Tuesday, June 14, 2011

So far, the selloff from June 1's 1342.50 high is uncorrected after exceeding three prior lows on the daily chart. This is plenty bearish, but it would grow even moreso if the downtrend were to breach the St. Paddy's Day low at 1237.50 without any intervening rallies of at least two days. Skidding action such as we saw yesterday seems incapable of generating a strong rally, so we should look to get short on any feint higher. Camouflage is the best way in, and, as of around 10:09 p.m. Monday EDT, the five-minute chart looked like the ticket for a very low-risk play.  Camouflage aside, a decisive push past a 1270.75 midpoint resistance could yield a shortable 'D' at 1276.75. _______ UPDATE (4:32 a.m. EDT):  It's hard to know exactly what is being celebrated tonight, but DaBoyz have trapped bears in a nasty short-squeeze that so far has exceeded my 1267.75 target by two points.  The move is impulsive on the lesser charts, but it would take only a further 5 points, unpaused, for this spree to rack up two more external peaks, turning the trap into a boodbath. FYI, the hourly chart would turn decisively bullish today at 1290.25, setting the stage for a romp into week's end.

Today's tout for July Silver ponders the unthinkable with two very bearish targets that we had not hitherto imagined.  If you don't subscribe but would like to know nonetheless how bad things could get, click here for a free seven-day trial to Rick's Picks that will also allow you to enter a 24/7 chat room that draws veteran traders from around the world.

My minimum downside objective for the near term is still 34.160, a Hidden Pivot that you could bottom-fish with a stop loss as tight as three ticks. However, given Silver's recent failure to generate a fresh, bullish impulse leg on the daily chart, we should begin to think the unthinkable.  Assuming no bullish turnaround is at hand -- it would take a pop above May 11's 39.470 peak to get one underway -- the less painful of two bearish scenarios calls for a reversal rally from 31.205, a midpoint support of the pattern that uses the higher of two B-Cs shown in the chart. The next-worst-case low, using the lower B-C, yields a midpoint support at 30.215.  Finally, as absolutely worst-case numbers, we have the 'D' targets of those two patterns at, respectively, 22.94 and 21.58.  That last number would imply a 57% correction from the May 2 high near $50.  My gut feeling is that we will not see the worst and that Silver's resurrection will come at 30.215, the lower of the two midpoints. But even at that, the July contract would have a further $4.70 to fall, or about 13.5 percent.

Yesterday's moderate selloff exceeded the respective 'D' targets of several minor patterns, leaving but one for Tuesday:  1507.00.  Its somewhat obscure provenance is shown in the chart, but if this Hidden Pivot is exceeded today, our focus would shift to the 1498.80 midpoint of a larger pattern (A=1576.50 on May 2, hourly chart). That's an important number, since a two-day close beneath it could spell more weakness in the days ahead to as low as 1442.60.  Alternatively,  it would take a print at 1538.10 to turn the hourly chart bullish again.

A recent appelate decision in New York is precisely in line with the trend, noted in today's commentary, of the courts siding with homeowners who have challenged foreclosures.  Click here for the full story.

Is the worst of the economic crisis behind us?  We’d have thought answering that question with a resounding “No!” was a no-brainer, especially considering that the Federal Government’s multitrillion dollar attempt at stimulus has barely slowed the collapse of the real estate market, let alone lifted home prices as intended. And yet, when we asked the question at a recent panel discussion on “The Financial System of the Next Decades,” all but a handful of those in the audience raised their hands in assent, apparently in the belief that the U.S. is emerging from, or has emerged from, the Great Recession. We tried a different approach just to make sure: “How many of you think we are still in a financial bubble?” Three people in the audience of about 300 raised their hands.  What’s going on here? We thought only the nation’s newsrooms were oblivious to economic reality, but apparently not. Was this perhaps a roomful of die-hard  CNBC-watchers?  That, too, seemed unlikely, since the audience was comprised mainly of University of Virginia graduates and alumni, not the sort of stock market yobs who can stomach the likes of Jim Cramer. And the panel itself was not exactly a bunch of wild-eyed optimists either. More like a bunch of staid academicians.  It included University president and professor of sociology Teresa A. Sullivan; Prof. William Wilhelm Jr. from UVa.’s McIntire School of Commerce; and Lawrence E. Kochard, chief executive of the school’s Investment Management Company.  In his excellent post-mortem of Lehman's collapse, Prof. Wilhelm noted that, at the time the investment firm went down in flames, it was financing more than 40 percent of its portfolio with debt maturing in two weeks or less. We pointed out that the Federal Reserve is currently far more leveraged than Lehman Brothers ever was,