Wednesday, September 28, 2011

A relapse to 1570.80, a midpoint pivot shown in the chart, could provide an attractive buying opportunity even if it causes bulls yet another fit of despondence.  More immediately, though, night owls should monitor the small, bullish pattern at the right-hand edge of the chart, since its ability to establish a point 'c' low, and then to reach -- and exceed! -- the still-unplotted midpoint resistance can tell us much about the strength of larger trends at play.

If you are long from Monday's bottom, which had been correctly predicted using a 644.50 Hidden Pivot, you should have no more than half of the original position after having taking profits on the rest. A stop-loss for what remains should still be tied to an impulsively bearish move on the hourly chart. Taking  yesterday's price action into account , the exit trigger is now  at 656.75.  Want to learn how to nail swing highs and lows precisely, and to manage trade risk yourself? Click here for information about the upcoming Hidden Pivot Webinar on October 5-6 and a $50 discount.

While we amuse ourselves with the entertaining notion that all of the price swings since early August have effected a bearish distribution of stocks, we  should also allow for another, seemingly surreal possibility. Check out today's tout for the Dow Industrials if you want to see just what it might be.

A study published here a while back by Rick's Picks reader Wim Grommen explained how constant tinkering with the components of the Dow Industrial Average has inflated and obscured its true value. Now comes another paper from Wim that shows why a global economic era characterized by high innovation, prosperity and major productivity gains has likely peaked. For the full report click here.

Paid-up subscriber Jonathan Auerbach's very bullish reports from Africa are the man-bites-dog story of the economic world.  I will continue to keep readers apprised of his travels, since his reports are eye-openers, especially for those who think the world is lacking in great investment opportunities.  For further information, please contact Auerbach & Grayson at their New York City office. Here's Jon: "I am aware that some of you may be securely buckled into one of several 'Africa Days', currently the trendy invite (what do you mean, you weren't called?) in New York where our firm for the second consecutive year was voted 'Best Broker in Africa' yesterday at the annual NYSE African Investor Day. Nevertheless, most of our Africa desk is on location, so forget the applause and take a few minutes to absorb some boots on the ground thoughts about Nigeria.I have been regularly visiting for over 10 years always hammering (I am never without a nail) the value of participating in this country's (population 140 million) growth. For a long time easier said than done but now after two years of extraordinary events of massively reformed regulatory governance and transparency by the Central Bank, SEC, and Stock Exchange, you must consider investing in average annual growth over the past five years that is only exceeded by India, China, Pakistan, and Vietnam. "Looking forward, at current growth rates Nigeria should pass South Africa in nominal GDP within 5 years. Over the past couple of days we have met head-to-head with the leading banks currently selling at a weighted P/B of 0.9 at a 2011E P/E of 6.3, and an average dividend yield of 8%. These are clean banks as the Central Bank took a machete to the bad banks and NPLs. The oil and gas sector is going through

For the record, the bigger picture implies that the Dow will fall to at least 10643 (and thence to 9566, its 'D' sibling) if and when it drops out of the presumptive distribution pattern that has been under construction for the last six weeks. Although a head-fake above the 11717 peak recorded on September 1 is always possible, my hunch is that it would not be a head-fake at all, but rather a bull trap that could take longs and shorts up to last spring's highs around 12500.

Take a look at the chart below if you think yesterday’s monster short-squeeze meant something. The Dow Industrials were up 326 points at their apex, making plenty of noise but signifying little or nothing.  Some saw the buying spree as a bet that everything will turn out all right for Europe. Yeah, sure. And Obama’s “jobs program” will turn the U.S. economy into the muscular dynamo it was in the 1950s. In actuality, Wall Street’s latest buying riot was simply one more ‘up’ in a tedious series of ups and downs that are being used by the Masters of the Universe to distribute stocks to widows and pensioners before They pull the plug.  The usual bunch of rascals and thieves timed this dog-and-pony show so that it was nearly impossible for anyone to make more than chump change after stocks opened in New York. The big money had already been made overnight on index futures that closely tracked similarly meaningless effusions in Europe and Asia. The rally was of course the mirror image of last week’s hellish collapse (see chart below), which, like Monday’s spasm, was all but spent before traders who keep New York hours had downed their first cup of coffee. These pointless, machine-driven panic attacks are managed so that only a small handful of traders can make money on them.  However, a bigger picture of gratuitous swings that have been occurring since early August explains why long-term bulls and bears alike have effectively been prevented from profiting.  What bear who was short when the week began could possibly have withstood the fright-mask lunge of the last two days?  And what bull could have held steady when the Dow plummeted an even more frightening 950 points last week in just three days? Not that the markets are even