Tuesday, September 16, 2014

Priceline shares have broken an important Hidden Pivot support on the weekly chart and now look bound significantly lower. If this proves to be the case, then the broad averages are headed lower as well, since they have become completely dependent on frenetic action in the 'lunatic stocks' for buoyancy. For specific details and a precise correction target, check out today's PCLN tout and the chart that accompanies it.

It would appear that Priceline shares are in for yet more weeks of winter, metaphorically speaking.  As you can see, the stock has crushed a midpoint Hidden Pivot support at 1184.05, implying it will now grope its way down to at least 1038.20 in search of traction. If so, don't expect the broad averages to go blithely in the opposite direction, since they depend on the buoyancy of the 'lunatic stocks' to gain loft.  Priceline is a lunatic-sector bellwether, as good an example as you will find of the kind of manipulation that fund managers routinely practice to extract dollars effortlessly from the stock market's gratuitous ups and downs.

Although T-Bond prices have tracked the dollar's ups and downs most of the time, the chart shows that they have occasionally gone their separate ways, at least for a while. One implication is that the dollar's powerful rally since early July is not likely to continue for much longer without eventually exerting an upward pull on T-Bonds. And this is what we expect, since our current rally target for the Dollar Index at 87.98 leaves running room that is almost equal to the impressive rally that has occurred over the summer. Since T-Bond prices move inversely to yields, that would augur lower long-term rates in the future.  Our curiosity about this dynamic is more than merely academic, since we have been recommending a bullish T-Bond play using equity options for leverage. As to why a strong dollar has not sucked more money into U.S. Bonds, it could be because speculative money is being deployed directly in currency bets rather than in such dollar proxies as T-bonds. Whatever the case, our outlook is for much lower long-term rates, notwithstanding all of the fear and anxiety that has come to attend every utterance from the Fed. It is one thing for Yellen & Co. to pretend the economic recovery is strong enough to threaten us with inflation. But that is just the central bank talking its book -- 'managing expectations', as it were. In reality, and as is plainly obvious, the recovery is so weak that even a small upward shift in rates would put the U.S. on the same recessionary track as Europe. In no event should we expect an 'outbreak' of inflation, and even less the kind of economic recovery that might strain the supply of dollars.