October 2011

Financial consultant Chuck Cohen's (click here to get in touch with him)  excels at interpreting sentiment figures.  Following is his very bullish, contrarian take on the latest data from Hulbert's: "This latest extraordinary Hulbert stock report, along with today's Investors Intelligence report (which reported increasing bearishness among its survey, in spite of a sharp rise in stocks,) reinforces the very bullish landscape for the stock market, and by proxy, the precious metals. This outlook is also reflected in the Hulbert Gold Survey, which is at nearly zero. "I realize that we are all seeing one gloomy announcement and prediction after another, but please rise out of your barricaded cellars, to understand that we are very likely to see a shocking rise in stocks and precious metals. The sentiment among professionals and the public is now approaching the 2009 lows when stocks rallied almost 66% to their highs. "This appears to be heading into markets unlike anything we have ever seen. My strong sense is while almost every pundit is warning of a deflationary depression, we are in a formative shift into hyperinflation."

Crude has rallied nearly 15 percent off early October's lows, implying that the easing of gasoline prices in recent weeks may have run its course. That will probably hold true even if crude turns weak again, since oil prices always seem to rise much more easily than they fall. Regarding the intermediate-term trend, a clear signal looks imminent, since the December futures will either correct here in b-c fashion (see inset) or get second wind for a push above the September 27 high at 85.00.  The latter scenario would create a bullish impulse leg on the daily chart -- the first such bullish sign since August 31.

The peak of yesterday's rally exceeded mid-September's 1214.50 highs by a point-and-a-half, transforming the steep rally of the last two weeks into a bullish impulse leg.  On the daily chart, this is the most bullish event since August 29, when a lesser upthrust similarly "went impulsive."  That rally fizzled a couple of days later when it entered a tiresome, month-long dirge, but it's too early to predict whether this one will fare any better.  However, because it missed breaching 1223.75, a top made on August 31 that is still the highest high achieved since the broad averages bottomed three weeks earlier, there may be a camouflage opportunity to get long in the offing.  I've sketched this out hypothetically so that you can play along if you've got the patience for it.  Want to learn how to nail swing highs and lows precisely, and to manage trade risk with a simple approach? Click here for information about the upcoming Hidden Pivot Webinar on November 16-17 and a $50 discount.

[We wrote approvingly a while back about a think-tank plan that calls for allowing millions of Americans to re-finance their homes, even if underwater, at today’s record-low rates. This gift to debtors would come at the expense of bondholders, who would see their income reduced because of lowered monthly mortgage payments. Sounds like a pretty good idea, right?  Perhaps not, since, as we later came to understand, letting homeowners off the hook would require some very tricky legal maneuvers, some of them unprecedented. Rick’s Picks forum regular John Skerencak (aka “John Jay”) thinks it’s just a bad idea, plain and simple. In the guest commentary below, he responds to the proposal as presented in a recent Wall Street Journal op-ed piece. RA ] Following is my response to a WSJ op-ed piece, “We Can’t Ignore Housing Anymore,” that suggested that a 4% refinancing scheme be enforced by government fiat to free up spending money to boost the economy: You have got to be kidding!  A government edict that would refinance everyone in order to support still-bloated housing prices?  Determining real estate values is the job of the market. The banks and Fannie/Freddie still hold millions of upside-down loans thanks to previously outlawed MBS financing and the $250k/$500k tax-free gains on housing accelerant, as well as ZIRP, and Greenspan/Bernanke cheerleading the entire debacle. Why don't you argue for RICO indictments for the Ponzi tactics of Wall Street instead of pouring more trillions down the rat hole of housing that will only serve to cover up those crimes and enslave mortgage debtors  to overpriced real estate? The U.S. economy is not going to recover because we have been sending  jobs and factories offshore for thirty years while admitting millions of immigrants who have suppressed real wages. The government should acknowledge that their

Silver remains range-bound after its late-September dive, although with higher volatility than was typical before the major highs made in April.  The pattern of higher lows and lower highs on the attached chart shows that little or nothing impulsive has happened since the huge decline in September, which leaves us with no high-probability targets to work with.  Whether the current consolidation will end with a move up or down is also a mystery.  According to our method, there should be a follow-through decline after the September collapse, but the chart tells us nothing about whether this is imminent or whether it will follow an upward move from the narrowing range of the last two weeks.  It wouldn't be very nice of silver to rally by three or four dollars and then to sell off hard, now would it?  We're going to put this scenario in the "don't be surprised" file.  (Posted by Doug "harry" McLagan)

Gold and silver have traded sideways, not far above their late-September plunge lows, for more than two weeks.  These trading ranges might appear very narrow, but the daily charts make clear that volatility has increased recently in these markets.  Yesterday's trading did not alter our forecast, in which both metals probably need to take another significant stab to the downside before the bullish all-clear signal can be sounded.  Yesterday gold narrowly made a new rebound high, and the subsequent selloff and partial recovery gives us an active bullish pattern that aims as high as 1714.50.  That level can be shorted with a stop at 1715.10.  Above there we have a midpoint pivot at 1756.30, mentioned yesterday, which is part of a very large pattern.  A decline to 1615.60 would confirm a pattern that is not quite as large but which gives us a target all the way down at 1402.30.  In the event of another new rebound high, these numbers will also move up.  (Posted by Doug "harry" McLagan)

Apple shares and March Corn yesterday signaled strong rallies ahead in the same way -- i.e., by slightly surpassing external peaks well to the left.  Check out my touts for both, since we'll be looking to jump aboard if the right opportunity should arise.

By exceeding the September 29 peak at 403.00 by 18 cents yesterday, Apple's recovery without Steve Jobs at the helm is belching fire. The rally spike created a legitimate impulse leg on the 240-minute chart, but it also left a slightly higher peak at 403 undisturbed. Pivoteers will see it differently, however, and so we'll be looking for a 'camo' entry opportunity similar to the one sketched out hypothetically in the chart.  I'll try to signal when it's time. Want to learn how to nail swing highs and lows precisely, and to manage trade risk with a simple approach? Click here for information about the upcoming Hidden Pivot Webinar on November 16-17 and a $50 discount.

[Our friend Rich Cash, a seasoned trader who has been through many bull and bear markets, has come up with some eye-popping numbers below for some of our favorite trading vehicles.  Silver at $10 an ounce when the Great Recession becomes something much worse? It’s just speculation now, but the point of the exercise is to mentally and psychologically prepare us for…anything. Read on for an old pro’s take on shifting paradigms. RA ] In August 1987, inspired by fellow Merrill Lynch Alum Arch Crawford and Harmonic Convergence bullish market hysteria, we commissioned a high net worth productive enterprise conclave at the Chemical Club, with its downtown view of the World Trade Centers and Statue of Liberty, all overlooking what was one of the busiest harbors in the world, since displaced by central planning mercantilist Shanghai, Singapore, Hong Kong and 9-11. Our topic was the unpopular if accurate one: The End of the Trend? Our turnout was less than the recent Buffett Obama Wall Street fundraiser at Four Seasons, “Tax Hikes for the Rich.” At the end of the trend, no one wants to hear about the end of the trend.  No one believes it and few bring themselves to trade it. So what if we are in decade-plus equity bear market, gold commodity bull market and  three-decade bond bull-market trends? Is there anyone on the street who thinks it even remotely possible that currently profitable paradigm trends will end? No? And we are unanimous in that. What about a Gedankenexperiment (thought experiment) financial fantasy just for fun and profit? Suppose Long Treasury interest rates, 2.694% as this is written, actually continued down to their current target of 0.8%, dead-as-a-doornail depression levels? Would it be fair to say there might be some changes in other asset prices? No man nor