Wednesday, November 23, 2011

Tuesday's rally was sufficient to lift our immediate gaze to 33.535, a Hidden Pivot midpoint of a large pattern on the intraday charts with potential to as high as 36.415, its 'D' sibling (see inset).  Please note, however, that the modest promise of this uptrend does not negate the more likely scenario of a drop to at least 28.385, an important midpoint support identified here earlier.  For purposes of bottom-fishing, night owls can use a small, impulsive rally on the 15-minute chart that has already created an A-B leg with coordinates, respectively, at 32.105 (11:45 a.m. EDT) and 33.040.

Yesterday's modest rally may have felt encouraging while it was progressing, but check out the hourly chart (inset) before you get too enthused.  My expectation is still for a drop to at least 1627.30, an important midpoint Hidden Pivot, before the December contract finds good traction.  More immediately, because we lack a crystal ball and are therefore always open to the unexpected, we would consider a thrust exceeding the 1714.60 peak-let shown heartening.  It might also create a set-up for a bull trade, since any b-c pullback from some high a tick or two above 1714.60 would make for good camouflage.

The 1199.50 Hidden Pivot proferred here yesterday came within half a point of nailing the intraday high and the start of a so-far 32-point selloff, but our head-fake target was too close to the very round 1200.00 to offer an ideal trading opportunity.  None of this changes my expectation of a fall to at least 1152.25, but there's another, more muted target at 1149.75 that you should consider if you are short, planning to get short, or thinking about bottom-fishing.  Its provenance is shown in the chart accompanying this tout and will probably work best if the implied plunge occurs straightaway.  ________ UPDATE (Friday, 12:11 a.m. EST)):  A post-holiday collusion between institutional pond scum and short-covering halfwits has the Dow up by about 20 points at the moment, notwithstanding the grave implications of Europe's imminent fall. Even though the slightly lower of my two targets was breached by just 2.25 points, that is sufficient to imply that the futures will be bound shortly for the 1015.50 'D' target of a larger pattern (whose midpoint was 1152.25). Click here if you’d like to learn more about the Hidden Pivot Method, including how to identify and trade targets such as the ones given above, and to forecast trends with bold confidence.

Important downside targets have been exceeded by the December Euro and the E-Mini S&P, triggering the "Chopped Liver Rule."   Because these important Hidden Pivot supports were both real and formidable -- i.e., NOT chopped liver -- their breach, even though not by much, means that the trends exceeded them are very likely to continue.

[Our good friend Doug B., a financial advisor based in Boulder, CO, has done well for his clients by keeping them heavily weighted in bonds. In the essay below, he explains why he intends to stick with this strategy even though many of his peers expect a rebounding stock market to outperform fixed-incomes in the years ahead.  For Baby Boomers in particular, the deflationary trend that buttresses Doug’s strategy holds stark implications.  RA] I was prompted to write this comment by the fact that, through Q3 of this year, the total return performance of long-term Treasury bonds has exceeded the performance of the stock market for the trailing 30-year period that began in 1981. I began my career as an "Account Executive" at Merrill Lynch in 1977 when brokers were leaving the business to drive taxicabs. It is a bit startling to think that the "benchmark risk-free long term asset" has won the race for practically the whole time. I have had the opinion for some time that there are better risk-adjusted, total-return opportunities in the bond market than in the stock market. Consequently, I have favored bonds over stocks in my asset allocation recommendations to most clients -- regardless of their risk tolerance or investment objective -- since well before the stock market peaked during the Tech Bubble in 2000. For investors who have a more aggressive capital appreciation objective and higher risk tolerance, I have recommended bonds with very long maturities. For investors who are more inclined toward the stable-income and preservation-of-capital objectives that are more commonly attributed to fixed-income portfolios, I have recommended somewhat shorter maturities. In the final analysis, the prevailing economic and market conditions over the past 12 years have been extraordinarily volatile because of the extreme influence of credit bubbles. Locking in safe income