We got short at the top on Friday, but how long will Mr. Market let us enjoy the ride? Our vehicle, QQQ put options, nearly ran off the road on Tuesday when the Dow began the day with a 125-point rally. A pullback in the early going shaved that gain by two-thirds, but by early afternoon bulls were beating on the highs, threatening to send bears into a new round of short-covering. The pessimists got a reprieve, however, when something spooked the market late in the session, sending the Industrial Average into a 225-point dive that left it 66 points lower on the day. It was not a session for the faint-hearted. Still, the outcome boosted the value of our put position, leaving Rick’s Picks subscribers in good shape to try to lock in a profit no matter what the stock market does as 2011 draws to an unpredictable close. » Read the full article
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Dow Industrial Average
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The Dow’s failure, after two attempts, to get past the 11717 peak recorded on September 1 is bearish on its face, but technically buyers can keep trying with no penalty as long as the pullbacks don’t ‘go impulsive’ on the hourly chart. That they would do, albeit only mildly, with a print today below 11326; however, a feint beneath the 11051 low from a few days earlier would make for a more impressive jolt to the bullish argument. Notice that yesterday’s selloff doesn’t look so bad on the Indoo’s hourly chart — not that it did on the E-Mini chart either. But rather than speculate on what this might mean, we’ll simply set a screen alert at 11050 to warn of potentially significant trouble.
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A study published here a while back by Rick’s Picks reader Wim Grommen explained how constant tinkering with the components of the Dow Industrial Average has inflated and obscured its true value. Now comes another paper from Wim that shows why a global economic era characterized by high innovation, prosperity and major productivity gains has likely peaked. For the full report click here.
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If you’ve ever suspected that Wall Street stacks the statistical deck to boost share prices, here’s an academic paper that explains exactly how it is done. The author, Wim Grommen, a Rick’s Picks reader from the Netherlands, goes as far as calling the constant recalculating and rejiggering of the Dow Industrial Average a pyramid scheme. Click here for the complete study, which explains how, from a mathematician’s perspective, the Crash of 1929, as well as the exponential rise of U.S. stocks during the 1990s, were brought on by bogus math.
Jitters over Greece’s increasingly dire financial plight are waxing yet again, taking Wall Street traders by surprise if no one else. The Dow Industrial Average dove 303 points Friday on speculation that Greece would fall into default when the new week began. As of late Sunday night, however, there was barely a word about Greece on Google’s news page – only a story about rioting in the streets following enactment of a new, $2.7 billion property tax in the name of austerity. That’s the relatively good news. The bad news is that France, of all countries, was generating scary headlines of its own: Woes at French Banks Signal a Broader Crisis, declared the Wall Street Journal. “France’s largest private-sector banks will likely suffer further credit-rating downgrades this week, the latest sign that the debt crisis on the euro zone’s periphery is slowly infecting the core of the region’s financial system,” noted the article. Just when we thought the panic was about to engulf Spain and Italy, the spinmeisters insert France into the picture as a buffer, a default risk calculated to be at least somewhat less thinkable than the one threatening to inundate France’s two large neighbors to the south. » Read the full article
A Sane Way to Trade Crazy Markets
by Rick Ackerman on December 19, 2011 12:01 am GMT · 21 comments
Does the chart below of the Dow Industrial Average make you feel bullish? Bearish? Neutral? We’re not sure ourselves. Although we’ve been using technical analysis for nearly 40 years, the chart doesn’t speak to us. At best, it leaves us with only a moderately bullish bias for the near term – and a vague feeling that the meaningless price swings that have ruled the markets in 2011 could continue for longer than we would care to imagine, let alone explain This is hard to believe, especially with so many dreadnoughts bearing down on the global economy and banking system. The U.S. is re-entering a recession that never ended for most households. China has hit the brakes in preparation for a slowdown in global trade, and the country’s real estate bubble appears to be deflating with a vengeance. Jihadists are planning naval “maneuvers” in the Strait of Hormuz. Bird flu and the bubbling Yellowstone caldera threaten us with extinction.
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