Wednesday, October 13, 2010

Shortly before midnight EDT, December Gold was stealing up on 1360.10, a minor midpoint resistance whose breach could set up a camouflage opportunity for night owls.  Index futures also looked feisty, and so I've furnished a bullish target to guide you.

Yesterday's rally was promisingly impulsive, having exceeded no fewer than three prior peaks on the hourly chart.  However, no sooner had buyers achieved this feat than they turned tail and headed back toward recent lows near 77.00.  This has painted "dueling" impulse legs on the intraday charts, but the bias is still short-term bullish because the pullback was not quite as powerful as the upthrust. Now, if the bulls are going to take command, they should be able to push DXY above 78.14 by week's end.  The significance of this number -- it describes a look-to-the-left-peak -- is shown in the accompanying chart.

The developing  symmetry of the pattern shown in the chart lends speculative weight to its 24.315 target -- enough so that we can use it as a minimum upside target for the moment. Notice the brief pause within a penny of its sibling midpoint -- yet another reason to think the pattern will do as we expect.  Night owls need drill down no further than the 15-minute chart to find camouflage possibilities a-plenty among the numerous peak-lets etched on the way down Monday and Tuesday.

We've used a longstanding target at 1381.70 to guide and, at times, embolden us, but more immediately the 1360.10 midpoint resistance of a lesser pattern (15-minute, A=1297.00 on 9/30) stands ready to challenge traders Tuesday night. The high so far is 1359.90, but that is with the futures up as much as 13.20 in the after-hours. It's possible bulls are just warming up to fire the really big guns at the bad guys when they arrive at work in Gotham. Indeed, that would become more likely if buyers are able to make short work of 1360.10.  Incidentally, its 'D' sibling lies at 1394.60, a Hidden Pivot that had gone unnoted until now.  Above it sits the 1400.80 target of a more important pattern I'd identified.  Night owls keen on entering with-the-trend should seek camouflage following an impulsive point 'B' that exceeds 1360.10.  The 'X' that follows it is capable of producing an attractive opportunity.

Against 800 shares of stock we hold with a 12.95 basis, we bought four November 27 puts for 1.72 as a hedge when the SLW was topping recently.  The puts are still above water, but I'll suggest exiting them if they trade 1.62 or lower.  Meanwhile, although I identified a minor correction target at 25.16 in the chat room earlier today, the rally is within easy distance of negating it with a print above 27.00, the point 'C' of the bearish pattern. _______ UPDATE (10:16 a.m. EDT): SLW opened on a gap -- it does so most of the time -- stopping us out of the four puts at 1.48.  Imputing the 24-cent loss per contract to the cost of our stock will raise our basis by 12 cents, to 13.07.  The puts did their job and cost us little, partially insuring us against the more severe pullback that was possible from the last Hidden Pivot top.

And now comes 1182.25.  The futures had little trouble pushing past its sibling midpoint at 1164.00 yesterday, so the target would appear to be a lock-up. Notice how the authoritative pitch of Tuesday's rally has rendered last Friday's sleazy swoon visually insignificant -- burying the evidence, as it were. Night owls perusing the lesser charts will find that a poorly camouflaged rally has already exceeded the intraday high -- a brazen move, considering the time of day.  The first point 'C' of the resulting pattern lies at 1167.25 (10:03 p.m. to 10:12 p.m. EDT on the 3-minute bars), but I'd suggest waiting for a second 'C' to form if you're looking to enter with-the-trend at point 'X'. ______ UPDATE (10:09 a.m. EDT): The three-minute bar chart provided excellent camouflage, but even night owls may have been challenged to stay awake, since it wasn't until 3:45 a.m. EDT that a very low-stress long entry was triggered -- at 1168.75.

Inveterate bears will want to pay close attention to the Industrial Average in the weeks ahead, since it is capable in theory of creating a quite powerful bullish impulse leg on the monthly chart with a rally of just 609 points. That is the distance separating the two peaks shown in the inset, and if that distance should be traversed by a thrust that's unpaused once peak #1 has been exceeded, it could spell a long exile for stock-market pessimists.  My gut feeling is that we will see no such birthing of a long-term bull; rather, and at best, the Dow will poke above the first peak and pull back for at least two months before even feinting toward the second.  More immediately, the Indoos have exceeded by 34 points a clear target at 11019 on the daily chart, implying bulls will remain in charge till election day or longer.  Any rally developing this week would be unchallenged up to 11197 by structural resistance, but the way things have been going, we could see such a test this week.

(The bear’s lament penned by our friend Erich Simon provoked such a torrent of comments that we’re letting it run for a second day. Is the upward drift of stocks since March of 2009 actually a stealth bull market cloaked in some of the most depressing economic data since the Great Depression?  You can weigh in with your own thoughts on this by clicking here!  RA) Are stocks in a  short-lived sweet spot engineered to coincide with next month’s elections?  Or is there something much bigger in store: a Megabull market engineered by the Fed and Wall Street that will run for years?  And don’t discount this possibility merely because the economy has been so weak.  After all, in the last two decades, free markets have gone into eclipse and now serve not the public, but Masters of the Universe who seem able to manipulate prices any which way they choose, regardless of “fundamentals.” It’s also possible we’re at the point of global saturation, where there are not enough investible resources to satisfy demand.  And the government is not exactly a neutral bystander any more (not that it ever was).  The U.S. has taken an increasingly active role in propping up key stocks -- and even the broad averages, if you believe all those stories about the Plunge Protection Team. I don’t recall exactly where the trendline from the dot-com bust comes in these days, but it’s somewhere around Dow 12800.  The Industrial Average is trading now around 11000, but if it were to push past that trendline, you can be sure that some gurus would be making hay with predictions of Dow 36000.  Actually, they wouldn’t be the first, since there’s a book out with the title “Dow 36000”.  It was published in 2000, and although it’s considered something of