March 2010

Enactment of the healthcare bill should prove no worse for the economy than a collision between Earth and an asteroid, so it's hard to fathom why stocks have not yet begun to discount this apparent likelihood with a pyrotechnic rally.  Clearly, Wall Street's most fervent belief is that too much of a bad thing is never enough.  So why were index futures flatlining shortly after midnight, setting some kind of record for time spent in a two-tick "range"?  Charles Krauthammer says the bill is going to pass, and that means it's going to pass -- even, presumably, if a torch mob five-million strong descends on the Washington D.C. Mall this weekend to raise some tea-party hell.

I've stipulated that before the futures are deemed likely to bolt for a Hidden Pivot rally target at 1154.30 they must first close for two consecutive days above an important midpoint resistance at 1126.00.  Yesterday's finish fulfilled half the requirement, but the futures will need to finish the week firm-to-higher to set the bullish scenario irreversibly in motion. There wasn't much happening at 6:30 p.m. EST to provide a low-risk handhold for trend surfers, although the pattern shown in the chart is probably worth a three-tick stop-loss for speculative bids placed at 1123.70. _______ UPDATE (11:35 p.m.):  The futures took a $1.80 bounce from a tick above our bid, turning the recommendation to dross.  Somewhat lower prices ensued, suggesting there was little urgency tonight on the buy side.

Years ago, when talk of an epic housing bust was considered looney-bin stuff, we predicted that deflation would cause home prices in the U.S. to fall by at least 70 percent.  With prices roughly halfway there, there is no change in our outlook. But the question remains as to how the real estate market will eventually find a bottom. The following scenario seems entirely plausible to us. It was written by one of the smartest guys we know, a Colorado-based financial advisor who has done very well for his clients over the last several, extremely challenging, years.  With the wealthy shouldering most of the burden, here is how our friend thinks home prices eventually will be made to “clear” in the marketplace: “Short sale” has always been tough to explain to investors. First you borrow the stock, then you sell it. But now we have a much more easily understood concept, as it applies to housing transactions. The proceeds of the sale come up short of the amount owed, so you get to stiff the lender. And the Treasury Department endorses it. Seems simple enough. But wait; weren’t they just trying to prevent foreclosure? Well, fear not. This isn’t foreclosure. This is deed in lieu, lease in lieu, or emergency program in lieu of foreclosure. One must assume that the original “mortgage modification” program carried with it the expectation that the economy could catch up to the problems of insufficient income, job loss and home price decline quickly enough that families could stay in their homes with some help from Uncle Sam. Clearly, the economy hasn’t cooperated. The new program is designed to make the process of getting delinquent and “underwater” homeowners out of their homes smoother and less costly, at least for the lenders. According to the NYT, the

 I found this Fox interview very informative.  President Obama knows nothing of what is actually in the healthcare bill and is indifferent to the means used to enact it.  "Yes," he said. "It's one sixth of the economy, but we're not going to change everything all at once."  He also had a Tina Fay moment, and apparently confused Hawaii with Haiti in referring to earthquake devastation and exemptions for other states than Louisiana, but Haiti is not a state and Hawaii has not had earthquake devastation. It's unclear to me what he meant.

An examination of the intraday Euro chart reveals that the alternate "A" point mentioned in yesterday's tout is actually the better of the two, due to a large and exact bounce off of its associated midpoint pivot.  In evening trading a small bearish impulse wave has occurred, and we should watch for this to evolve into a pattern which might allow us to buy the Euro not far above the "C" point of our larger pattern.  That "C" point of 1.3639 must be left untouched for our plan to remain viable.  The "D" target is now 1.3906, far enough away that we can probably leave the question of shorting it for another day.  But if we can get long somewhere above 1.3639, that "D" target is where we'd like the trade to take us.  (Posted by Doug McLagan)

The Yen is in position to impulse one way or the other, and in evening trading it is close to doing so to the upside.  Its destination might be the 1.1229 level discussed in yesterday's tout, which is the midpoint of a pattern from the 360-minute chart.  The best chance to get long for the ride up would be if the market rallied to just above the second (or possibly the third) prior high marked on the chart and then pulled back, creating the appearance of a failed breakout and thus giving us camouflage.  Let's treat 1.1229 as our bullish price target for the time being.  Should the Yen decide to impulse down rather than up, perhaps it would be best to stand aside and watch what happens at the 1.0974 midpoint, also described in yesterday's tout, which comes from a pattern on the daily chart.  (Posted by Doug McLagan)

Today's QQQQ tout goes into considerable detail in explaining, not only how to get short by buying April 48 puts, but how to estimate how much the puts should sell for if the underlying vehicle rallies to the 48.12 target.

If Silver pulls Gold higher today,  look for a pop to as high as 18.040. The sibling midpoint of that target, 17.440, has so far acted as support in trading Wednesday night.  Alternatively, a flurry if selling could be expected to drive the futures down to 17.315, but any lower would hint of more weakness into week's end.

The 1154.30 target given here earlier can serve as a minimum upside target for the near term although the very minor trend is bearish as of 9:20 p.m. EST.  That's nothing a two-day close above 1126.00 wouldn't cure, but until that happens we shouldn't jump to conclusions.  In the meantime, night owls can try bottom-fishing with an 1117.60  bid.  The provenance of that Hidden Pivot is shown in the chart. _______ UPDATE (3:47 p.m. EST):  The futures never quite got down to our bid, rallying instead from an 1118.20 low.  The day-session close above 1126.00 is a positive sign, as noted.