Tuesday, January 11, 2011

After three weeks of gratuitous delays, the euro has resumed its predicted collapse with a vengeance. A whiff of Spain's predicament, perhaps?  No matter.  My downside target for the March contract is 1.2689 (Note: This has been corrected upward), and you can plan on bottom-fishing near there with a 1.2692 bid, stop 1.2682. _____ UPDATE (January 13): This week's short squeeze may look impressive on the 5-minute chart, but it would need to hit  1.3494 to negate our bearish target.  Meanwhile, there's plenty of camouflage cover for a bull trade using Wednesday's 1.3142 high as an impulsive point 'B'. (Late note:  The camouflage set-up, with single-bar coordinates at B-C, worked nicely, signaling a long entry just ahead of an extremely powerful, 2.5-cent rally.)  _______ FURTHER UPDATE (January 18):  The futures have rallied ferociously, apparently because German paper has been enjoying strong demand. It would take a print above 1.3493 to invalidate my bearish targets, but at this point it looks likely. Accordingly, any camouflaged scalp- or swing-trading should be done from the long side.

The futures have been screwing the pooch for a week and a day, unable to rally but equally unable to sell off.  My immediate bias remains bearish nonetheless, and cautious in a bigger way, because of the futures' recent failure, by 1.75 points, to reach a modest rally target at 1278.75. The key number for Monday night and early Tuesday -- insignificant in any context larger than that -- is 1268.50, the Hidden Pivot midpoint of the pattern shown. A decisive penetration would portend more upside to 1279.00 -- a high that would be marginally above the one created last Thursday.  Since a stall at that height after an ostensible breakout could be the start of something nasty, I would strongly recommend trying to board the first southbound abc pattern thereafter on the very lesser charts.

A rally pattern similar to the one we're using in February Gold points to 29.615, although its associative midpoint at 29.105 has already been breached, shortening the odds of a thrust to the target. Alternatively, a close today beneath 28.735 would augur more downside to at least 28.100.

The futures didn't quite make it to our bullish trigger price at 1377.80 yesterday, but neither have they done much to give the bad guys something to crow about.  My immediate bias is bullish, predicated once again on a decisive move above a midpoint resistance that has migrated higher, to 1378.20.  The 'd' target associated with it is 1391.30, the most compelling rally target we have for now.

(Our good friend Doug B., The World’s Smartest Financial Advisor as far as we’re concerned, is still bullish as all get-out on muni bonds, notwithstanding the swipe we took at them last week in a commentary entitled “Muni Bond Yields Are Pumped for a Reason.” Doug says a perfect storm of bad news brought bond prices down to levels where an investor would have to have been crazy to pass them up. He also thinks fears of widespread defaults by strapped cities are overblown. For some outside-of-the-box thinking, read his aggressively contrarian commentary below -- and then, dear forum readers, if you disagree, don't pull your punches.  Oh, and one more thing: Before you start reading, click here to sign up for January 18's free demonstration, "A Hidden Pivot Analysis of Two Promising Stocks for 2011.) “I want to clarify a few things for you and your readers about my Muni Bond Buy. First, I am buying garden variety leveraged closed-end muni funds, managed mostly by Blackrock, Invesco/VanKampen and Nuveen. The funds contain mostly (85% plus) investment grade long term issues and the 7.5% yields are a function of leverage and modest (4-6%) discounts to NAV. They contain everything from GOs, Revs, Escrowed, tobacco, hospital, etc. I am placing some measure of confidence on the credit analysis capabilities of the managers. But the motivation for the purchase was not some big macro optimism on municipal balance sheet repair. It was because these funds got crushed overnight in November when it became clear that a flood of new supply was going to be crammed into year-end due to the likelihood that the Build America Bond Program would not be renewed for 2011 following the Republican landslide. The specter of huge supply ran straight into the most negative sentiment for bonds in years. Along with the