Tuesday, August 3, 2010

The futures continue to lag the Dow, since yesterday's rally in the Mini S&Ps conspicuously failed to create a bullish impulse leg on the daily chart.  That would have taken an 1129.75 print, versus an actual high at 1124.25.  Coming in today, however, a print at 1143.00 is all it would take to remedy this vehicle's seeming timidity, since that would exceed two "external" peaks of daily-chart degree.  We're in crucial territory here, for sure, and it is essential that buyers take out both of the external peaks without pausing for breath if they are to dominate for the remainder of the summer.

The dollar's fall in the face of trans-Europe's austerity pledge has been a no-brainer so far, but how far will it go? Judging from yesterday's price action, the answer is: much lower.  Doug McLagan hung out a bearish target at 80.98 here a couple of weeks ago, and DXY got there yesterday with a steep plunge. But it went lower still, and the intraday low of 80.79 hints of more ferocious selling to come. If so, a Hidden Pivot at 79.27 makes a logical target, since it's based, simply, on a higher point 'A' (see chart) and the same beautiful B-C.  Alternatively, it would take an upthrust exceeding 82.38 by Wednesday to turn the hourly chart around.

To keep things simple for readers unfamiliar with the Hidden Pivot Method, in  today's commentary I overlooked the fact that the rally did indeed exceed the required "internal" and "external" peaks needed to create an impulse leg on the daily chart. That's bullish, of course, but it would become significantly more bullish if the surge continues for another day, surpassing a second "external" peak in the process.

A hundred points here, a hundred points there, and pretty soon you’re talking about a real rally. Yesterday’s 208-point thrust in the Dow didn’t quite qualify as a powerhouse, however, since it failed to exceed a peak “along the wall” of the daily chart.  That quirky little rule has saved us time and again from jumping headlong into trouble, since it provides a generally trustworthy benchmark for distinguishing bogus rallies from the real McCoy.  The chart below shows the peak that will need to be impaled by the end of today’s session in order to signal the kind of buying power that’s likely to last more than a mere day or two. According to the Hidden Pivot Method that we used to trade and forecast, a push above 10719 today could sufficiently re-energize the bull trend to keep it going for the whole month of August.  As you can see, it won’t take much, since the as-yet-unconquered peak lies within spitting distance of yesterday’s close.  How close? Exactly 44.48 points, which is about how far the Industrial Average leaps, on average, in the first 30 seconds of sessions that have opened on a short-squeeze gap. Yesterday’s squeeze goosed the Indoos 135 points in the first two minutes, locking out all but a relative handful of true believers who went home long on Friday. We know there couldn’t have been many of them, relatively speaking, since the broad averages would not have soared with such devil-may-care lightness if they had been burdened by profit-takers the whole way up. The news helped too – as when has it not? -- with Eurobanks reporting an upbeat second quarter and an unexpected climb in June construction spending.  We’ve learned to take these ostensibly bullish statistical outliers with a grain of salt, although Wall Street