Friday, May 17, 2013

A longstanding bear-market target at 9.57 remains very much in play, but we should factor in a lesser pattern, equally compelling, that has developed since mid-April. It targets 8.57, and the fact that its 10.87 midpoint pivot was breached yesterday by 19 cents is not a happy sign.

Gold's reversal of a $30 selloff yesterday showed promise, especially since the low had not quite reached my 1363.90 downside target. However, whatever bullish conclusions we might have drawn are getting trashed early Friday morning as the futures head for a likely test of the 1368.00 low. Bulls could regain control with a bullish thrust today exceeding 1397.00, but failing that, the futures will remain a good bet to continue lower for a retest of the much more important low at 1321.50 recorded in mid-April.

Based on the S&P 500’s brash behavior lately, effortlessly blowing past Hidden Pivot resistance points major and minor, we wrote here recently that the fuse could be lit for a 130-point explosion. That would be equivalent to a Dow move of about 1000 points – a spectacular surge, especially if it were to occur over a period of not months but weeks. However, a coldly dispassionate look at the Dow’s monthly chart bolsters the case for an even bigger rally – a 1600-point moon shot.  That would bring the Dow to exactly 16810, and although the target promises to be a great place to fade buyers, we’re not going to risk the farm on it. Nor do we plan on wasting our breath cursing bulls every inch of the way up. If they’re intent on pushing the blue chip average to nearly 17000, there’s no reason to fight the tape, especially since a pile of money could be made betting the pass line. We are hardly alone. Some noted gurus have confidently been predicting Dow 20000 for some time. We would lump them together as publicity-seeking windbags who picked the number 20000 out of thin air simply because it sounds good. Wouldn’t you feel more comfortable buying into such a scenario when it has been endorsed by a forecaster who not only has a very precise target in mind, but who gets nauseated at the very thought that it might be achieved? Too Bullish on Goldman Some will say we’re throwing in the towel, but consider the facts. Although we’ve hated this bull since it took off from 6470 in March of 2009, as traders we have played both the ups and downs of the move -- profiting more, actually, from bullish positions than from bearish ones. Sometimes we have

The rampage that I'd said could end the week is looking more like a quiet consolidation in the wee hours of Friday morning.  This is understandable, given the dour economic news that has crossed the tape in the last two days.  It's also par for the course that the onslaught of bad news seems incapable of generating any real selling, only a shallow correction.  I doubt that stocks will take off today, but camouflageurs should keep 'turnaround Tuesday' well in mind if the goal ahead of the next surge.

For the benefit of paying subscribers, let me add a couple of details to today's commentary concerning a possible 1600-point rally in the Dow.  First, there was a fairly precise pullback from 13608, the Hidden Pivot midpoint associated with the target.  Also, in the chart I've reproduced alongside, you can see why I mentioned 15543 as a place to where we could lay out speculative shorts even though we might expect the Dow to exceed it eventually.