We broke ranks with the permabears decisively last summer, when the Dow Industrials were trading nearly two thousand points beneath a 13045 target I projected at that time. Ever since, and until yesterday, it had been more than just a little satisfying to watch the Indoos climb relentlessly higher, even as I continued to tell you that the stock market stank to high heaven. I simply pinched my nose and closed my eyes, advised my subscribers to do the same, and up, up, up we went.

In the 1980s, before I acquired from my mentor Ira Tunik the rudiments of what I came to call the Hidden Pivot method, I used to marvel at the way Richard Russell, the grey eminence of guru-dom, could be bullish on the stock market even when he obviously thought it stank worse than a pile of rotting fish.. He had his proprietary Primary Trend Index to keep him honest, and it obviously worked. And while there may have been many good reasons for him and the rest of us to hate stocks at times during the 1980s, as long as the PTI was headed higher Russell stuck to his discipline, never fighting the tape.

Understanding Perversity

So it is with Hidden Pivots:  As long as bullish impulse legs keep manifesting themselves on the lesser charts, we can continue to ride the uptrends blithely to their targets. But – and this is a crucial caveat -- we can not afford to become married to those targets, since they are not absolutes but rather mere benchmarks that help us make plain sense of an otherwise inscrutable and often perversely illogical stock market.

So how does the foregoing apply to the current picture?  Although yesterday’s wildly vicious plunge should have sufficed to wipe the smirk from permabulls’ faces, imagine the satisfaction we bear’s bears must be feeling. To forecasters who have habitually gone against the bullish grain, few things could feel better than the sort of vindication we received yesterday. And the feeling would have been positively exhilarating were it not for my still-unachieved 13045 target in the Dow.  So, now, do we stick with the target because it has kept us on the right side of the market for so long, even against my own, sometimes debilitating, common sense? Or do we jettison it because it may have outlived its usefulness? 

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I propose a middle course:  keeping the target in the back of our minds while we try to leverage current weakness from the short side. (We already hold a token short position in Microsoft). For, strictly speaking, I am unable to conclude from yesterday’s weakness that we are in a primary bear market. For that to occur, the Dow Industrial Average would have to create a bearish impulse leg of weekly-chart magnitude after having failed to achieve an important rally target (i.e., 13045).

In fact, yesterday’s kamikaze dive did not quite fill the bill, since it surpassed only one prior low of weekly-chart degree (see above); the second low, 12072, survived by a wispy 14 points. That may not seem like much, but rules are rules, and they have worked flawlessly so far to keep us on the right side of stocks for a long time. Accordingly, and unless 12072 is breached today or Thursday – an event that could conceivably occur on the opening bell -- we are obliged to give the bull the benefit of the doubt, at least for now.

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Armstrong’s Bullseye

One forecaster who appears to have hit a dead-center bullseye with an arrow he launched nearly a decade ago is Martin Armstrong, a widely renowned forecaster and money manager who happens to be in prison at the moment for stock fraud.  For a graphic explanation of his 8.6-year business cycle, check out the Intraday Notes section at Rick’s Picks. Assuming yesterday’s mini-crash is the start of a major bear market, it would appear that Armstrong called it nearly ten years ago to the exact day. Praise is also due our good friend Peter Eliades, who lavished positive attention on Armstrong’s prediction in his own well-respected newsletter, Stockmarket Cycles.

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Papua  Seminar

(Naked headhunters can be enlarged by clicking on image)

Papua!?  I just wanted to see if you were paying attention. In fact, I’ve received numerous requests to offer a Hidden Pivot seminar in Boca Raton, Florida, though not in New Guinea, and will do so if there is sufficient interest. Please let me know if you would be seriously interested in attending a Florida class.  The two-day session would be held sometime in the Spring of 2007. To get on my mailing list, drop me an e-mail, including your contact information. The cost would be $1,500 USD.