service providers (MSPs and HaaS/SaaS providers) and internal service bureaus (information technology (IT) organizations within enterprises and government agencies). As of March 31, 2009, the Company had sold over 1,200 utility storage systems to more than 500 mid-sized to large enterprises, financial services firms, cloud computing service providers, consumer-oriented Internet/Web 2.0 companies and government entities worldwide."

We put the knock on China the other day – not for the first time -- in a commentary concerning Google’s security problems there. This elicited a fascinating response from reader Mario Cavolo, a frequent contributor to the Rick’s Picks forum who lives and works in Shanghai as a motivational speaker. We asked him to expand his remarks, which cast China in a very bullish light.  Here’s what Mario had to say: Stop listening to the bubble doomsayers and pay attention to the realities of why China’s expansion will continue for many years. My observations as a fly on the wall are a collective reflection of what I and other foreign businesspeople living here for five to ten years have experienced. The Mother of All Expansions ** China's expansion right now is the same as the U.S. postwar expansion. It should be easy to recognize the parallels:  inflation of consumer prices, real estate, the cost of doing business, continued asset inflation with rising stock markets are all hallmarks of a country's economic and societal emergence.       ** China's expansion is fired by huge supplies of a fuel called cash We know about the trillions in the government sector. This is an amount well in excess of any projected debt levels in Beijing's budget. The South China Morning Post’s Tom Holland looked more closely at debt levels and potential bad loans that could boost total debt to a worst-case 55% of GDP, about the same as Britain. However, one must remember that the economy and tax revenues are growing solidly -- plus Beijing has no shortage of assets to set against its liabilities.  So even with the concern over the GDP/government debt ratio, they have the cash – a crucial difference that make China like a corporation with $1

I've projected lower prices for stocks and gold, but there's no telling whether the Friday Effect could turn the trend into something memorable.  In any case, stocks look like hell.