May 2010

Unlike the E-Mini S&P, the E-Mini-Dow never got close to a Hidden Pivot midpoint support that we'd flagged.  It turned from 50 points above it, although this will not have bullish implications until such time as the futures push above 10722, a look-to-the-left peak recorded May 14 on the way down.

Traders easily could have made hay with the 1098.75 support I'd flagged, since the futures popped yesterday for a 20-point rally precisely from that number.  It is the midpoint support of a major downtrend that is itself part of the even larger uptrend begun in March of 2009.  Yesterday's failure to penetrate the support is bullish going forward, but this still needs to be confirmed by the creation of a bullish impulse leg on the hourly chart. As of now, that would require a print at 1150.60 (see  inset).  If the confirmation does not come and the futures close below 1098.75 for two consecutive days, look for the selling to snowball all the way down to 1022.75.

There are numerous corrective patterns in motion right now in different time frames, including one on the hourly chart that has yet to establish a point 'C' high (but A=18.725, B=17.920). I suggest watching abc midpoints on the hourly to determine whether a bullish turn is at hand. If so, the downward progress of any such pattern should be visibly impeded at the hidden  'p' support.  Bulls could cease splitting hairs if the futures pop above 18.810 today, since that would turn the lesser charts unambiguously positive.

Despite the deflationist theme sounded in today's commentary, I don't see gold falling apart here. Far from it, for there are in fact just too many buyers around the world who understand that paper money, most particularly the dollar, is currently enjoying its last hurrah.  That said, we should keep a very close eye on Comex Gold's ups and downs and take seriously any bearish impulse legs that develop on the hourly chart. The ones in progress this  week played out yesterday to their lowermost target, 1186.50, prompting an update at the time that that could be it for sellers for the time being.  We shall see. But notice in the accompanying inset that there was no damage whatsoever to the daily chart. That would require a selloff this week exceeding 1156.20 -- not impossible, as we know, but until such time as it happens there's no point in worrying about it. ______ UPDATE (3:55 a.m. EDT):  DaBoyz are playing dirtier than usual tonight, taking the futures down nearly $12 just to run stops tied to a key low at 1184.40 recorded on May 10. The futures have since recovered nearly all of the loss, making the move seem in retrospect like a wholly gratuitous swoon.  The nearest Hidden Pivot target at the moment is 1194.40, $1.10 above the so-far recovery high.

We backed off the inflation/deflation debate a few months ago when we started feeling sorry for the inflationists, who seemed hopelessly out of touch with the real world.  As far as we were concerned there was nothing to debate, since, other than what we’ve referred to as grocery-store inflation, no evidence existed that prices were about to rise, let alone explode. That is still true.  What on earth could they have been thinking? It should have been clear enough that the monetarists needed to revamp their outmoded theories after rampant easing in the wake of the S&L debacle 20 years ago failed to generate any meaningful inflation at the consumer level. What we got instead was a new strain of “good” inflation that seemed to benefit everyone.  Indeed, few complaints were heard from homeowners whose properties were increasing in value by 15% or more per year, nor were financiers whining about the soaring collateral values that made it possible for them to leverage $60 trillion worth of global GDP into a derivatives edifice with a notional value exceeding $600 trillion. And now we’ve got the “bad” kind of deflation, with a moribund housing market that has so far failed to respond to trillions of dollars worth of intended stimulus, either direct or indirect. Freddie Mac, for one, has nearly tripled its book, filling the shoes of all the profligate subprime lenders who nearly took the financial system down a couple of years ago. Thus, rather than gearing the mortgage market toward precipitous failure, the government has been dribbling out subsidies of $10 billion to $15 billion to the GSEs each quarter that we hardly even notice any more. Hyperinflation, But Too Late… We’ve made this point a hundred times, but we will make it again:  Hyperinflation is coming, for sure,

"Subdued prices suggest that a more pressing concern could be deflation, which occurs when weak demand causes prices to fall. But whether deflation arises depends on the strength of the economic recovery and whether demand can remain strong even as government stimulus efforts expire." via U.S. Inflation at 44-Year Low as Retail Prices Fall - NYTimes.com.

Check out today's tout and chart for the Dollar Index, since it's possible to infer the greenback is developing thrust for a mini-moon shot into the low 90s.

I've been projecting a tradable low at 10258, a Hidden Pivot, but any bottom-fishing should be tied to a camouflage entry strategy using the 3-minute chart or lower. That number remains my minimum downside target for the near term, and it looks likely to be reached this morning if sellers show any gumption at all.

The Dollar Index has just embarked on a fresh, bullish impulse leg with immediate upside potential to 87.99, the Hidden Pivot midpoint of the pattern.  If it breaks loose, however, and closes above that number, that would imply more upside over the near term to as high as 90.06.