Friday’s broad weakness turned my bullish forecasts to dross, but even so, I have my doubts that the rally has breathed its last. Subscriber Randy J. evidently made a few bucks fading my advice, which was to jump on near-term calls in the Diamonds and QQQs. He wrote as follows: “When you ‘threw in the towel’ and bought calls at-the-market, I had a pretty good idea there would be at least a significant pullback today. You, as a contrarian indicator, kept me on the right side!”  

A smart guy, no question, and what could I say? Actually, this: “Hey, give me a heads up next time, Randy, so that I can get in on the action. Seriously, it's heartening to know that not all of my subscribers got sandbagged this morning as I did. I recommend buying options at-the-market maybe twice a year, if that often, and I commend you for reading this morning's over-eagerness perfectly: ‘threw in the towel’ is exactly what I did, for reasons alluded to in this morning's QQQ post. But I wouldn’t get too cocky about using me as a contrary indicator, since I may be right one of these times.”

‘He’ll Lose His Shirt!’

Another subscriber, Jill H., seemed to think Randy was pushing it too far: “That guy who uses you as a contrarian indicator is going to lose his shirt 90% of the time!” she wrote. “Don't feel badly when unrealistic people expect all your calls to be perfect.

“You may have caught the so-far dollar bottom pretty closely, and your calls on silver are great, both of which I am in. Thanks.  Keep up the great work!  Don't let that kind of subscriber get you down -- the kind who is looking for a guru with a crystal ball on the markets.  He's just expressing his own dashed hopes for the perfect mentor.  It has nothing to do with you.”

Actually, Jill,  I enjoy a little back-and-forth with Randy, who has made some astute calls in the past and seems to be paying very close attention to my published forecasts and strategies. Just that I wouldn’t be eager to sit down at a poker table with him, is all.

‘Bizarre Rally’

Randy came back with the following e-mail, raising some interesting technical questions that I will attempt to answer in Monday’s edition. He wrote as follows: “If I had known I was going to be a ‘guest analyst,’ I would have given you the rest of my analysis. My theory is that small caps have been leading this bizarre rally higher, so I watch ER2, RUT, and the IWM ETF (great trading vehicle, that last) very closely.

“I knew, about as surely as anything could be known, that sentiment dictated a pullback today. So I watched. When the IWM made a beautiful hammer engulfing the 60-EMA on the IWM 15-minute chart in the vicinity of a 0.382 retracement and also yesterday morning's spike high, I bought on the first signs of life.

THE Top?

“I'm giving this rally the benefit of the doubt and will be buying pullbacks until that does not work anymore.  Your call purchase may yet work out, if I'm right.  However, as I write, the launch off the bottom this afternoon has stalled badly at the 50% retracement of the morning's decline, so we may yet go all the way back down and then some.  If that happens, I'll buy again at the 8-EMA on the daily charts, and again at the 21-EMA, both with tight stops. 

“This may be the long, long, long awaited ‘top’, but the bear is going to have to show me his stuff before I even think about shorting into this thing. Meanwhile, any interesting hidden-pivot pullback targets, or rally targets in the IWM or ER2?”

I’ll take a crack at it in Monday’s Touts, Randy. We may have gone in opposite directions on Friday, but clearly, we are not so far apart.