April 2011

Say one thing for the central banks: Even if they've managed to set financial Armageddon in motion, they've done a darned good job holding the yen steady as Japan deals with concerns bearing on its very survival. Arguably, the stakes were too high to fail, since an unwind of the yen carry-trade would, for starters, devastate the dollar and the rigged market for U.S. Bonds.  Take out the wobble caused by the Earthquake and its aftermath, and the weekly chart has been flatlining for a year-and-a-half.  That's like driving the Baja 1000 with a cup of coffee on the dashboard and not spilling a drop.  So what's the technical picture look like for the yen?  More of the same would be my guess.

This Mother of All Bear Rallies being what it is, it's not rocket science to forecast higher prices every day, week after week, month after month, nor is it even slightly difficult to identify Hidden Pivot targets that tend to catch the exact peak of nearly every short- and intermediate-term rally that occurs.  But to be candid, it is getting very bor-ing, especially since the only big winners in this game are buy-and-hold idiots who have blithely stayed on board since 2009. So where is the stupid rally headed today? Why, to 1371.00, precisely, is where! A stall could happen at 1359.00 -- precisely! -- but I'll leave it to you to make hay with these numbers. Today's ES chart expropriates a line from that academician of eternal notoriety, Prof. Irving Fisher,

[Responses to this commentary have been so illuminating and provocative that I am going to let the discussion run for another day.  If you read them all, you may come away believing, as I now do, that neither the hyperinflationists nor the deflationists can claim to know for certain how things will play out. That said, I consider FOFOA's hyperinflation arguments to be the best offered by either camp. RA] So, it looks like I’m a hyperinflationist after all.  Reminds me of the joke about the cowboy who chats up a woman at a bar – a lesbian, as it turns out. She tells him she spends her days thinking about nothing but women. “As soon as I get up in the morning, I think about women,” she says. “When I shower, I think about women. When I watch TV, I think about women. I even think about women when I eat. It seems that everything makes me think of women."  The cowboy goes home that night thinking that maybe he’s a lesbian too.  Another tavern, another night:  A stock broker strikes up a conversation with a stranger who seems obsessed with the idea that hyperinflation is about to wreck the economy. “From the moment I open my eyes in the morning, my head is filled with worries about how the financial system and the world’s currencies are hurtling toward disaster. Watching the stock market rise relentlessly, I grow more certain each day that it can only end badly.  I think the real estate disaster has barely begun and that, for tens of millions of us, the American Dream is about to turn into a nightmare.”   “Hmmm,” says the stockbroker.  “I guess that makes me a hyperinflationist too.” And so it goes. A conversation between a hardcore inflationist and an

The Dollar Index has slightly breached a 73.51 Hidden Pivot support that I'd identified as critical to the illusion of the buck's survival.  The low was just 0.03 points beneath my target, but if it's exceeded on a closing basis for two days, it'll be Katie-bar-the-door time.

A Hidden Pivot support at 43.775 remains valid as a minimum downside target, but the futures would be out of jeopardy if they can push above 47.950 today. That would be a pretty powerful thrust, but a lesser effort hitting 47.160 would at least put the bad guys on notice that their influence is waning.  Both of the bullish price objectives I've flagged are shown in the chart.

Gold has rebounded smartly without having quite achieved a minor downside target. This is bullish, but the short-term picture would become still moreso if the futures are able to push above the 1516.00 target of the minor rally pattern shown. Please note as well that a stall at 1512.70 would confirm the existence of a new rally target at 1533.40.

Not to disparage last week's powerful, bear-impaling 35-point rally, but it narrowly missed taking out an "external" peak at 356 that should have fallen if this latest bull cycle were destined for fabulous new highs. Now, even if the peak should succumb when the stock gets second wind, it will not negate the evidence that Apple no longer has the moxie that we've seen in the past.  The company nonetheless remains too profitable and innovative to diss, although this is probably a good time for long-term shareholders to initiate a program of covered writes if you are not doing so already.  For right now, I'd start with May 345 calls, which will somewhat favor defense over yield.

Yesterday's mechanical rally fell 1.75 points shy of the 1347.75 Hidden Pivot we've been using as a target, but because it surpassed mid-February's watershed high, creating a new impulse leg of daily-chart degree, the short-term implications are bullish.  Even so, I am raising the yellow flag as I'd said I would, since, at these heights, complacency is apt to be approaching an epochal peak.  Under the circumstances, the bear could surprise us by sauntering out of his den before the futures have achieved some 'D' rally target that has commandeered our attention. If so, you will see a downtrending a-b-c from that high that reaches or exceeds its 'd' target. The first instance where this could actually occur is shown on the accompanying chart, so night owls should pay very close attention to price action at the target.  If, on the other hand, the futures turn higher without having corrected to 'd', that would imply that the bullish status quo -- soon to enter its 27th month -- still obtains.

I've identified a worst-case target for Silver Wheaton that would represent a 24 percent correction from recent highs. In percentage terms that would be twice as big as the correction in May Silver's if it achieves its 43.775 target.