Speaking as a permabear who sees no chance whatsoever that the U.S. economy will be able to avert a deflationary collapse within the next few years, you can probably imagine what a delightful diversion it has been for me to have had reason to tout an extravagantly bullish, 13045 target for the Dow Industrial Average. The target is a compelling Hidden Pivot that comes from the long-term charts, and I first promoted it late last summer under the headline, “Is Dow Staging/For a Moon Shot?” At the time, the blue chip average was trading more than a thousand points lower. So far, it has come within 431 points of the target, topping last week at a marginal new high of 12614. From a purely mechanical standpoint the target is still valid, since the “midpoint” pivot with which 13045 is associated was bulldozed months ago by the still-rampaging bull.

Even so, we are impelled by the stock market’s recent behavior to remind ourselves that 13045 is a prediction, not a promise. Start by recalling the headline atop yesterday’s commentary: “Dirtball Indicator Points to a Rally”. In case you missed the original analysis, the “dirtball factor” was said to be evident in the form of footprints on Citigroup’s intraday charts. Specifically, where signs of distribution were clear just a couple of weeks ago, more recent price action in the stock strongly hinted of accumulation..

Citi Bucks Trend

There was obviously some merit in this observation, since Citi was one of relatively few stocks that bucked yesterday’s broad weakness in the averages. Indeed, at one point the stock’s behavior seemed anomalous, since it was up more than a dollar when the Dow was off nearly a hundred points. But one stock, even a key bellwether like Citi, does not a market make, and we are therefore obliged to consider other factors which taken together are disquieting. One is Wall Street’s unseemly eagerness to trash two key stocks – Apple and IBM -- that recently reported great earnings.  The Street supposedly was “disappointed” that quarterly earnings just out from these two companies were not even better, but that’s the kind of claptrap we expect to read in a mainstream press that will always be clueless about what makes stocks move up and down.  

Putting aside such dubious explanations, the fact remains that terrific earnings news from two very important companies has failed to boost either of their respective stocks, much less the broad averages. Admittedly, none of this negates the mechanical logic behind my still-valid 13045 DJIA target. But that doesn’t mean we can afford to blithely assume the target will be reached come hell or high water, as I was probably all too eager to suggest just a few short weeks ago. To be perfectly objective, let’s simply stipulate that the creation of a bearish impulse leg on the DJIA’s daily chart (see above) be regarded as a blunt reproach to anyone foolish enough to believe this bull’s potential is limitless. In fact, it is a bull that has flouted so many other serious warning signs, most particularly a statistical picture of incipient real estate deflation, as to cast serious doubt on Wall Street’s very sanity.

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London Seminar

A Hidden Pivot seminar in London appears likely, judging from the strong initial response.  If you’re interested in attending a two-day class there, probably sometime in the spring of 2007, please let me know via e-mail, including your contact information. The cost would be $1,500 USD.