After we’d targeted a Hidden Pivot resistance at 1212.50 in our crosshairs for days, we missed shorting the top on Friday when the futures plunged from a peak an inch below it. (The actual top at 1210.50 had been recorded the day before.) Is this the start of a major downtrend? It sure feels like it, even if it’s valid to ask why, given the headlines, the Dow was not down 300 points instead of a paltry 126. Still, even a stock market that has been deaf, dumb and blind to reality will not be able to simply shrug off sobering new realities that have percolated into the headlines. From a trading perspective, although there are not likely to be any “easy” shorts today, our general strategy will be to look for camouflage opportunities at the ‘p’ midpoints of minor retracement rallies. This will take some getting used to, since it’s a price dynamic that we have not seen much of in more than a year.
From the monthly archives:
April 2010
Member-only content. Please Login or get a free trial of Rick's Picks to view.
Our man on the scene, Jonathan Auerbach of Auerbach & Grayson, has eyes and ears everywhere — including in Ghana, which he refers to as “the new African tiger.” Jonathan turned up there yesterday, lunching with a presidential advisor who knows all about the Boston Celtics. Here’s a summary of what he learned:
“Yesterday, Cadman Mills, Senior Economic Advisor to President of Ghana John Atta Mills stopped by for lunch and provoked us and entertained us for 2 hours as well as reminding me that he knew as much as I about the Celtics since he received his Ph.D at BC. You must think about Ghana as the new African Tiger. If you last heard that the Jubilee Field had proven reserves of 500 million barrels (official Ghana estimates) forget about it. When asked directly about reserves Mr. Mills allowed that Tullow Oil was now estimating 1.8 billion barrels in Jubilee and then he smiles and said, “We now think it’s larger than that” He spoke at length about their role in delaying the Kosmos sale of their Jubilee interest to XOM plainly stating that there is a national interest on the development of their resources that was clearly overlooked (much of this occured during the recent electoral transition).
“Look this country that spent $2 billion to import oil just 2 years ago will be an oil exporter in 2011 (maybe) and is now embarking on plans that will include infrastructure (rail, deep-water port, power grids), industrial, urbanization, agricultural, and resource (cocoa, gold, manganese, bauxite) development. Growth rates are projected up to double digits next year, the CEDI is firm, and interest rates while still high have been cut significantly lately.So let’s go to the chart of the SE index (attachment above). Why does it look that way? The market is opaque and illiquid and only dematerialized in the last year; market cap of ~$2 billion is only ~15% of GDP which is low, like really low (ok, Iraq is around 5%). Names to look at are Ghana Commercial Bank, Fan Milk, Guinness Ghana, SIC insurance, HFC Bank. We are having a conference in Ghana in 10 days with our local partner Databank; 13 of our clients are joining us there.”
An intraday pattern in the June Euro futures gives us a “D” target that looks buyable. The Euro has been dithering all week after popping up from a double-bottom on the daily chart, which came in just above the midpoint of a large weekly pattern. If we like the odds that the Euro has made an important low, we should look for opportunities to get long such as this “D” target at 1.3457. Traders can risk as much as $138 per contract with a buy at 1.3460 and a stop at 1.3449, but the small size of the pattern would justify a tighter range than that. (Posted by Doug McLagan) _______ UPDATE (April 19, 02:20 a.m. EST): The Euro futures dropped to our entry point, hesitated for half an hour, and then stopped us out by two pips. The subsequent bounce has been anemic.
Harry has reminded me that the 11156 target given in today’s Dow Industrials tout has a DIA equivalent at 111.50 that was flagged here a month ago (the original target was slightly higher). So that we can at least have a horse in the race, let’s plan on buying two May 108 puts. Use a lowball bid of 0.76 in the first five minutes, but thereafter you can pay up to 0.86. _______ UPDATE (11:13 a.m. EST): DIA has fallen sharplyb ut not before it head-faked in the early going, allowing our puts to trade down to 0.84. We’ll record them as having been bought for 0.86, a price that would have been available to anyone who attempted this trade. They are currentl 1.20 bid, so I’ll suggest taking profits on half the position now.
We’ll set the bar at 1166.40 today to alert us to a likely bullish resurgence. Alternatively, any weakness that fails to grope its way down to at least 1144.40 should be regarded as mere noise. It should also be viewed as a low-risk buying opportunity, since there’s a Hidden Pivot at 1141.90 that looks well capable of providing tradable support.
Member-only content. Please Login or get a free trial of Rick's Picks to view.
Top 10 Reasons Why Yesterday’s High May Have Marked an Important Top:
1. It fell less than two points from a clear midpoint pivot on the long-term chart.
Reasons 2 through 10: See reason #1. The actual pivot referenced above lies at 11156.37, versus an actual high yesterday of 11154.55. This is surely close enough to merit our rapt attention, even if it means we won’t get to short the exact high. And of course, if further evidence corroborates the significance of this midpoint, we must also be willing to accept that a decisive move above it would portend more upside to as high as 12477, the midpoint’s ‘D’ sibling. I did not spot this development right away because the C-D leg thus far doesn’t look like it’s even close to equaling half of the A-B leg. An optical illusion, it would seem. (Note: The 11156 target was first broached here a month ago in a Diamonds trading recommendation that was later canceled.)
Yesterday’s near-miss dampened my ardor for shorting a Hidden Pivot at 1212.50. This rally target is still valid in theory, but the trade would have felt best if it had been initiated mid-day yesterday and been followed by a nasty reversal. Give it a 1214.25 stop-loss if the opportunity should present itself today, but don’t expect too much. A better opportunity may await night owls, and I would therefore encourage you to exploit the possibility that yesterday’s high at 1210.50 will prove to have been an important top. This implies risking a few ticks on any abc downtrend(s) that show up on the lesser charts before the start of Friday’s regular session. If I have judged Mr Market correctly, and if a major top is indeed in, he will make it extremely difficult to get short, using the weekend caesura to screw nearly everyone.
Another Possibility: Collapse Any Day Now
by Rick Ackerman on April 16, 2010 6:15 am GMT · 14 comments
We must confess that our heart wasn’t in it when we suggested here the other day that the stock market’s already superheated rally might accelerate rather than flatten with the approach of summer. Such a scenario is of course possible, and it did occur last year. But this time around, with stocks trading nearly 40% higher, it would flout Mother Nature in ways that are most difficult to imagine. For who could possibly believe that an economy in the throes of a debt deflation could be revived by precipitously borrowing more trillions of » Read the full article