August 2010

The Bonds' last two leaps have come within two ticks of their respective Hidden Pivot targets, so you might say this vehicle has been dancing to our tune. Since upside potential over the near term is to as high as 140^20, let's attempt a modest speculation, bottom-fishing just below the 133^27 midpoint support of the pattern shown. It's too bad the midpoint exactly coincides with the too-obvious "structural" support of Sunday night's low, since, if the midpoint were hanging in the middle of nowhere (so to speak), just below the support, the pattern would be a real beauty. We'll bid 133^26, stop, 133^23, risking about $100 theoretical. If the stop is hit, infer more downside is imminent to as low as 133^12, the midpoint support's 'd' sibling. ______ UPDATE (11:07 a.m. EDT): The stop-loss proved too tight when the futures bottomed at 133^22. However, this overshoot of the midpoint support was not sufficient for us to infer that the weakness will continue down to at least 133^12. Moreover, if the futures now print 134^12 without that happening, creating a bullish impulse leg on the hourly chart, it would signal that bulls are off-to-the-races, hell-bent on 140^20.

The presumptive consolidation from Friday's highs has proceeded without tripping any false buy signals on the three-minute chart. What this suggests is that traders can and should use this chart to spot the subtlest sign of a breakout reversal. In this technical environment, the first AB impulse leg that occurs seems likely to take you to the CD midpoint, at least.  Bear in mind that the single-bar 'C' in this instance will yield the best trade set-up we might look for. Upside potential is to 83.32, or 83.75 if any higher. _____ UPDATE (11:18 a.m. EDT): The suggested trade would have been profitable, although staying aboard for an even bigger rally that came later would have taken patience.  Sticking to the single-bar 'C' rule got one long at exactly 82.97 at 4:57 a.m. EDT. Contact with the midpoint, and therefore an opportunity to take profit on half the position, occurred about 18 minutes later. FYI, the single-bar 'C' was at 4:39 a.m.

Friday's end-of-day rally went limp after surpassing only one "external" peak on the hourly chart, implying that bulls were just bluffing. They could soon get a boost from short-covering, however, since, early Monday morning, DaBoyz were somehow managing to hold index futures aloft in a narrow range just shy of Friday's peak.  However, the buyers would have to fake their way all the way up to 1099.00 to negate the bearish target at 1040.25 given here earlier. Shorts should set a cautionary alert at 1078.25 nonetheless, since that's all it would take to turn the hourly chart bullish.

Who’d have believed that small investors have deserted the stock market in droves this year? We’d thought just about everyone but Larry Kudlow was out of shares by early 2009, and that the only players left were the high-speed trading computers maintained by the likes of Goldman Sachs and J.P. Morgan. Apparently not. Investors pulled $33 billion from equity mutual funds so far in 2010, according to the New York Times. If they keep up the pace, it would be the biggest run on mutual funds in more than two decades, not counting the panic stirred up by the banking crisis in 2008. The little guys appear to be “losing their appetite for risk,” a spokesman from Credit Suisse told the Times, putting it mildly. They’re in good company, it would seem, since money managers appear to have thrown in the towel on shares too. Take a gander at the chart above if you want to see where all of their cash has been going. The chart should hearten those who are worried the U.S. Government’s recent decision to embark on a second round of quantitative easing will require a blowout of printing-press money. In fact, the demand for Treasury debt from sources other than the Federal Reserve seems all but insatiable at the moment. Are we being churlish to suggest this mania will not last forever? What Scares Geithner Keep in mind that the T-Bond rally has occurred even as China has turned net seller. You heard that right. Their holdings peaked for the year in April at $900.2 billion, down from a record $939.9 billion in July of 2009, when Europe’s supposed debt crisis was peaking. China reportedly held $843.7 billion worth at the end of June, but what is most significant – or perhaps scary if you are

Plenty of charts to go with today's touts, including an update for December Coffee that shows how one could have gotten long yesterday based on my instructions. There's also an E-Mini S&P chart that illustrates why the 1040.25 downside target flagged in the chat room looks like a lead-pipe cinch if weakness greets the day.

The futures at least crept past the lower of two rally targets we've been using, 1236.70, and now presumably will take on the second at 1244.20. As noted here earlier, scale-out profit-taking is advised for swing traders still long, as well as the use of a "dynamic" trailing stop as described on this site's educational page.

I drum-rolled a 1040.25 downside target in the chat room yesterday, and it still looks like a no-brainer. A plunge to that number should be viewed as likely if and when the midpoint support with which it is associated, 1069.25, gives way. The so-far three-tick penetration of the support was not sufficient for us to have inferred that the jig was up yet for DaSleazeballs, who were hard at work near the close attempting to make a distribution opportunity out of a pathetic five-point rally.

This week's consolidation has occurred entirely below an 83.03 peak recorded on July 23, so the potency of the larger, bullish pattern begun on August 6 is suspect. It projects to 84.30, but because the pattern itself is sausage-y, we should assume for starters that more consolidation is needed before much of anything happens for bulls.

It's explosive days like yesterday that serve to remind us of Bonds' strong propensity to go against weakness in the broad averages. To the extent I am increasing the drum beat for the "sky-is-falling" argument, I am implicitly saying that a powerful upthrust awaits in this vehicle.  More immediately, and considering the ease with which the 134^09 Hidden Pivot gave way, I'll hang a 135^09 target out as a minimum upside objective for now -- and 140^20 if it fails..  The provenance of the first number is shown in the accompanying chart, but there are any number of other bullish ABCs that I could have used.  Anyway, we are not trying to short this vehicle so much as find explanations for the behavior of other markets that take their cues from it.  Meanwhile, it cannot make anyone feel "safer" that so much of the world's investment capital is pouring into one allegedly "safe" haven.  As Marc Faber has said, people will want to cross the icy river where the greatest number of people are crossing it, but that's hardly the way to ensure one's safety.