Wednesday, May 5, 2010

Today's E-Mini tout raises the possibility that The Top is in and that in any case there's no harm in our pretending this is so.  We'll do best with our analysis by keeping in mind that it is machines that have been doing the buying all along and that they will be emotionless as always when they finally turn seller.

Propped by nervous shorts who evidently lack not only confidence but perhaps competence, Goldman held like the proverbial rock yesterday.  Too bad  most of those who have remained short will not make it to the promised land -- a 135.35 Hidden Pivot support broached here earlier.  That might not be the worst case, either, since there's another equally important Hidden Pivot support at 124.79.   It could be over for Goldman, since, as a result of the civil fraud action brought against the firm by the government -- and possible criminal charges to come --  they will remain eminently sue-able till the cows come home.

Don't look for a quick recovery and blitzkrieg rally to the 21.53 target broached here earlier, since the futures have fallen without refreshing the bullish impulse on the daily chart.  That would have required a  push to 18.915;  in actuality, the most recent thrust topped at 18.890 on Monday.  The negative implications thereof would be affirmed by a further fall exceeding 17.260, so we are not quite there yet.  However, the larger picture, with its 21.53 rally target, will remain viable as long as July Silver does not fall below 16.590.

Yesterday's pullback to within three ticks of a Hidden Pivot midpoint I'd flagged at 1166.60 validates a bullish pattern with a 1208.90 target best viewed on the weekly chart (A=1086.10 on March 26).  The target will remain valid as long as the futures fall no lower than 1124.30 (aka point 'C'), but encouragement in the meantime would come from bearish abc corrections that fail to reach their 'd' targets.  The first such correction was still in progress when the regular session ended yesterday, but I'll update this advisory intraday as useful clues develop. Most immediately, on the 5-minute chart there is an enticing bottom-fishing possibility at 1157.80. Since the bounce from its sibling midpoint was just two ticks from exact, you could use a stop-loss just 4-5 ticks beneath an 1157.80 bid. _______ UPDATE (10:52 a.m. EDT):  Gold's fright-wig swoon was meaningless technically, although it did stop us out for a small loss before bottoming at 1156.20.  The fact that the futures went $10 below the midpoint support/resistance is no reason for anxiety.  They are "entitled" to do so because the initial thrust above the midpoint exceeded it by a whopping $26.  Bulls still have the edge here, and significantly.

The decline of  the last two weeks is a less ferocious version of what we saw at the start of this year, so let's not jump to conclusions about what might evolve, since we know how things turned out the first time.  Still, yesterday's steep drop did generate a bearish impulse leg on the daily chart, and there will be no harm in treating it as though it is the resumption of the Mother of All Bear Markets. If so, the selling is off to a good start, having exceeded the worst-case target that could have been derived from the daily chart, 1168.00. The actual low was 1164.25, and that's enough of an overshoot for us to presume that more selling awaits. If the weakness does continue -- even for just another day or two -- it will put the futures in a hole from which the stairstep resistance of prior highs and lows will challenge bulls' resolve in ways in which it has not been challenged in quite some time. In the meantime, the futures will be best traded from the short side using the five-minute chart or less. Specifically, you should look for camouflage early on in reversals of minor rallies.

Bruised and bloodied bears must have felt a rare sense of exhilaration yesterday as trading on the NYSE drew to a close. That, and a twinge of anxiety about whether U.S. stocks could actually fall for two days running. Some traders evidently decided not to bet on it, and so short-covering drove the best rally of the day in the final half-hour.  After all, who would have had the guts to take a short position overnight in a market that has been on a wilding spree for 14 months?  Some short-covering is bound to occur at the tail end of any day on which the Dow has fallen more than 200 points, as it did yesterday. But the fact there wasn’t more of it, and that the lows penetrated some key supports identified in yesterday’s commentary, suggests there is more selling to come.  Bear in mind that Tuesday is a dangerous time of the week for an all-day selloff to occur, since it leaves three days for the selling to mutate into panic. The ostensible reason for yesterday’s decline, which saw the Dow down nearly 300 points at its lows, was news of fresh trouble in euroland. But decide for yourself whether this is really news:  “Global markets tumbled as investors questioned the viability of plans to bail out Greece and fretted about knock-on effects in other nations.” That’s how the Wall Street Journal saw it, but the story is getting to be so “dog-bites-man” that its impact on the markets is probably overrated at this point. Make no mistake, an historical day of reckoning awaits euroland and its politically fraught currency when Greece’s fatal debt disease is suddenly discovered to infect all of Europe. But for the moment, we can only stifle a yawn when we read on one day about how