May 2010

Friday's rally in gold was as unimpressive as the one that occurred in stocks, having failed to exceed two prior peaks on the hourly chart. Still, the futures remained moderately buoyant Sunday night and appeared bound for an unambitious Hidden Pivot resistance at 1192.00 that lies just $4.20 above Friday's peak. It would refresh the bull trend on the lesser charts if the target were to be achieved; if not, the futures would be vulnerable to a downdraft to 1159.00 over the near term.

If the bearish target at 1022.75 is reached as predicted, a 500-point plunge lies just ahead for the Dow Industrials. Friday's feeble rally did little to change the outlook, since it surpassed only a single prior peak on the hourly chart, not the two that we require. Even so, we should be on our guard against a short-squeeze, since it would only require a print today at 1094.00 -- 5.25 points above Friday's peak -- to turn the odds against bears for the short-term.  The 1022.75 target would nonetheless remain valid in theory as long as 1174.75 (aka point 'C') has not been breached to the upside, but for all practical purposes it would take only a print at 1123.00 to all but guarantee significantly higher prices thereafter.

Colorado ski properties are enjoying a dead-cat bounce, although readers of a recent article in the Denver Post might infer there is something more to it than that.  The article noted that in Eagle County, which includes tony Vail, residential transactions were up 190% year-over-year for the first quarter.  That represents 276 properties changing hands, compared with 145 during the same period a year ago. However, as the article acknowledged, the surge was from very depressed levels, and it still fell 27 percent shy of the total for 2008 and 58 percent shy of the figure for 2007.  Nowhere was there any mention of price trends or rental costs. If these factors had been taken into account, it would have made clear that valuations will have to fall much further before ski homes and condos could conceivably experience a sustainable bounce. We recently sat down with a Vail property owner who worked the numbers for us. He said that even after collapsing from a peak price of $1.3 million to around $800,000, a two-bedroom luxury condo in Vail is still a lousy investment. Assuming the unit is rented 130 nights at $350 per night – a fairly optimistic assumption, according to our source – annual gross income would be $45,500. Half of that would go to the leasing agent, leaving $22,750. Subtracting a further $15,000 for taxes, maintenance and homeowner association fees would leave $7,750.  Then there are mortgage costs of about $30,000 per year. This is based on a 6.5% loan on 60% of the property’s value.  You should add a 6% opportunity cost, or  $19,200, on the 40% not financed, since that’s what you could earn – without all the hassles – in a closed-end muni-bond fund. Thus, the investor who scooped up a $1.3 million property for

Index futures were in the throes of a tedious rally late Thursday night, with the E-Mini S&Ps up as much as 9 points so far.  This is routine short-squeeeze action, but the pullbacks have been shallow enough that it could continue till dawn absent any disturbing news.

A Hidden Pivot at 9595 is equivalent to the 1022.75 downside target given for the E-Mini S&Ps. If you want to use the Mini-Do futures to go bottom-fishing, I suggest looking for a tradable abc reversal on the lesser charts around 9610.  The actual Hidden Pivot lies at 9599, my minimum projection for the near term.

We should expect 1022.75 not only to be reached over the next 3-5 days, but to give way to a tradable bounce as precise as the one we saw from 1098.75. More immediately, it will take a thrust above 1096.75 to set bears a-running. Shortly before 3 a.m. EDT, night action remained featureless as the futures ascended into a volume-less vacuum.

For reasons that the chart accompanying today's commentary makes clear, we should want to see gold hold above the 1156.20 low recorded on May 5, since that would avoid creating a bearish impulse leg on the daily chart.  The most bullish scenario I could imagine for today would be a pop above the 1199.80 look-to-the-left peak created May 19 on the way down.  If that were to occur, bulls would be ready to romp come Monday.

Because  Silver  is dominating the discussion in the chat room tonight, let's get right down to it.  The futures would need to pop above 18.165 today to turn the intraday charts bullish, but they must avoid dipping below 16.590, since that would create a bearish impulse leg of daily-chart degree.  There are no hand holds to try and get long-on-the-cheap at the moment, but to put the correction risk in perspective, July Silver could fall all the way down to 15.710 ( a "reverse" pivot; see chart) without so much as implying that the long-term bull is in jeopardy.

Funny how the “accident” that sent the Dow plummeting a thousand points a couple of weeks ago has morphed into the real thing. The blue chip average fell 376 points  yesterday, and we’re predicting it will fall a further 470 points, to exactly 9592, before buyers get decent traction.  Easy come, easy go, as they say. The initial selloff was originally attributed to a clerical error.  If this turns out to be true, Wall Street may yet produce a scapegoat for the bear market disaster that is yet to unfold. Something like this happened when epidemiologists traced AIDS back to patient zero, a French Canadian flight attendant named Gaetan Dugas. He died young, evidently before a torch mob could find him, but you can bet the Wall Street clerk is already living under an alias, assuming he ever existed.  The charts offer an indictment that does not distinguish between a clerical error and a real panic. Let the stock and futures exchanges bust all of the trades they want and say it never happened. The swoon will always be there in graphic form, a synecdoche for these interesting times.  In the meantime, they have provided us with ABC price points that make predicting the future, at least for the moment, a piece of cake.  Be sure to remind us in a week if that 9592 target doesn’t pan out. We’ll be out on the ledge, entertaining a crowd. With the stock market in avalanche mode yesterday, some Rick’s Picks subscribers seemed to despair that Gold might continue to fall in sympathy.  Bullion has been hit pretty hard this week, to be sure, and it was taking yet another pounding Thursday night as we went to press.  But we doubt that sellers can keep it up, lacking as they do a