Thursday, March 11, 2010

Expectations of higher highs on a given day have become so routine that I've suggested looking for small opportunities to short the E-Mini S&P in today's  tout. If done with care, we should be able to short a rising market all day, every day without an ounce of pain.

Dueling impulse legs on the weekly chart hint of more dithering for perhaps months to come. Even so, a dip to 377.95 would create a tempting buying opportunity, since that midpoint support is relatively isolated from the interference of prior lows. We'll make it our minimum downside objective for now, subject to negation by a pop above 433.99, the point 'C' of the pattern.

Price action has been so ratty lately that there's no percentage in guessing where this headless little rodent is going next.  However, since the presumption of higher prices has reached the point of near-certitude, we should probably focus for a change on downside opportunities. For starters I'll suggest jumping on any downtrend initiated on the 3-minute chart with an impulse leg shorter than four points and a single-bar C. The accompanying chart shows what I'm talking about. _______ UPDATE (12:30 p.m. EST): Good thing we went into today's decline thinking SMALL.  The Dow is off a whopping 18 points right now after being down as much as 60 points earlier in the session.  Makes one wonder, is that all there is?

Wednesday's report on crude oil inventories plucked the oil price like a guitar string.  The chart quieted down after tracing an ABC pattern which might allow us to get long a market that has been grinding higher for several weeks.  Traders should bid 81.34, just above the midpoint pivot, and, on the theory that the oil market has gotten its ya-ya's out for now, we will recommend a tighter stop than usual, at 81.23, for a hypothetical risk of $110 on the trade.  The sibling D target is not considered a buy, however, as it is just above an important prior low. (Posted by Doug McLagan) _______ UPDATE (10:29 a.m. EST):  The futures bottomed a penny beneath our bid, giving us a perfect entry price; then they shot up to 82.08, yielding a theoretical profit of as much as $740 on $110 of risk. They have been spasming wildly ever since, but by now you should be out with a nice profit in any case. 

The pattern shown in the chart is the one that caught my eye during yesterday's tutorial session. It has since developed and is even more compelling with respect to the opportunity it may present for bottom-fishing. This should be done at 1095.50, two ticks above the Hidden Pivot target shown, with a stop-loss at 1094.20. Pivoteers could also attempt entry via camouflage if and when the downtrend closely approaches the target.  Night owls intent on scalping should consider 1111.80 as a place to get short with a tight stop-loss. That is the sibling midpoint of the 1095.50 target, and it should now act as resistance. _______ UPDATE (10:25 a.m. EST):  The events of the day have unfolded so far as foreseen.  The overnight high was 1111.70, a dime from where shorts were advised, and the futures have since fallen as low as 1100.50.  The rally to the C-D midpoint has confirmed the 1095.50 target. 

Readers got pretty stirred up the other day after we published a think-piece by Sinophile Mario Cavolo asserting that the world would muddle through its financial crisis without experiencing a catastrophic collapse. Although we disagree and expect a one-two punch of deflation/hyperinflation to put the global economy and financial system into a deep coma for at least a few years, we’d have to concede that a more boring outcome is at least possible. As much might be inferred from the chart below, which shows price action in the Dow Industrials going back 20 years. The first thing to notice is that the Dow is currently trading near the exact middle of the last ten years’ powerful ups and downs. Not exactly horrific, considering the financial system is immersed in its deepest crisis since the Great Depression and the economy remains frozen. Referring to the chart, if you draw a horizontal line passing through as many price bars as possible during that period, it would just nip the top of yesterday’s high. In fact, the blue chip average has done absolutely nothing since the late 1990s if inflation is ignored. And if it is not ignored, you can see what a losing game the stock market has been for the average investor.  Could it have been just a few short years ago that investors told pollsters they expected to reap annual gains averaging 28 percent until the end of their days?  Warren Buffet probably wishes he’d done half that well over the last few years. Boring Resolution Unlikely Regarding the possibility of a boring resolution to America’s, and the world’s, towering debt problems, we think the odds are heavily against it. So egregious are the lies that currently sustain our economic system that muddling through seems quite impossible. Where the U.S.