December 2010

My best wishes to all of you in 2011.  May you enjoy good health, prosperity, happy tidings and serene contentment.

Two stories that were played next to each other recently on the front page of The Wall Street Journal serve to illustrate the news media’s schizophrenic reportage on the economy.  On the one hand, there was this chirpy report on employment: “Job Offers Rising as Economy Warms Up”.  Never mind that some estimates put current joblessness at nearly 20%  – more than twice as high as the official figure – or that the statistics behind the headline were squishier than a mermaid’s bath sponge. But there was also this story, providing a very different picture of a U.S. economy that is likely to be burdened for years by the overly generous pension benefits promised to city employees across the nation: “Pensions Push Taxes Higher”. The bland headline dosen't begin to convey the seriousness of the problem.  Some acute examples from Pennsylvania, New York and Illinois were cited in the article.  In Upper Moreland, PA, for instance, annual pension contributions have risen from around $100,000 in 2005 to an estimated $1.1 million in 2011. Spread over a population of just 26,000, that’s quite a hit on taxpayers.  Like countless other municipalities, Upper Moreland had assumed that the juicy investment returns of just five years ago would continue indefinitely, lulling the town into underfunding pensions at a time when they should have been stepping up contributions. If the Journal and other national newspapers seem not to be making an honest effort to put good news and bad news in proper perspective, it is mainly for two reasons. The first is that the need to sell advertising ultimately trumps the need to report the news honestly. We have reams of evidence to support this assertion, having come from a background in journalism ourselves.  In the 1990-91 recession, a reporter friend who had won

Securities markets will be open on Friday, but only barely, so today's updates will be the last until the New Year.

There's a compelling target not far above, at 341.29. We'll try shorting it simply because it's there, but with a tight stop-loss and no illusions about catching the Mother of All Tops in this world-beating stock. We can use January 350 calls to effect the trade, but I'll provide more-detailed advice in the chat room and via an update when AAPL gets closer to the target.

Let's risk a theoretical three ticks shorting the somewhat obscure target at 1262.75 shown in the chart.  You'll be on your own if the order fills and survives, but to my eye the pattern looks like it has the potential to produce more than just a piddling pullback, assuming it pulls back at all.

Bulls were barely suppressing a rampage late Wednesday night, with the futures bound for an important Hidden Pivot resistance at 32.285 that we've been using as a minimum upside target. Since the off-hours push has brazenly exceeded the 30.750 peak recorded on December 7, there would appear to be little the bad guys can do now to slow the onslaught.

Our short-term rally target is 1442.10, and I'll suggest a trailing stop suited to your temperament if you got long off the 1401.90 correction target proffered here yesterday.  Shortly before midnight Thursday, the futures were working on a lesser pattern projecting to 1417.90.  However, the evening's best camouflage opportunity may already have been spent in the corrective chop of the last 12 hours.

Upbeat retail anecdotes for December belie the fact of a global economy that is continuing to implode, nothwithstanding the surreal story du jour that the heated economies of China, Brazil et al. are pushing up commodity prices.  With respect to U.S. stocks, bullish sentiment is so freakishly extreme that we are obliged to enter 2011 with more than the usual amount of caution.

The gratuitous spasms of the last two days have not altered the odds of a plunge to at least 1.2689.  The target and its sibling midpoint, 1.3091, are shown in the accompanying chart, which also conveys the weightiness of bear-market selling that has become well nigh irresistible.  With yesterday's head-fake and relapse into weakness, we should now look for the downtrend to accelerate following a two-day close beneath the 1.3091 midpoint.