February 2010

Gold looks like it could fall as much as $18 overnight, a prospect that appears to be corroborated by tonight's breakout in the Dollar Index. Index futures were down moderately, but I cannot recall the last time such weakness at night did not presage a miraculous recovery the next day.

The Dollar  Index is moving effortlessly above the 80.98 pivot that halted Tuesday's powerful rally, implying more upside over the near term to as high as 81.78.  A pullback from that number appears likely because of the precise pullback that has  already occurred at the C-D midpoint , so currency traders might look to get long the euro with a tight stop if and when the turn comes.

March Silver will have a chance to turn from 15.485, a Hidden Pivot support that can serve as our minimum downside target for now. But if there's no bounce, brace for more slippage over the near term to as low as 15.255.  Alternatively, it would take a rally exceeding 16.195 to turn the intraday charts bullish once again.

The futures look bound for 1073.20, a Hidden Pivot support whose provenance is shown in the chart.  Price action Wednesday night would appear to corroborate this, since gold is presently bouncing from a low four ticks beneath the target's sibling midpoint, 1088.90.

The futures are down about nine points -- equivalent to around 70 Dow points-- shortly after midnight.  As I noted here a few days ago, when DaBoyz let stocks slide at night, their goal is to find a level at which selling dries up. Then they'll suck up whatever shares come in for sale overnight, but lower their bids if bearish momentum picks up before the opening.  Most of the time, unless there's awful news to trigger an avalanche of selling on the opening, these operators will succeed at exhausting selling before the bell.  It is for that reason that we should maintain a bullish bias for Thursday.   However, if the decline were to exceed the two prior lows shown in the chart, that would be warning of more downside to at least 1088.50, a Hidden Pivot you could bottom-fish with a stop-loss as tight as three ticks.  Alternatively, the futures would need to touch  1107.75 today to turn the hourly chart bullish. _______ UPDATE (1:30 p.m. EST):  The futures noodled around the 1088.50 support for 20 minutes without showing much lift, so exit would have been on the stop, generating a trading loss of about $38. The eventual low was at 1084.50,suggesting that still lower lows lie ahead.

Stocks are in a warp now, moving in a parallel universe with no apparent connection to the observable world. The worst housing news in nearly 50 years pushed shares lower for a relative blink of an eye yesterday, then it was back to the races after Helicopter Ben affirmed for the umpteenth time that the Fed would not be tightening any time soon.  Recall that it was just a week ago that the Fed announced it would raise the discount rate by half, to 0.75 percent. Even though this administered rate has become largely irrelevant to bank borrowing, the markets reacted as though the announcement had been momentous. The dollar soared, gold fell, and the unbiased observer might have concluded that something important had occurred. In fact, nothing of significance had changed. That’s because banks that face short-term stresses neeed not borrow directly from the Fed; instead, they borrow “excess reserves” from each other at the federal funds rate – the rate the Fed conspicuously left unchanged last week at 0.25 percent. Wall Street has been assured of easy money for so long, and so many times, that one might have expected Bernanke’s latest re-assurance to have had no impact whatsoever. But the fact that it moved the markets higher does not necessarily mean traders thought there was anything new or significant in the Fed chairman’s speech. No, they bought stocks simply because they believed that’s what all the other traders would do.  It therefore wasn’t the speech itself that caused stocks to rally, but rather the fear of being left in the dust when others reacted. And because there was no way to construe Bernanke’s message as bearish, the only option was to go with the flow and buy stocks. Diabolical Machines We use that word “flow” euphemistically, by

The Dollar Index topped a single tick above the 80.98 midpoint flagged in yesterday's tout.  If and when it gets by the resistance, look for a swift follow-through to exactly 81.87, the midpoint's 'D' sibling.

The 100-point decline I'd expected turned out to be more like a 30-point decline, and it was over in the middle of the night. Stocks are currently in a short-squeeze rally, every buyer  fearing that the next idiot is going to somehow read bullish implications into the speech being given by our mendacious, factually challenged, economically illiterate Fed chairman.  An 1105.50 target in the E-Mini S&P is as high as the very lesser charts take me right now.  That is 1.00 point above the so-far intraday high.

Goldman squandered an opportunity to turn vicious yesterday, lunging above two "internal" peaks on the hourly chart in the opening minutes of the session, then failing to go for the gusto by taking out the "external" peak that I've labeled on the chart. What this suggests is that the next rally cycle is doomed to fail.  From a trading perspective the stock remains a long-term short, although the opportunity to do so does not appear to be perfectly ripe at the moment.