Friday, July 23, 2010

The stock-market surge yesterday brought us right up to very visible trendline resistance, and it is difficult to believe that the equity bulls won't find a way to break that trendline decisively.  The daily chart of the e-mini S&P 500 futures is still not at all bullish, but a 43-point move from here will do the trick.  Throw in another 13 points and we'll have a really convincing impulse wave.  Specifically, 1129.75 will satisfy our minimum standard of one internal and one external prior high, but 1143 will give us a second external, at which time we might have to start taking the bounce off of 1000 seriously.  All of this would occur within a larger bearish context, however.  In Wednesday's tutorial session, we looked at the monthly S&P 500 cash chart and found that the index is on course for at least 833.08, and possibly 446.35.  The attached graphic shows this pattern in red, plus an alternative pattern whose midpoint was almost hit by the famous 666 low.  (Posted by Doug McLagan)

Yesterday's decline in the dollar confirmed a new daily pattern projecting as far down as 80.98, which would be a three-month low.  The dollar's peak on June 7 coincides, not surprisingly, with the important Euro low of the same day, and the two currencies have been trending strongly in opposite directions since then.  The midpoint of the dollar's pattern (82.22) is above the low for the move (82.08), which is also the "B" point of our pattern.  Therefore a bounce off the midpoint would look like a successful retest of the low followed by a potential trend change.  However, if the midpoint is surpassed, Hidden Pivot analysis tells us to expect the "D" target to be reached.  This would most likely correlate with the Euro breaking through its resistance level.  (Posted by Doug McLagan)  _______ UPDATE (1:57  p.m. EDT): The dollar index bottomed one tick below the 82.22 midpoint and then rallied sharply.  The September dollar index futures, whose price levels are offset slightly from those of $DXY, also bounced from a penny below its corresponding midpoint.  The rally was good for more than $800 per contract. _______ UPDATE (March 20):  Yellen's speech yesterday sent the dollar soaring. She did not say anything intelligible, let alone meaningful, and so one might infer that the dollar's reaction was -- as usual -- based on delusions and hallucinations long cherished by the mindless herd.

The Euro will encounter overhead resistance in the $1.31 area due to a Hidden Pivot and a prominent prior high which are close together.  Beginning in late November of 2009, the Euro trended down for at least six months, losing more than 21% of its U.S. dollar value.  But since its June 7 low of just under $1.19, the Euro has been in an important uptrend.  If it can trade through a Hidden Pivot at 1.3092 and past an eye-catching prior high at 1.3101, the June 7 low will start to look like a major trend change.  On the other hand, the "D" target of 1.3092 might be the ideal place for Euro bears to front-run other like-minded traders focused on the prior high just above it.  (Posted by Doug McLagan)

(Rich Cash, a wise and prolific contributor to the Rick’s Picks forum, as well as a blogger of note, has written insightfully and with good humor on a subject near and dear to our heart – i.e., the put-and-call game. Fortunately, we retired our powder-blue market-maker smock and badge (#K30)  just before the Feds started using RICO laws to prosecute white-collar criminals. We were a scurvy lot, for sure, and Rich has captured the flavor of the game in a way that explains what drew so many of us sleazeballs to the options trading floor. RA) On Monday, some of the Fast Money Crowd were ready to jump off the bridge after INTC, JPM and GOOG flamed out on brilliant earnings. Tuesday, they were extolling weekly call options on AAPL with 70% volatility premiums. That’s right -- if a security that expires in a month is not a risky enough disappearing asset, now we can buy weekly options at a price almost guaranteed to absorb all price fluctuations and expire worthless. Options have a long and checkered history that dates from the seven years Isaac worked to marry Rebekah, only to wake up in the marriage bed with her older sister Leah, and work another seven years for the woman he loved. In the early 1900s, Jesse Livermore frequented options parlors known as bucket shops. For a small amount of money down, you had the brief right to buy or sell a security at a fixed price. If it went higher in that short amount of time, you made money. If not, you were out of luck. The bucket shops were so good at pricing option premiums they usually bucketed the orders rather than enter them. Livermore was one of the few that did well enough in the bucket shops