April 2011

The pattern shown allows for a pullback to as low as 43.775. However, because of the poor quality of its 'a-b' impulse leg, I wouldn't attempt bottom-fishing at the target unless you're able to employ camouflage at the calculated turning point. Please note that the futures need only fall below April 20's 44.215 low to create a fresh, bearish impulse leg on the hourly chart.

Yesterday's selloff in the wake of a new all-time high slightly exceeded a correction target at 1496.70, hinting of more weakness to come, perhaps only slight. To gauge sellers' resolve, try using the pattern shown, assuming it develops more or less as depicted.  A bounce from the midpoint support would be a bullish sign, but it would have to carry above two prior peaks on the lesser charts before we could infer the correction has ended.  Hidden Pivot aficionados may want to take note of the gnarly one-off point 'A' I've used to compensate for the sausage-y quality of point 'B'. Alternatively, if the futures simply continue higher Tuesday morning, a print exceeding 1514.40 would turn the lesser charts bullish once again.

Early Tuesday morning, the futures, in navel-gazing mode, were extending the asphyxiating monotony of the last two sessions. It is part of a topping process -- or perhaps an accumulation -- that has been going on since late January.  Which? It seems utterly implausible that stocks could fall as long as QE2 holds sway.  Perhaps, in time-honored, contrarian fashion, we should therefore brace for exactly that?  For the moment, however, there is little to do unless you are scalp-trading off the three-minute bars.  Even camouflage can be expected to produce little more than nickels and dimes of profit right now.  A 1347.75 (midpoint: 1319.00) target first broached here eons ago remains valid, but anyone too bored to care can be forgiven for snoozing through the rally if it comes.

FOFOA blogspot has taken pains to lay out the most cogent, exquisitely nuanced and, ultimately, persuasive argument for hyperinflation that I have read to date.  You can access it by clicking here.  I've responded as follows but plan to write later, in agreement, at greater length. Sheesh!  Where to begin?  It's difficult to give up a belief system that took root 30 years ago, but I find your arguments irresistible.  I took notes as I read the essay, thinking to rebut you point-by-point; instead, halfway through it I found myself overwhelmed by the clarity of your thoughts.  The real power of this essay is that each step of the hyperinflationary endgame you foresee is entirely consistent with human nature, particularly where self-interest and self-preservation are fated to play out. I will need to find a way to break this gently to my readers, perhaps starting with the old joke you've mentioned about not having to outrun the bear.  It goes a long way toward explaining how the Masters of the Universe will actually benefit from hyperinflation. You've also helped me understand how I could have been so bullish on gold over the years even though I considered myself a hard-core deflationist. It was a conflict between head and heart, really, but you’ve resolved it with the most persuasive argument I’ve seen in favor of gold. Even better, you’ve provided a sound basis for arguing that at $1500 per oz., gold has barely begun to discount the dollar’s final fall. I especially appreciate the patience and humility you showed in walking readers through your argument one gentle step at a time. By not trying to overpower your opponents, you have produced a treatise that is certain to engage many minds.  Thanks for engaging mine -- at a depth that had eluded

I continue to look for tradable resistance at 47.415.  The Hidden Pivot target of the pattern shown in the chart, it has sharpened our bullish focus in recent days.  Notice the strong sibling resemblance between its k-A segment and B-C, particularly the sharp, single-bar highs and lows. Taken together, these factors suggest that scalpers would enjoy good odds shorting with a stop-loss as tight as four ticks. Once above 47.415 on a closing basis, a 48.040 target flagged here earlier would become an odds-on bet. _____ UPDATE (6:47 p.m. EDT):  A powerful gap-up opening Sunday evening landed above the resistance (and above our would-be trade), all but guaranteeing additional, minimum upside to 48.040 over the near term. _______ FURTHER UPDATE (4:22 a.m. EDT): Holy smokes!  Let's hope the scumbags at J.P Morgan are all-in on the wrong side of this parabolic move. My current target is 49.975, just above the so-far high at 49.820:  (Daily chart, A=31.705 on Feb 24, and B=41.975).  However, any targets above it will grow increasingly speculative.

The Dollar Index has bounced, so far feebly, from within a hair of a minor, 73.82 support noted here on Friday. Although I seriously doubt the move will go anywhere, I monitor minor Hidden Pivots nonetheless because their resiliency, or lack of it, can provide useful clues concerning the longevity of the long-term trend.  In this instance, were DXY to close for two consecutive days beneath the more important Hidden Pivot at 73.51 also flagged here, I'd infer the 68.36 target of the long-term pattern shown in the chart would be well in play.  I've displayed it using intraday bars because I think the overall look of the pattern in this context is more persuasive than on the daily or weekly charts.

Although we've been using a minor Hidden Pivot at 1347.75 as a minimum rally target, we'll want to be extra cautious about any feint above recent highs, since that is where bulls will be at their most complacent and vulnerable. If the futures simply fall Monday morning without having exceeded 1334.00 Sunday night, you can try tightly-stopped bottom-fishing at 1325.00 (30-minute, A=1337.75).  Please note, however, that they would be signaling more weakness to at least 1319.00, the midpoint pivot of the pattern shown, if the stop is hit.

A 1581.20 target we've been using as a lodestar implies that the futures could swoon to as low as 1446.10 -- its sibling midpoint -- without affecting the bullishness of the daily chart.  More immediately, however, I've projected clear sailing to at least 1518.70, a Hidden Pivot with somewhat more heft than the one at 1509.50 that contained Friday's surge.  Day traders can attempt shorting with a stop-loss as tight as 1519.10. If it is easily surpassed, however, we should infer more upside over the very near-term to at least 1529.40. Alternatively, if the futures ease Sunday on Sunday, night owls can try bottom-fishing at 1499.70, stop 1499.10.  _______ UPDATE (4:45 p.m. EDT):  The futures dove after topping yesterday at 1519.20, five ticks north of my target.  This warrants moderate caution, since a downturn from any rally target could always conceivably be the start of a significant correction.  My update for tomorrow will provide some specific numbers by which we might determine the power (or lack thereof)  of this pullback.

Bullion quotes continue to ratchet higher, even as silver bulls (of all people!) warn that the rally has come too far, too fast. Ahh, there’s that old wall of worry  What could be more encouraging to long-term investors?  For it is only when silver’s most ardent supporters become cocksure, loading up aggressively for the next supposedly inevitable rally, that the trend will perhaps be in jeopardy – and then presumably only fleetingly.  For now, though, we need to remind ourselves that great bull markets are supposed to scare hell out of bulls and bears alike -- just as this one has been doing since last autumn.  Check out the amazing spike in Silver’s weekly chart below.  While we wouldn’t attempt to argue that its parabolic pitch can be sustained indefinitely, we suspect that, no matter how ferocious the inevitable corrections yet to come,  they will look relatively innocuous years from now. For it is only at that point that we will be able to see them in the context of a long-term bull market that will have achieved heights as yet unimagined by most investors. The chart may wind up looking much like one drawn today that shows the 1987 Crash. At the time, we thought the world was ending that Friday, October 16, as the Dow plummeted an unprecedented 108 points.  To the amazement of all, and the devastation of many, that proved to be just a warm-up for Monday, when a 508-point collapse brought the blue chip average down to 1739 – a 22% drop.  But look at the chart below and see if you can even find the ’87 crash.  While it is more than a blip, for sure, in the visual context of the spectacular bull market that was to follow, it looks like no more