Monday, February 8, 2010

Although we've been looking to short this rally, we'll get out of the  way for the moment, since the most promising  trade I can foresee is a buy that would occur somewhat below these levels. The accompanying chart shows the Hidden Pivot midpoint that would spell easy, or at least low-risk, opportunity.

I was a tad greedy on Friday in having you hold out for a few more measly cents when the March 39 puts trade as high as 0.57.  (Our short offer lay at 0.65.)  The selloff that sent the puts soaring may have marked fear's apogee for a while, so I'll suggest offering the put short for 0.45 now, good-till canceled.  We are already long one March 44 put with a cost basis that has been reduced to 0.23 by profit-taking.

The Dollar Index came within 0.10 points of reaching a longstanding target at 80.78 on Friday, and I'd be surprised if  this Hidden Pivot fails to contain the rally for at least a week or two, if not significantly longer. The resistance is not chopped liver, as we sometimes like to say, and if it were to be easily swept aside, it would be warning dollar bears to dive for cover.

The downside target equivalent to the one I've provided for the Dow in today's commentary lies at 1021.00, and I have trouble imagining that it won't be reached sometime this week.  The midpoint Hidden Pivot with which it is associated is now resistance, and it seems tonight to be containing whatever ebullience may have spilled over from Friday afternoon.  I'd tout 1061.00 as a tightly stopped short if this were happening intraday, but there is too much feral activity on a Sunday night to risk it.  However, pivoteers who can find camouflage enough to whittle the stop-loss down to just a few ticks are encouraged to give it a try, shorting with the microtrend.

A fleeting lunge to 1073.00 Sunday night has refreshed the impulsiveness of Friday's week-ending recovery rally, but it will now require a bit more of a pullback to recharge the futures for a strong follow-through.  To be more precise, the futures will need to come down to at least 1060.40 (versus an actual 1065.40 so far) in order to be in the "window" for another leg up.  Thereafter, it would take a thrust of at least 7.20 to get off the launching pad and be on track to reach a short-term high near 1090.

The stock market’s miraculous recovery in the final two hours of Friday’s session could have made one lose sight of why stocks were down in the first place. Come to think of it, why were they down?  Investors began the the day supposedly concerned about whether Greece might have to hock the Acropolis to buy time from creditors.  Amidst all the nail-biting, U.S. shares fell hard in the early going. But when the selling began to dry up around mid-afternoon, DaBoyz squeezed shorts with the kind of viciousness we haven’t seen since the running of the bears in the weeks before Thanksgiving. And Greece? As the weekend drew to a close, analysts were debating whether the country’s problems held any implications at all for U.S. stocks, much less dire implications. “Should the woes of a country with fewer people than metropolitan Los Angeles really roil the massive U.S. markets,” asked the Wall Street Journal, evidently having fogotten how just one company, AIG, nearly took down the whole world, financially speaking. We don’t know whether the Journal’s bold insouciance portends a mood change at the opening bell on Monday morning, but the Darth Vader-types who supposedly move the markets will have their hands full trying to reverse a selloff that is about to enter its third week. The Dow Industrials have fallen about 900 points during that time, or a little more than eight percent, bringing them down to 9835 at Friday’s lows.  However, our forecast calls for still more slippage to at least 9628 before it will be safe for bulls to come out of their bomb shelters. We’ll want to load up the truck for a robust short-squeeze rally if the target is reached, but in the meantime we wouldn’t touch stocks other than to short them. Since we