The stock market continues to act as though the U.S. economy will finesse the awesome destruction caused by Katrina as easily as it might a month-long drought in the Corn Belt. Bulls evidently are confident the hurricane will have earned us a respite from Fed tightening, and they are probably right. But will that be enough to sustain an economy that has been running on toxic fumes for the last three years? Again, the answer is yes, probably. But the crucial question is, for how long? and that question is of course unanswerable. Even so, Wall Street imbibed yesterday’s news footage of water being pumped back into Lake Ponchartrain like an alcoholic taking a sip of gin after a month’s abstinence. The Dow Industrials finished the day with a 142-point gain, demonstrating once again that buggering the consensus is what the market does best.

 (Click on chart to enlarge)

In the chart above, the elongated price bar representing Tuesdays action looks like binge drinking, for sure. But let’s not kid ourselves by calling it – as most commentators surely will – a show of exuberance. This is short covering, as plain as can be. However, no less clear is that the rally has the incipient wattage to push the Indoos above early August’s 10719 peak. Those of you who are familiar with my Hidden Pivot method will discern that that would create a robustly bullish impulse leg on the daily chart – one with sufficient thrust to keep the Blue Chip average buoyant, probably, for the remainder of the hurricane season. Which is to say, until the dangerous seasonal influences of late September/October have passed. By then we’d be looking forward to a spirited Christmas rally (even if the cliche-addled headline writers never stop worrying, as they always will, about whether it's going to be a “green” Christmas). We believe in Santa as much as the next guy, but we still think put options might make a better stocking stuffer this year than geegaws from The Sharper Image.

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No Fan of FDR

Here’s a fine howdya do: My friend Larry Amernick’s essay calling for a New Deal II to fix Louisiana and Mississippi drew more mail than I’ve received in the last two weeks for my own views. Quite a few readers took me to task for “my” left-leaning remedies, ignoring the fact that Larry was properly credited at the top of the piece, which appeared in Tuesday’s edition. In retrospect, it seems, I should have stated more explicitly that the views expressed did not necessarily represent those of Rick’s Picks.

As indeed they did not. No fan of Big Government, I’ve been a staunch libertarian since high school, when I was recruited into the poverty program one summer by greedy local administrators who evidently realized that they wouldn’t meet their hiring quota -- and would thereof  be out of their jobs -- unless they took in the sons of the well-to-do. That’s how the local newspaper described me when the scandal exploded. At the time, I knew nothing about LBJ’s grandiose Office of Economic Opportunity. I was working as a stock clerk in the basement of Taber’s Toy-o-Rama, making a princely 85 cents an hour. The government was paying $1.25 for planting trees, and how was I to know the wage differential was the cost of suppressing riots?

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A Rick’s Pick Event

Hidden pivots is the topic of my talk on Thursday, September 8, before the Denver Trading Group, the largest group of individual traders in the country. If you’d like to attend, further information can be obtained by  clicking here.