April 2010

If Friday's selloff is the beginning of a major downtend, we should see minor retracement rallies fail at their 'p' midpoints, and minor downtrends overshoot their 'D' targets.  To take advantage of this as traders will require getting used to unfamiliar price action on the intraday charts and the inversion of certain entry strategies that we've been using for more than a year.  In any case, the analytical strengths of the Hidden Pivot Method should remain unaffected, so let's have some fun!

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

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.

Remember the sci-fi movie that ends with two possible newspaper headlineas:  1)  "Asteroid Will Collide with Earth"; or, 2) "Asteroid Will Miss" ?   Well, the Dow Average is in a similar situation, and you should check out the chart accompanying today's DJIA tout if you want to see what the possibility of a 1300-point rally looks like in stark Hidden Pivot terms. My gut is telling me it could never happen, but anyone who has subscribed to Rick's Picks for a while knows that I will always trust the charts before I trust my gut.

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.

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 dollars against future output, then pumping nearly all of that money into goods and services that are economically questionable at best and purposeless at worst? The strong impression one gets is that Wall Street believes it, since stocks have been in a relentless rise for months. It requires a healthy dose of cycnicism, however, to see what has really been going on.  In fact, the public has abandoned the stock market, leaving the hedge funds and trading desks to run a shell game on the taxpayers’ dime that makes it relatively easy to hog-trade stocks higher and higher on almost no volume. This has been occurring nearly every day for months: index futures waft higher overnight on light short-covering, setting up a second wave of short-covering on the NYSE opening. No Skin in the Game It is tempting to view this action as a wealth-creating perpetual-motion machine even if we know the game cannot continue forever. What is different and dangerous about this bull cycle, however, is that those who have been causing stocks to rise – Goldman Sachs, J.P. Morgan and other Masters of the Universe – have no skin in the game. They have simply been trading amongst themselves, applying relatively small sums of cash to the