July 2010

We briefly observed, and then caught, a small piece of yesterday's fleeting upside near 1091 during the weekly tutorial session, thinking it would be good for a ride to an 1108.25 rally target broached here earlier (and which, incidentally, is still valid). Alas, the futures could muster only 1095.50 before turning south. Bears proved equally unimpressive thereafter, and that's where things stood Wednesday evening.  Night owls can try bottom-fishing at 1086.50, a Hidden Pivot midpoint, but the trade's worth no more than a 1085.75 stop-loss.

We took a deeply skeptical view here yesterday of the buying frenzy that has pushed stocks sharply higher since early July. Not surprisingly, some market observers think the rally is the real McCoy – an entirely normal upthrust in an ongoing bull market. “The only question is, when will you admit you’re wrong?” asked a contributor, Keith P., in the Rick’s Picks forum. “[At Dow 12000? 14000? 18000?  I’m just wondering. Will you be like the rest and say everyone else is wrong the whole way up -- or at some point will you say, yes, I was wrong? I’m not bashing you at all,” he continued. “You kept us in many long positions the whole way up. You’ve done a great job. I’m just saying I expect new all-time highs in the market within a year or two. There will be no crash, no depression. We are not on a gold standard like in the 1930s.” While we’re genuinely pleased to hear that Keith evidently has made hay taking our sometimes bullish advice, we couldn’t disagree with him more about the nature of the rallies; for they are a fraud, a key piece of the epic deception that would have us believe it is possible to extricate ourselves from a black hole of debt by taking on massive new quantities of...debt.  "Ultimately, America faces certain bankruptcy," we replied. “The Federal Government’s ability to create money from thin air may obscure this fact for yet a little while longer, but [we] seriously doubt that it will bring us new all-time highs in the stock market — or even a fleeting instant of real prosperity.” Financial Sociopaths Many who responded to Keith’s post evidently share our pessimism, but there was one reply in particular, from “Red Will,” that we would like to

I called the rally unimpressive in the chat room for three reasons:  1) It derived from an ersatz (aka "sausage") A-B impulse leg;  2) it failed to achieve a 1222.90 Hidden Pivot target; and 3) it failed to exceed a minor look-to-the-left peak, also at 1222.90 (and visible only on the 15-minute chart or less).  The 1222.90 benchmark was never intended to be a major bull signal -- only a threshold that would mildly challenge buyers. We'll continue to use it as an indicator of bullish resolve nonetheless, but it should not be regarded as an all-clear signal by those who have been waiting for one.

U.S. stocks took yet another idiotic leap yesterday, presumably buoyed by news of a ghastly increase in the U.S. trade deficit. Of course, on Wall Street these days all news is fabulous news, and so no one should have been surprised when the broad averages leaped to embrace and celebrate this latest, absolutely appalling evidence of a failing U.S. economy. The Commerce Department reported that imports exceeded exports by $42.3 billion in May. A dip below April’s already frightening enough $40.3 billion deficit had been expected, but it was simply not to be.  One analyst attributed the latest increase in imports over exports to the stockpiling of Chinese goods by U.S. retailers and producers fearful of a trade war. If so, Wall Street’s best and brightest are bound to see this prospect as a win/win development, since the very process of losing such a war would necessarily ratchet up the flow of cheap Chinese goods into the U.S., stimulating more borrowing by American consumers.  That should please the Keynesians, too, since it would give the nation’s tireless, ever-patriotic shoppers a chance to pick up the apparent slack in government borrowing caused by a growing reluctance on Capitol Hill to ratchet up the U.S. debt ceiling beyond its current, so-far ineffectual, threshold of $13.2 trillion. Rally Suits Us Fine Meanwhile, if stocks should continue to rise it will suit us just fine, since the rally so far has been as predictable (and therefore easily tradable) as the rising epidemic of Chlamydia among U.S. teenagers.  On Monday night, for instance, with index futures flatlining, we advised subscribers who monitor the markets in the wee hours to jump on the E-Mini S&Ps if the futures tripped a “buy” signal at a predetermined price.  The recommendation was geared toward traders who are  proficient at using the Hidden Pivot Method, but

Nothing wrong with going with the flow, but neither is it illegal to short the bejeezus out of this rally whenever it encounters a promising Hidden Pivot resistance. For the E-Mini S&P, the next lies at 1108.25, and, as usual, a very tight stop-loss -- meaning two points or less -- should suffice to put the pivot to the test.

If you can contrive to ignore the nasty irregularities of the B-C leg, an 82.80 downside target looks like a piece of cake.  That Hidden Pivot can serve as our minimum downside objective for now, but please note that if it's hit, that would refresh the bullish impulse by exceeding the key May 10 low at 82.91.

Silver is stuck in the same rut as Gold, notwithstanding yesterday's superficially impressive 49-cent thrust.  The trendline that we've been using to project the next test of support comes in at 17.365 today, a tick higher than yesterday.

It wouldn't take much for Apple to breach four "external" lows on the daily chart, but I doubt it will require so extreme a shakedown to allow DaDirtballs to exploit the "disaster" they have concocted over the new iPhone's poorly designed antenna. Apple will get past the problem, its customers will get over it, the Dirtballs will get to steal stock from widows and pensioners for fire-sale prices, and the Cupertino-based company will remain one of the very few that produces consumer goods that people line up at midnight to buy -- not to mention, pay ridiculous prices for.

The 1108.25 target touted here yesterday remains valid, and I'd suggest shorting it in any way that suits your style. The hesitation yesterday at the midpoint resistance implies that it will work, but the usual caveats apply.  Virtually all serious rallies begin with laughable ones like the one that has unfolded over the past week. However, this one would become pseudo-legitimate if it hits 1143.00, since that would create a bullish impulse leg of daily-chart degree. Keep in mind that in order to qualify as such, the rally would need to be unbroken between peaks #1 and #2 (as shown in the accompanying chart).