Wednesday, June 22, 2011

Trust, But Verify…

– Posted in: Tutorials

We spent much of this session belaboring the soon-to-be-mistaken notion that the broad averages were headed higher. In fact, stocks were bound for collapse the next day, notwithstanding the fact that the E-Mini S&Ps had generated a very powerful bullish impulse leg a day earlier. The lesson here is that it’s okay to trust your gut feelings, but always to verify them by monitoring impulse legs on the lesser charts. In this case, a signal to get short was triggered on the 5-minute chart just five points off the high of a very nasty selloff. Not all went awry for us, incidentally. The reiteration of a bearish call on crude, for one, in the face of a sharp rally was borne out by a plunge in prices the next day.

The Global House of Cards

– Posted in: Links Rick's Picks

MarketWatch columnist Peter Atwater thinks the global financial system is in far worse shape now than in 2008, just before Lehman Brothers' overnight demise nearly took the entire banking system with it.  Click here for his lucid description of a global house of cards that is primed to topple.

Early-evening blahs

– Posted in: Rick's Picks

Price action early Tuesday evening was too turgid to call.  Try checking back later tonight, since I'll update if anything interesting appears to be happening in global markets. ______ UPDATE (1:28 a.m. EDT):  Who could have imagined the markets would get even duller as the night wore on? At the moment, this appears to be the case.

SIN11 – July Silver (Last:36.370)

– Posted in: Current Touts Free Rick's Picks

Although Silver has been trending higher for more than a week, the slope of the rally has been unimpressive. Most immediately, a Hidden Pivot resistance at 37.060 is about as high a target as can be coaxed from the hourly chart (where p=36.160). The pattern is too sloppy to use for precise shorting, although the target itself should be good enough for government work, analytically speaking.

CU11 – September Corn (Last:705-1//4)

– Posted in: Current Touts Free Rick's Picks

Corn has been in a bull market since last July, and although I've tracked it only on an occasional basis, I'll be looking for low-risk opportunities to get aboard its next flight. For now, though, we'll try to develop an analytical feel, first by watching to see how the September contract handles the midpoint pivot and 'D' resistance of the pattern shown.  An easy move through both would give us reason to hunt more aggessively for entry spots just above these levels.

GCQ11 – August Gold (Last:1546.50)

– Posted in: Current Touts Free Rick's Picks

A 1652.00 target (see inset) beckons as a possible summer high, and it would become an odds-on bet following a two-day close above the 1558.10 midpoint.  More immediately, a modest push to 1560.80 appears imminent. That's the 'D' target derived from these coordinates on the hourly chart: A=1523.20 (June 17, 4 p.m. EDT); B=1548.20 (June 20, 10 a.m.); and C=1535.80 (June 20 11 a.m.). Expect it to show some stopping power, but if the futures close above it a 1578.60 target that also comes from the hourly chart would be in play.

DJIA – Dow Industrial Average (Last:12190)

– Posted in: Current Touts Free Rick's Picks

The Indoos' last big upthrust missed a 13017 target by 141 points (see inset), but the failure was understandable, given the imposing presence of May 2008's structural resistance at 13137. The subsequent pullback has homed in on the 12286 midpoint pivot, and we shouldn't be surprised if the Dow finds a groove oscillating around that number for the next few weeks. A weekly close above it would be reason to look for camouflage entry opportunities on the intraday charts.

A World Held Hostage by Credit Default Swaps

– Posted in: Links Rick's Picks

From the Institutional Risk Analyst, and interesting note on systemic risk:  "The net increase in financial exposures due to the existence of the CDS market in sovereign credit risk has not made the real economy safer, but instead multiplies the dollar amount of the basis risk in all markets, real or imagined. You cannot get rid of systemic risk and "too big to fail" until you limit credit derivative products to holders of actual debt. Instead we have hedge funds and banks gambling on the end of the world."  For the rest of this analysis, click here.

ESU11 – September E-Mini S&P (Last:1287.25)

– Posted in: Current Touts Free Rick's Picks

By day's end the futures had cruised past no fewer than three external peaks on the hourly chart, implying that bears are in for a rough patch. There are no particularly promising Hidden Pivots to reference at the moment as rally targets, but we should be attentive nonetheless to any opportunity that arises to short this hoax yet again with relatively little risk (much as we did from 1371.00, and again from 1358.25, two key highs since a presumptive bear market began in early May).  If we work a "reverse" ABCD pattern along the lines shown, the minimum upside objective is 1334.50. This technique is used by some chartists and traders and works some of the time, but not nearly as consistently or reliably as the conventional method that we usually use.

Mortgage Crisis Descends into Blather Phase

– Posted in: Commentary for the Week of March 8 Free

An article entitled Government Stays Glued to Mortgage Market topped an inside page of the Wall Street Journal’s yesterday, offering a mostly trenchant assessment of the real estate crisis but no easy alternatives. The 1,200-word think-piece, written by one Nick Timaraos, ponders the chicken-or-egg question of how to lure private capital back into mortgage lending. Should The Guvvamint pull back on support and hope investors fill the void?  That’s the solution some policymakers are advocating, according to Timaraos, but we doubt they fully understand what it implies. They seem to think capital would return over time if Fannie and Freddie were made to compete for savings honestly with higher fees and no open-ended guarantees. And return investors would, although presumably not before housing prices collapsed a further 30%. Valuations would undoubtedly have stabilized by then, although we doubt that’s what policymakers have in mind when they talk about helping to promote price stability in the housing sector. Wading into the fever swamps of the academy for answers, Timaraos quotes Berkeley professor Kenneth Rosen, although we’re not sure why. Rosen’s one idea goes down easy enough – it’s only when you think about what he’s said that you wonder how his name wound in a Journal reporter’s Rolodex.  “We’re not going to get a recovery in housing until the average borrower can get a mortgage,” avers Rosen. We’d like to think the good professor meant to imply that, if and when housing prices fall far enough, the “average borrower” will be able to afford a home.  And we mean “afford” in the old-fashioned sense of the word --  i.e., putting 20% down, and making monthly payments no greater than 25% of one’s gross income. Since real incomes have shown no growth in this country for nearly two generations, it seems obvious