Thursday, November 1, 2012

There is nothing to like about December Gold's recent failure to hurdle March's 1800.90 peak -- a failure whose bearish implications were compounded when, after a brief pullback, a second run at the peak also fell short. The next opportunity we might have to determine whether bulls can get traction lies at 1665.30, the midpoint support of the pattern shown. It can also serve as our minumum downside target for the near term and a place to try bottom-fishing, tightly stopped. Alternatively, but unlikely, would be a strong reversal from somewhere above 1665.30 that vaults the internal and external peaks that I've labeled. An unpaused thrust exceeding both would be strong evidence that the consolidation begun a little more than a year ago has ended.

This morning's touts offer a detailed analysis and chart for the Dow Industrial Average so that you can see for yourself exactly what must happen for the blue chip average to get in gear for a 2000-point rally to 14969.  That's a Hidden Pivot target that I've headlined here before, and even if it seems incredible from a fundamental standpoint, we need to pay close attention to the technical signs over the next week or two, since they cannot lie.

Although Hidden Pivot signs are very bullish for the E-Mini S&Ps, implying indirectly that my 14969 Dow target is still very much in play, the Dow Average itself has unfurled a yellow warning flag.  Notice how the recent high at 13661 fell just 5 points shy of its 13666 'D' target.  Moreover, the high that had preceded it -- 13339 on May 4 -- occurred precisely at its Hidden Pivot target, 13339. Taken together, these two bullseyes lend inarguable authority to the pattern itself as well as to the obvious fact that it is spent. Because it took more than two years for the pattern to play out, the 13666 Hidden Pivot should show considerable stopping power. However, if the Dow comes roaring back within the next couple of weeks, blowing through 13666, it would be unmistakable evidence that a 2000-point rally to 14969 is indeed possible, notwithstanding the economy's seeming slide back into recession.

We hold eight December 40-45 call spreads that were acquired for nothing but which could produce gains of as much as $4000 if SLW is trading $45 or higher come December  21.  Yesterday's surge, which created a bullish impulse leg on the hourly chart (see inset), was the first encouragement we've had in weeks. If it bulls back in the manner shown, bulls who have been looking for a belated entry opportunity may get their chance.  _______ UPDATE (11:12 p.m. EDT): The rally looks likely to provide a free ride to at least 41.14, the Hidden Pivot target of the pattern shown. _______ UPDATE (November 5, 10:40 p.m.):  After peaking at 41.30, 16 cents above our target, the stock has relapsed to a so-far low of 38.40.  This is disappointing, although the tedious chop since late September's 36.33 low is still technically a consolidation. It would take an unbroken fall exceeding 36.33 to change that._______ UPDATE (November 12, 1:32 a.m. EST): On the daily chart, resistance looms in the form of two hidden Pivots that lie, respectively, at 41.97 (A=36.33 on 9/26; B=40.91 on 10/5); and at 42.13 (A=37.39 on 10/24; p=40.35).

Yesterday's burst of exuberance on the opening proved short-lived -- a reminder, perhaps, that the Keynesian boost the economy will receive from rebuilding what the hurricane destroyed will be heavily countered by a debt implosion that has finally begun to weigh on corporate earnings. The rally was nonetheless bullishly impulsive and will remain so as long as it doesn't sink beneath its starting point, Monday's 1393.00 low. Camouflageurs may find opportunity zooming down to the 3-minute chart once the p midpoint shown has been exceeded. _______UPDATE (10:45 a.m. EDT):  On the 3-minute chart, in pushing past the 1411.25 midpoint, the futures popped a nicely tradable pattern, A=1409.00 (9:33 a.m.), B=1413.75, C=1411.25. If you took the 1412.25 entry signal, take a 50% profit now, around 1422.50, and let me know in the chat room so that I can establish a tracking position for your further guidance.

The markets will be limping badly when they open for trading on Wednesday, numbed  by the destructive power of Hurricane Sandy. The cleanup is going to take many weeks if not months, and cities up and down the East Coast will be in a daze until basic services have been restored. Pumping out the saltwater that gushed into tunnels and subways will be relatively easy compared to fixing and replacing electrical switches and components. Because New York’s subway system is very old, many of the parts that will be needed are no longer available. Of course, the trains will run again, and soon, but how smoothly is a question that looms large for those who live in, and commute to, New York City. Although it will be a while before we can know the extent of the economic damage, the markets themselves cannot but give an instant assessment when stocks start to trade Wednesday morning. The shares of property and casualty insurers are all but certain to dive, but there will be a bullish offset in stocks tied to the rebuilding effort.  The cities themselves will be under enormous financial strain to rebuild transit systems, roads and beaches, and the logistical challenge to FEMA in particular will be considerable. President Obama has promised that there will be as little red tape as possible, and there is no doubting that he intends to make good on that promise. A Keynesian’s Dream On Wall Street, pent-up demand could cause the markets to be quite volatile in the days ahead, especially because the four-day trading hiatus has occurred in the middle of the Q3 earnings season. My hunch is that the remainder of the week will see a continuation of the bearish trend in stocks, perhaps with an added kicker from the storm.