September 2011

Our correction target at 644.50 caught yesterday's low within a penny, allowing even those who used a very tight stop-loss to get aboard ahead of a so-far 24-cent rally. If you caught the move, I'd suggest exiting half the position at these levels and tying the rest to an impulse leg-based stop-loss on the hourly chart. This means you should ditch the position if the futures dive through two prior lows without an upward b-c retracement.  At the moment, that would imply a print down at 651.50.  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.

Yesterday's fab short-squeeze rally was about what we might have expected, considering that Greece supposedly was finally about to go under, and that the redoubtable Art Cashin was kind of expecting a crash.  Bearish expectations are all the market has going for it at this point, so we may as well sit back and let the bad times roll.  Most immediately, that will mean ignoring this vehicle for the moment, since it ended the day with a fourth-rate cliffhanger in the form of a rally that failed by a tick to exceed the look-to-the-left peak shown in the chart. My bias for the very short-term is bullish nonetheless, but I'll leave it to camouflageurs to make hay.

[Addendum: I misread the date on Lira's piece -- his blog is not one of my regular stops on the Web --  and it turns out that it was written a year ago in August, not last month as erroneously noted. As readers may have surmised, however, that does not weaken or change my argument.  Nor would I claim that it weakens his, notwithstanding the fact that a prediction he made  more than a year has not panned out.  There is a lot of ruin in a global financial system, and although it sometimes seems as though ours may be no more than days from collapse, we all know how even terminal economic dysfunction, like lung cancer, can persist without producing the expected result. RA] With deflation tightening its choke-hold on the global economy, we thought we’d drop in on our supposed nemesis, Gonzalo Lira, to see how he has been coping in these very un-hyperinflationary times.  To his credit, the erstwhile arch-inflationist, bending to reality, has acknowledged forthrightly that deflation rules the economic and financial worlds right now. “Yields are  low, unemployment up, CPI numbers are down (and under some metrics, negative) – in short, everything screams ‘deflation.’ ” He wrote those words a month ago in an essay entitled How Hyperinflation Will Happen, and although we are obliged to point out certain dangers in relying too heavily on the scenario he describes, readers should trust, as we do, that he has gotten the big picture right.  He asserts, for one, that economic recovery is no longer remotely possible for the U.S.  We agree. Nor, as he makes clear, is it a case of double-dipping into recession, as most economists and the mainstream media would have it;  as Lira flatly states, we never emerged from the first recession. The inevitable result, he says – and again we concur -- is that an epic financial panic centered

On Saturday's Korelin Economic Report, Rick and Roger Weigand discussed last week's market tumult.

The Swissie looks like it's headed below par, to a Hidden Pivot support at 0.9845.  That would be a far cry from the four-francs-to-a-dollar price that obtained when we traveled in Europe during our college days, but it would nonetheless go a considerable ways toward ameliorating the price disadvantage that the country's manufacturers have suffered in recent years.  Although we asserted here earlier that the Burgher mentality would eventually prevail, rescuing the currency from the global dungheap of competitive devaluations, the tradeoff of a cheaper swiss franc for higher import costs may prove bearable because  the currency was so overpriced to begin with.

It would take a print down at 476.39 to break the spirit, if not necessarily the spine, of the long-term bull market. The significance of this number is shown in the chart, but you should keep in mind that the move would have to occur without leaving any discernible, uptrending b-c corrections of daily-chart degree.

Although there are no compelling starting points for this selloff, we'll use 3.9975, the best of a mediocre lot, to tell us where the futures might turn. My worst-case target is 2.612, subject to a possible midpoint pounce and corroboration at 3.00. The latter number can serve as a minimum downside objective; an upthrust to 3.4950, the price where bulls would regain the upper hand.

A powerful downdraft in commodities has brought March Corn down to within a hair of a 644.50 traget disseminated here a while back. Traders can still bottom-fish that number as originally advised if camouflage is used to limit risk, but this recommendation should be considered expert play, since the dramatic selling in precious metals could create air pockets in the "softs."

With a swift plunge of more than $10, December Crude has crushed the $78.60 midpoint support of a target I gave here a while back, bringing into focus its 'D' sibling at 66.25 (see inset). That is now our minimum downside objective, but the case would become even stronger if the futures return to 78.60 in the days ahead.  A secondary target at 68.21 should be considered and , like the higher number, be used to bottom-fish. It comes from the one-off  'A' at 99.77, but if it were to be exceeded by as little as 60 cents, 66.25 would be in play.  There is also a minor target at 70.67 shown in the chart, and it too could foster a tradable bounce. _______ UPDATE (October 4): The futures have indeed rallied to 78.60 -- exactly -- affirming the accuracy of the more important downside target at 66.25.  If and when the December contract gets down there, we should be prepared to bottom-fish aggressively. _______ FURTHER UPDATE (October 5, 7:30 p.m.):  The futures eventually moved higher, but the 66.25 target should still be considered affirmed.  For now, though, will have to wait and see if the rally flies or dies. My hunch is that it's a hoax.